Zillow rolls out 1% down home loan program
The company said the new program, initially launching in Phoenix, will help ease one of the biggest barriers to entry for buying a home.
- Buyers who qualify will pay 1% down, and Zillow Home Loans will cover an additional 2% to bring the total down payment to 3%.
- The company says this will significantly reduce the amount of time it takes buyers to save up for a home purchase.
- UWM and Rocket Mortgage rolled out similar programs earlier this year.
For buyers facing affordability challenges, Zillow Home Loans is offering a solution: a new program designed to help homebuyers get over the down payment hurdle and into a new home.
Today, the company unveiled its 1% down payment program, which is initially launching in the Phoenix area. Buyers who qualify could bring as little as 1% of the home's purchase price to the closing table, while Zillow Home Loans will kick in an additional 2% to bring the total down payment to 3% — typically the minimum percentage required for a conventional home loan.
The idea is to help reduce or eliminate one of the biggest barriers to entry for purchasing a home, which is saving up for a down payment, the company said in its announcement. This is particularly true for first-time buyers who, given high rent prices, may be struggling to save up enough cash to purchase a home. According to Zillow's own data, the price for a typical home in Phoenix is $412,000.
"The rapid rise in rents and home values means many renters who are already paying high monthly housing costs may not have enough saved up for a large down payment, and these types of programs are welcome innovations in lowering the potential barriers to homeownership for those who qualify," Zillow's senior macroeconomist Orphe Divounguy said in the announcement.
According to Zillow, a buyer who makes 80% of Phoenix's area median income would only need about 11 months to save up for a 1% down payment on a $275,000 home versus 31 months needed to save up 3% of the home's purchase price.
While Phoenix will be the pilot area for the loan program, Zillow did indicate that it is launching the product with "plans to expand to additional markets" in the near future. The program could provide a boost for Zillow's mortgage business, which is down 17% vs. last year as rising mortgage rates have suppressed mortgage applications across the industry.
1% mortgage options increase as affordability challenges grow
Zillow is not the first company to offer a reduced down payment program for budget-conscious buyers. In April, United Wholesale Mortgage unveiled its Conventional 1% Down program to give lenders "a competitive edge when talking to real estate agents." When a borrower puts 1% down, UWM will pay an additional 2%, up to $4,000.
Soon after, Rocket Mortgage launched its One+ program, which offers similar terms. Rocket's program also allows buyers to avoid private mortgage insurance, which is typically required on conventional loans with less than 20% down.