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FILE- Home “For Sale” sign in front of a residential home in Queens, New York. (Photo by: Lindsey Nicholson/UCG/Universal Images Group via Getty Images)

SEATTLE – Despite the fact that average mortgage rates are much higher, almost half of home buyers last year’s rate was under 5 percent, according to a new survey by Zillow.

Mortgage rates hit an all-time low of 2.65% in 2021 and rise to a decade high of 7.79% by the fall of 2023. Zillow said the average mortgage payment rose 115% from from before the pandemic to a recent peak in May 2024.

This big rate hike has hurt the options for homebuyers and for some, prevented them from buying altogether.

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

The average 30-year fixed-rate mortgage is currently 6.54%, according to FreddieMac. of Zillow study found that 45% of people who purchased a home in the past year were able to secure a rate below 5%.

“This surprising finding really underscores the creativity of both buyers and sellers navigating today’s dynamic real estate market,” Amanda Pendleton, Zillow’s home trends expert, said 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,” added Pendleton.

Zillow’s survey 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 a rate reduction (26%), which may involve purchasing discount points (or mortgage points) at closing and paying a one-time fee upfront.

A quarter of those surveyed refinanced to a lower rate after buying, and 23 percent said they borrowed from a friend or family member.

How to get a lower mortgage rate

I hope you move? There are several ways potential buyers can get a lower mortgage rate in the home buying process.

• Focus on your credit score. A higher credit score often leads to a lower interest rate, Zillow noted, saying buyers should prioritize building their credit score and maintaining it until closing. This means you don’t open new lines of credit or make big purchases like a new car.
• Consider redeeming installments and mortgage points. Another option may be to buy back your mortgage or purchase mortgage points to reduce the interest costs on a loan. Zillow explained how a rate reduction involves a down payment for reduced rates in the first few years of the loan, while buying points leads to ongoing savings on monthly payments throughout the life of the loan. “When purchasing a new construction home, the builder can cover these costs as incentives,” Zillow said. “If that’s not the case, negotiating with the seller or builder is always an option.”
• Put more money on the house. A larger down payment lowers the loan size and risk to the lender, which can often mean a lower mortgage rate. Zillow noted that this can be a challenge for many, as it found that 44 percent 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 that of recent first-time buyers who used a mortgage, 60 percent received some kind of down payment assistance.
• Consider “house hacking”. “If it aligns with the buyer’s lifestyle, renting out rooms in their home to produce rental income can lower their mortgage rate,” Zillow said. “Recent mortgage buyers who included estimated rental income in their application were more likely to secure a mortgage rate below 5% than those who did not.”
• Research non-traditional loan types. A 30-year, fixed-rate mortgage is the most common type of loan, but there are others that homebuyers can consider. An adjustable-rate mortgage (ARM) features a lower initial interest rate that can change to the market rate after a fixed period, typically three, five, seven or 10 years, Zillow said. The main downside to an ARM is that rates could be higher at the end of the initial term, resulting in higher payments down the line. A shorter loan, such as a 15-year mortgage, comes with much higher monthly payments because the loan is paid off faster, but also has lower interest rates.