Zillow Home Loans Piloting 1% Down Payment Program
With mortgage rates on the rise, Zillow Home Loans has announced a program it says will make homeownership available to more buyers.
About the program:
Today, Zillow Home Loans announced its new 1% Down Payment program. As the name implies, this option will allow borrowers to put as little as 1% down in order to purchase a home. Furthermore, for eligible borrowers, Zillow Home Loans will contribute an additional 2% for a down payment. However, they do make clear that this 2% is paid through closing and not paid to the borrower.
Zillow says that the new program will initially be offered for properties in Arizona but that it plans to expand into other markets.
Incidentally, Zillow isn’t the first to introduce such a program. For example, in May, Rocket Mortgage announced its ONE+ program, which also allows borrowers to put 1% down and receive a 2% grant.
What they’re saying:
In a press release announcing the program, Zillow Home Loans’ senior macroeconomist Orphe Divounguy said, “For those who can afford higher rent payments but have been held back by the upfront costs associated with homeownership, down payment assistance can help to lower the barrier to entry and make the dream of owning a home a reality. 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 1% Down Payment program may sound attractive to those who want to buy a home but don’t have the cash on hand for a down payment. However, positioning the program as solving an “affordability crisis” is disingenuous since consumers will merely be financing a more significant portion of their home purchase — and at higher interest rates than they’ve been in years. So while this may make homes more available to consumers, they’re not really that much more affordable.
That said, if consumers can get 2% of the down payment covered by Zillow, I suppose that does amount to some savings. Nevertheless, prospective buyers should still consider a number of other factors (including considering the true cost of homeownership beyond just the mortgage) when deciding whether or not they can afford to buy.
Given the potential flaw in this plan, it will be interesting to see how the program performs in its initial market and if it ends up expanding to other parts of the nation.