Almost half of recent home buyers have a mortgage rate below 5%

After falling to nearly 6% in September, the average 30-year fixed-rate mortgage is climbing back to 7%, forcing many home seekers out of the housing market. But a new Zillow real estate market study found that nearly half of recent buyers secured a mortgage rate below 5%.

as? According to Zillow, by using creative strategies to achieve home ownership. Without these hacks, many homeowners would still be able to rent.

Mortgage rates have risen from an all-time low of 2.65% in 2021 to a ten-year high of 7.79% in the fall of 2023, which has had a significant impact on buyers’ purchasing power. The typical mortgage payment rose 115% from pre-pandemic levels to peak in May 2024.

Mortgage rates have risen due to inflation and declining home sales. However, this has not led to a reduction in housing prices, which are still near record highs.

Needless to say, high prices and an unpredictable mortgage rate environment create challenges for homebuyers, limiting their options and in some cases preventing them from entering the housing market. However, determined buyers are finding innovative ways to make housing a reality.

According to a Zillow survey, 45% of recent buyers received a rate below 5%. More than one-third (35%) achieved this through special financing offered by sellers or builders. About a quarter made their offer contingent on buying out the interest rate, refinancing at a lower rate after the purchase or borrowing from friends or family.

“This remarkable discovery highlights the creativity of both buyers and sellers navigating today’s dynamic real estate market,” said Amanda Pendleton, Zillow’s housing trends expert. “Buyers are finding innovative ways to secure lower mortgage rates and sellers are offering financing solutions to attract potential buyers. Prospective homebuyers should explore all avenues to lower their monthly payments and make home ownership affordable.”

Strategies for securing a lower mortgage rate

Focus on your credit score: A higher credit score can lead to a lower interest rate. Buyers should work to improve their credit score and maintain it until closing, avoiding new lines of credit or large purchases. Zillow’s rent reporting service can help renters get credit by reporting timely rent.

Consider buying interest rates and mortgage points: Buyers can redeem their mortgage rate or purchase points to lower interest costs. Redeeming rates involves an initial payment at discounted rates, while purchasing points provides ongoing savings. Builders can cover these costs for new homes, but negotiation is also an option.

Increase the down payment: A higher down payment reduces the size of the loan and the risk to the lender, potentially leading to a lower mortgage rate. While saving for a down payment can be difficult, especially for first-time buyers, there are resources available to help. Zillow listings may show available down payment assistance programs.

Consider hacking: Renting out rooms for rental income can help lower mortgage rates. Buyers who included a projected rental income in their mortgage application were more likely to get rates below 5%.

Get acquainted with non-traditional types of loans: In addition to the typical 30-year fixed-rate mortgage, options such as an adjustable-rate mortgage (ARM) offer lower rates initially that adjust after a certain period. Shorter loan terms, like a 15-year mortgage, have higher monthly payments but lower interest rates. Consulting with a loan officer can help buyers assess affordability and make informed decisions based on their budget.