Mortgage rates today edge higher as housing market leans on starter homes

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Mortgage rates ticked up to start August, adding pressure to an already strained housing market. While affordability remains a concern nationwide, a growing number of buyers are turning to starter homes as a more realistic entry point into homeownership.

Current mortgage rates for August 1, 2025

According to Zillow Home Loans, today’s average mortgage rates are:

  • 30-Year Fixed: 6.625% (APR: 6.772%)
  • 15-Year Fixed: 5.750% (APR: 6.014%)
  • 30-Year FHA: 6.125% (APR: 6.829%)
  • 30-Year VA: 6.500% (APR: 6.781%)
  • 20-Year Fixed: 6.500% (APR: 6.725%)
  • 7-Year ARM: 7.375%

These rates reflect modest increases across most loan types compared to earlier this summer, particularly in fixed-rate products.

Why mortgage rates are climbing

Mortgage rates continue to hover above 6% amid persistent inflationary pressure and Federal Reserve caution. While the Fed has paused hikes for now, it has not ruled out future increases if inflation rebounds.

Other contributing factors include:

  • Uncertainty around upcoming economic data
  • Volatility in bond yields
  • Ongoing global financial tensions

How buyers are adapting: Rise of the starter home

A new Redfin report shows a surprising bright spot: starter home sales rose 3.9% in June year-over-year, even as mid-tier and luxury segments saw declines. The shift highlights how affordability concerns are reshaping demand.

Key market trends:

  • Starter homes (median price: $260,000) saw the highest inventory growth, up 19% YoY.
  • Luxury home sales dropped 6.7%.
  • Cities seeing the largest spike in starter home listings include:
    • Las Vegas (+53.6%)
    • San Diego (+44.1%)
    • Phoenix (+43.1%)

What’s driving demand for starter homes?

With mortgage costs high and wages lagging, more Americans are adjusting their expectations.

“In a market where it’s difficult for most Americans to afford a dream home, many are turning toward starter homes,” said Redfin economist Sheharyar Bokhari.

Starter homes, while modest, remain attainable for first-time buyers without equity from previous home sales. However, rising demand is also nudging prices upward—starter home prices increased 3.1% year-over-year, outpacing larger home categories.

Tips to lower your mortgage rate

Borrowers still have options to lower their interest rate despite today’s environment:

  • Boost your credit score to unlock better rates
  • Increase your down payment to reduce lender risk
  • Keep a low debt-to-income ratio for more favorable terms
  • Shop around and compare lenders before locking in

Zillow Home Loans also offers a BuyAbility℠ tool for customized rate estimates based on your financial profile.



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