Nearly Half of Recent Buyers Have Mortgage Rates Below 5%, Says Zillow — Here's How

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FILE: “House Sold” sign in front of an apartment building in Queens, New York. (Photo by: Lindsey Nicholson/UCG/Universal Images Group via Getty Images)

SEATTLE – Although average mortgage rates were much higher, nearly half of homebuyers last year reported having an interest rate below 5%, according to a new survey from Zillow.

Mortgage rates reached a historic low of 2.65% in 2021 and rose to a multi-decade high of 7.79% by the fall of 2023. Zillow said the average mortgage payment has increased 115% from before the pandemic and reached a current high in May 2024.

This sharp increase in interest rates has impacted homebuyers' options and has discouraged some from purchasing a home at all.

But according to Zillow's latest research, some determined buyers have found creative ways to afford homeownership in the last 12 months.

The average 30-year fixed-rate mortgage is currently 6.54%. according to FreddieMac. Zillows Opinion poll found that 45% of people who bought a home last year were able to get an interest rate below 5%.

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

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

Zillow's survey found that more than a third (35%) of these new buyers were able to get a better interest rate because the seller or homebuilder offered them special financing.

About a quarter made their offer contingent on an interest buyback (26%), which can include purchasing discount points (or mortgage points) at closing and paying a one-time fee upfront.

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

How to get a lower mortgage rate

Would you like to move? There are several ways potential buyers can get a lower mortgage rate when purchasing a home.

• Focus on credit score. A higher credit score often leads to a lower interest rate, Zillow noted, saying that buyers should prioritize improving their credit score and maintaining it through closing. That means don't open new lines of credit or make any big purchases, like a new car.
• Consider installment purchases and mortgage points. Another option may be mortgage interest buybacks or the purchase of mortgage points to reduce the interest cost on a loan. Zillow explained that an installment purchase involves paying up front for reduced interest rates in the first few years of the loan, while purchasing points results in ongoing savings on monthly payments throughout 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, negotiations with the seller or developer are always an option.”
• Put more money down for the house. A larger down payment reduces the loan size and risk to the lender, which can often result in a lower mortgage rate. Zillow noted that this can be challenging for many, as it found that 44% of first-time buyers used either a gift or a loan from family or friends. There are also resources for down payment assistance programs. Zillow said 60% of recent first-time buyers who took out a mortgage received some type of down payment assistance.
• Consider “house hacking.” “If it fits with a buyer’s lifestyle, renting out rooms in their home to generate rental income can lower their mortgage rate,” Zillow said. “New mortgage buyers who included expected rental income on their application were more likely to secure a mortgage rate below 5% than those who did not.”
• Find out about non-traditional types of loans. A 30-year fixed-rate mortgage is the most common type of loan, but there are others that homebuyers may consider. An adjustable-rate mortgage (ARM) is characterized by an initial lower interest rate that can change to the market rate after a fixed period of time, typically three, five, seven or 10 years, Zillow said. The main disadvantage of an ARM is that interest rates can be higher at the end of the first period, leading to higher payments later. A shorter loan term, for example a 15-year mortgage, has significantly higher monthly payments because the loan is paid off more quickly, but also has lower interest rates.