Zillow says recent homebuyers are getting creative to combat high mortgage rates

With mortgage rates moving closer to 7% once again, recent homebuyers are finding creative ways to lock in lower rates. 

A survey from Zillow conducted between March and September of this year found that 45% of recent buyers — half of whom bought a home in the past year and the other half in the past two years — secured rates below 5%. This comes despite rising mortgage rates and a 115% increase in the typical mortgage payment compared to pre-pandemic levels.

The survey details how borrowers achieved these lower rates. About one in three (35%) received special financing, while 26% made their purchase offer contingent upon a lower rate. One in four refinanced into a lower rate after purchasing and 28% benefited from assistance by friends or family.

Zillow home trends expert Amanda Pendleton noted a trend of new buyers thinking outside the box when it comes to mortgage financing. She urged current shoppers to follow suit and identify ways to lower their monthly payments before locking in a rate. 

“This surprising finding really underscores the creativity of both buyers and sellers navigating today’s dynamic real estate market,” Pendleton 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.

“Prospective home buyers should explore all the ways they can reduce their monthly payment to bring homeownership within reach.”

The report offers specific tips for homeowners looking to lock in lower rates. This includes boosting credit scores, looking into rate buydowns and mortgage points, upping their down payment and even “house hacking” by using potential rental income to qualify. There are also nontraditional loan types such as an adjustable-rate mortgage (ARM). 

Borrowers with mortgage rates between 4% and 5% were the most creative when it came to lowering their rates. They targeted ARMs, shorter-term loans and projected rental income to quality for lower rates. About 60% of buyers received lower rates when they used projected rental income, while 57% went after ARMs and 63% pursued down payment assistance.

Shorter-term loans, such as 15-year mortgages, also grew in popularity at 65% of these low-rate buyers, compared to 45% of all buyers.

Zillow urged consumers to consult with a loan officer before proceeding with any option. Mortgage rates continue to fluctuate amid a shifting economy, and creative borrowing strategies may become more important for first-time buyers. The survey indicated a trend of buyers unwilling to accept high mortgage rates on their starter homes.