If you’ve been thinking about buying a home you’re well aware that mortgage rates have climbed way higher than they were even a couple of years ago. In addition, even though many buyers hoped that higher rates would at least lead to lower home prices, that hasn’t been the case, and prices are still holding strong in many areas.
So it’s completely understandable if you’re a little envious of buyers who bought a few years ago when rates were lower, and feel like you missed the opportunity to buy a home with a lower rate.
Unfortunately, mortgage rates in the 2-3% range probably aren’t coming back around anytime soon, or possibly ever again.
However, even with rates currently hovering around 7%, you might be able to get one with a rate below 5%!
A recent report from National Mortgage Professional reveals some unexpected good news for today’s buyers: nearly half (45%) of buyers who purchased homes within the past year managed to secure a mortgage rate below 5%!
How’d they pull that off, with rates officially floating around 7%? Turns out, there are quite a few ways to score a lower rate even in this environment. Here are some of the most common ways buyers were able to lock in a lower rate than other current buyers:
- 35% got a lower rate because the seller or home-builder offered them special financing.
- 26% of those surveyed made their offer contingent on getting a rate buydown.
- 25% refinanced after purchasing to obtain a lower rate.
- 23% borrowed from a friend or family member at a favorable rate.
That’s a lot of buyers, using a variety of approaches to secure a lower rate, so there’s certainly hope you can too! Let’s take a at some tips that might help you secure a lower rate in this market:
- Look for Special Financing from Sellers and Builders – Some buyers scored lower rates thanks to sellers or builders offering rate buydowns as part of the sale. For example, a builder eager to move inventory may be willing to absorb part of the rate or provide temporary rate reductions to sweeten the deal. Another option could be through a homeowner who owns their house outright and is willing to “hold paper” and let you pay them for the house over time at a more favorable rate than a mortgage company would lend you money.
- Negotiate a Rate Buydown – Rate buydowns can be financed by either the buyer or seller, and they allow buyers to pay an upfront fee to “buy down” the interest rate. These typically lower your rate temporarily for the first few years of the loan. Buyers can negotiate these as part of their offer, especially when sellers are motivated to close quickly.
- Buy Points – This is similar to a rate buydown, but the lower rate is permanent in nature. Buyers with extra funds often purchased mortgage points upfront, which reduces the interest rate over the loan term. This is especially beneficial for those planning to stay in the home for many years, as it creates long-term savings.
- Take Advantage of Adjustable-Rate Mortgages – ARMs can offer lower initial rates than fixed-rate loans, giving buyers more flexibility. Buyers expecting to refinance within a few years often choose ARMs to save on their initial payments, with plans to lock in a fixed rate later.
- Lock In at the Right Time – Some buyers caught rates during short dips or negotiated early rate locks with lenders. Timing matters; having a keen eye on the market—or working with an agent who does—can allow you to secure a rate before the market shifts again.
- Boost Your Credit Score – Buyers with high credit scores have access to lower rates. Small steps like paying down debt or addressing errors on your credit report can lead to more favorable rate offers from lenders.
- Explore Different Loan Programs – Government-backed loans, like VA and FHA loans, provide opportunities for many buyers to access lower rates. Programs like these are designed to offer competitive rates to eligible buyers, particularly veterans or first-time buyers.
- Work With a Mortgage Broker – Mortgage brokers are able to look at a wide range of lenders and loan programs that aren’t easy for consumers to find on their own. For some buyers, brokers were able to find and negotiate sub-5% rates, thanks to their extensive lender networks.
- Consider Smaller or Regional Lenders – Buyers also benefited from exploring non-traditional lenders, such as regional banks or credit unions, which sometimes have unique offers and rate specials.
There’s no guarantee that you’ll be able to secure a rate below 5%, but just knowing that nearly half of recent buyers managed to do so is a step in the right direction. Just knowing it’s possible and armed with some different approaches to consider will increase your chances of obtaining a lower rate.
However, it may mean making some strategic decisions along the way. For example, if securing the lowest rate is a top priority, you may need to consider homes that might not initially be your dream pick but offer more room for negotiation.
Also keep in mind that getting a better rate often involves some upfront costs, such as buying points. It’s crucial to weigh these costs carefully, especially if you don’t plan to stay in the home for the long term. You want to make sure you’ll own the home long enough to benefit from the overall savings generated by however much you need to spend upfront.
The Takeaway:
With today’s high rates, securing a mortgage below 5% might seem out of reach—but almost half of recent buyers have done it! Tactics like negotiating rate buydowns, seeking special financing from sellers, buying points, or choosing adjustable-rate mortgages can help. Just remember, some of these options require upfront costs, so assess if the long-term savings align with your plans. Partnering with a knowledgeable mortgage broker and real estate agent can also give you an edge in finding favorable rates and properties that suit your timeline and goals.