
Nearly Half Of Buyers Scoop A Mortgage Rate Below 5%

Secure a lower rate from home builders, sellers, or by borrowing from friends or family members.
A new Zillow survey reveals that 45% of buyers who purchased homes in the past year have a rate below 5%. But rates have been hovering closer to 7% all year, right? So how were some lenders able to pull a 5% rate out of their back pocket?
Looking back, average mortgage rates swung from historic lows of 2.65% in the fall of 2021 to a decade-long high of 7.79% by the fall of 2023, which majorly impacted home shoppers' buyer power. Within that time frame, the typical mortgage payment rose by 115% from pre-pandemic times to a recent peak in May 2024.
The drastic swings in market conditions over the past two years have given buyers a bad case of whiplash. But despite the present hurdles, plenty of determined buyers are finding creative ways to afford their dream of homeownership.
Among the buyers who secured a rate below 5% in the past year, more than one-third (35%) could get a lower rate because the seller or home builder offered them special financing. About one-quarter either made their offer contingent on a rate buydown (26%), refinanced to a lower rate after buying (25%), or borrowed from a friend or family member (23%).
“This surprising finding really underscores the creativity of both buyers and sellers navigating today's dynamic real estate market,” said Amanda Pendleton, Zillow's home trends expert. “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. Prospective home buyers should explore all the ways they can reduce their monthly payment to bring homeownership within reach.”
Zillow also provided a few tips to help loan officers secure a lower mortgage rate for their clients. Here are a few ways loan officers can think outside the box:
- Loan officers may know it but not every borrower is aware that a higher credit score often leads to a lower interest rate. Zillow advises buyers to prioritize boosting their credit score and maintaining it all the way through closing, by refraining from opening new lines of credit or making large purchases.
- Rate buydowns and mortgage points can be a saving grace for struggling buyers, by lowering interest costs on their loan. A rate buydown involves an initial payment for reduced rates in the early loan years, while buying points results in ongoing savings on monthly payments throughout the term of the loan. When buying a new-construction home, the builder may cover these costs as incentives. If this is not the case, negotiating with the seller or builder is always an option.
- It's crucial for home buyers to evaluate the break-even timeline — the point at which the savings from these strategies equal the associated costs.
- Increasing the down payment decreases the loan size and the risk for the lender, which may mean they can offer a lower mortgage rate. However, saving for a down payment to even qualify for a loan can be a significant challenge for home buyers — 44% of first-time buyers used either a gift or loan from family or friends. But resources are available to alleviate the burden. Among recent first-time buyers who used a mortgage, 60% received some sort of down payment assistance.
- House hacking is a clever strategy to achieve homeownership if it aligns with a buyer's lifestyle; renting out rooms in their home to produce rental income can reduce their mortgage rate. Recent mortgage buyers who included projected rental income in their application were more likely to secure a mortgage rate below 5% than those who did not.
- Stepping outside the box to different loan types may also help. An adjustable rate mortgage (ARM) features an initial lower interest rate that can change to the market rate after a fixed period -- typically three, five, seven or 10 years.
- Buyers may also try to get a shorter loan term, such as a 15-year mortgage. Short-term loans come with much higher monthly payments but lower interest rates, meaning less of a homeowner's monthly payment is going toward interest.