Nearly half of recent buyers have mortgage rates below 5%, Zillow says. Here’s how

SEATTLE – Even though the average mortgage interest rate is much higher, almost half of that home buyers reported a rate of less than 5% last year, according to a new study from Zillow.

Mortgage rates hit an all-time low of 2.65% in 2021, rising to a decade-long high of 7.79% in the fall of 2023. Zillow said the average mortgage payment increased 115% from before the pandemic, reaching a recent peak in May 2024.

This large interest rate increase has impacted homebuyer options, and for some, it has deterred them from purchasing altogether.

But according to Zillow’s latest research, some determined buyers have found creative ways to afford their own homes over the past 12 months.

The average 30-year mortgage rate is currently 6.54%. according to FreddieMac. Zillows questionnaire found that 45% of people who bought a home in the past year managed to get a rate below 5%.

“This surprising finding truly highlights the creativity of both buyers and sellers navigating today’s dynamic real estate market,” said Amanda Pendleton, housing trends expert at Zillow, in a statement.

“Buyers are finding innovative ways to secure a lower mortgage rate, but sellers are also coming up with financing solutions to make their property more attractive to a potential buyer,” Pendleton said.

Zillow’s research found that more than a third (35%) of these recent buyers were able to get a lower rate because the seller or homebuilder offered them special financing.

About a quarter made their offer conditional on an interest rate buydown (26%), where discount points (or mortgage points) can be purchased at closing and a one-time fee must be paid up front.

A quarter of respondents refinanced at a lower rate after purchasing, and 23% said they borrowed from a friend or family member.

How to get a lower mortgage rate

Hoping to move? There are several ways potential buyers can get a lower mortgage rate during the homebuying process.

• Focus on credit score. A higher credit score often leads to a lower interest rate, Zillow noted, saying buyers should prioritize increasing their credit score and maintaining it during the closing period. This means you shouldn’t open new lines of credit or make major purchases, such as a new car.
• Think of interest rate buydowns and mortgage points. Buying mortgage interest or purchasing mortgage points to reduce interest costs on a loan may be another option. Zillow explained how a rate buydown involves paying upfront for reduced rates in the early years of the loan, while purchasing points results in ongoing savings on monthly payments over the life of the loan. “When purchasing a new construction home, the builder can cover these costs as an incentive,” Zillow said. “If this is not the case, negotiating with the seller or builder is always an option.”
• Put more money on the house. A higher down payment reduces the size of the loan and the risk for the lender, which can often mean a lower mortgage interest rate. Zillow noted that this can be a challenge for many, as it found that 44% of first-time buyers used a gift or loan from family or friends. There are also resources for down payment assistance programs. Zillow said that of recent first-time buyers who used a mortgage, 60% received some form of down payment assistance.
• Consider “house hacking.” “If it suits a buyer’s lifestyle, renting out rooms in their home to generate rental income can lower mortgage rates,” according to Zillow. “Recent mortgage buyers who included expected rental income in their applications were more likely to get a mortgage rate below 5% than those who did not.”
• Investigate non-traditional loan types. A 30-year fixed-rate mortgage is the most common type of loan, but there are other loans homebuyers can consider. An adjustable-rate mortgage (ARM) has an initial lower interest rate that can change to the market rate after a fixed period, usually three, five, seven or 10 years, Zillow said. The main disadvantage of an ARM is that rates may be higher when the initial period ends, which can lead to higher payments later. A shorter loan term, such as a mortgage with a term of 15 years, is associated with much higher monthly costs because the loan is paid off more quickly, but also has a lower interest rate.