Zillow Home Loans Launches a 1% Down Mortgage

Today, Zillow announced its “1% Down Payment” loan program, making them the latest lender to join the near-zero down fray.

The move comes as mortgage rates hit 20-year highs, with the 30-year fixed now being quoted in the 7% range for many borrowers.

Of course, this program simply addresses the down payment burden, but any little bit helps at the moment.

Initially, the new offering will be available to applicants purchasing a home in the state of Arizona only.

But the company does have plans to expand to other states if the pilot goes well.

How Zillow’s 1% Down Payment Loan Program Works

Zillow notes that most of the country is in the midst of an affordability crisis, thanks to a combination of high asking prices and equally high mortgage rates.

At the same time, renters are grappling with asking rents that are 3.6% higher than they were a year ago, making it difficult to set aside funds for a down payment.

This means 64% of first-time home buyers are putting down less than 20% when purchasing a property, and 25% are only able to muster 5% or less.

Many others don’t even have the necessary funds to bring in a minimum contribution, which could delay their home purchase.

Looking at a hypothetical $275,000 purchase in Phoenix, Arizona, it would take only 11 months for someone saving 5% of their income (earning 80% of area median income) to save 1% down payment.

Meanwhile, someone who needed a 3% down payment would see that timeline rise to 31 months, which obviously could delay starting a family, or simply the goal of homeownership.

That’s where this new loan program comes in.

Similar to other 1% down mortgages, the lender chips in 2% of the down payment to effectively make it a 3% down loan.

This is important because doing so will allow borrowers to meet the minimum 3% down payment required for conforming loans, such as those backed by Fannie Mae and Freddie Mac.

It also gives the home buyer instant equity, along with a slightly smaller loan amount. Taken together, it could make homeownership attainable for more borrowers.

Who Qualifies for Zillow’s 1% Down Mortgage?

While Zillow has so far been a little light on details, it appears to be geared toward those with limited incomes in the state of Arizona.

As noted, it could expand to other states, but at the moment they’re trialing it in the Copper State.

My assumption is there are also income limits, as the 2% down payment appears to be a grant from the company.

Similar to Rocket Mortgage ONE+, you might only qualify if making 80% AMI (or less), which you can look up here.

Additionally, you will likely need to meet other conforming loan requirements, such as a minimum 620 FICO score.

And the program is probably reserved solely for those purchasing a primary home, including single-family residences and condos. No second homes or investment properties.

It’s unclear if you need to be a first-time home buyer as well, which means no ownership interest in the past three years.

In order to meet the 97% loan-to-value ratio (LTV) maximum, Zillow Home Loans will contribute 2% on top of your 1% down payment at closing.

There will definitely be a max dollar amount contribution here as well, as there is with other programs. That too hasn’t been divulged of yet.

Is This a Good Deal?

While we don’t have all the details, it appears to be similar to other 1% down mortgage options currently available with other lenders.

And some of the existing alternatives might actually offer a little bit more, such as reduced closing costs, no private mortgage insurance, and more.

So to determine if it’s better, you might start by looking at the mortgage rates and closing costs, collectively known as the mortgage APR.

In other words, don’t get stuck on the down payment. Look at the big picture. As noted, there are other lenders that provide grants toward the down payment.

In July, Guaranteed Rate launched OneDown, which offers a 2% grant (up to $2,000) and $1,000 toward closing costs.

A month earlier, Guild Mortgage announced 1% Down Payment Advantage, which comes with a temporary buydown the first year. Their non-repayable grant is up to $5,000.

We’ve also got a similar offering via the mortgage broker channel from wholesale lender United Wholesale Mortgage (UWM). It is tougher on the maximum income (up to 50% AMI), but offers up to $4,000.

Lastly, there’s the U.S. Bank Access Home Loan, which comes with up to $12,500 in down payment assistance if you buy in a minority census tract.

To sum things up, there are lots of homebuyer assistance programs out there, especially now that home prices and mortgage rates are so high.

Be sure to take the time to comparison shop as you would anything else. You might be surprised what you come across.

As you can see from the handful of examples above, the perks can range tremendously.