Zillow‘s mortgage arm launched a down payment assistance program where the company will cover 2% of the borrower’s down payment at closing, allowing buyers to pay just 1% upfront.
The program is available for eligible borrowers in Arizona and will expand to additional markets, Zillow Home Loans said in a release. The 2% portion of the down payment will be paid during closing and not as a payment to the borrower.
“The Zillow Home Loans 1% Down Payment program offers eligible first-time borrowers in Arizona the option to put a 1% to 3% down payment on a home, with Zillow Home Loans providing a grant for the remaining 2%, for a total of 3% to 5% down,” Rian Furey, senior vice president and president of Zillow Home Loans, said in an e-mailed response.
Borrowers must be first-time homebuyers, complete a homeownership education course and must intend to occupy the property as their primary single-family residence, according to Zillow Home Loans.
To qualify for the program, buyers must have a minimum qualifying FICO score of 620 and have income no more than 80% of the area median income (AMI) where the property is located. Private mortgage insurance is required for borrowers.
A homebuyer looking to purchase a $275,000 home in Phoenix, Arizona, makes 80% of their AMI and saves 5% of their income would need only 11 months to save for the down payment. By comparison, the same buyer who needed to save 3% of the purchase price would require 31 months to save that amount, Zillow said.
The 1% DPA program comes at a time when Zillow looks to grow its customer base and may “even the playing field with larger competitors,” Bloomberg reported. The offering will likely hurt margins and paying 2% at closing could prove costly in the long term.
Zillow reported a $35 million net loss and a revenue of $506 million in the second quarter. Cash and cash equivalents were $1.57 billion as of June 30, up from $1.47 billion from the end of 2022, according to its 10-Q filing with the Securities and Exchange Commission.
Total loan origination volume for the mortgage arm came in at $340 million in Q2, up from $330 million in Q2 2022. Purchase loan production was $336 of the total, a 73% increase from Q2 2022.
Zillow had shared plans to build the purchase mortgage business by improving integration between Zillow Home Loans and its Premier Agent network and increasing customer engagement on its apps and site in its second quarter earnings.
Zillow Home Loans has 184 sponsored MLOs and 12 active branches across the country, according to the Nationwide Multistate Licensing System (NMLS).
In an environment where mortgage rates are inching closer to the mid 7%-range, affordability has become a pressing concern especially for first-time homebuyers.
Lenders that are providing 2% down payment options on conventional loans include United Wholesale Mortgage, Rocket Mortgage, Guild Mortgage and Guaranteed Rate.
Homebuyers must have an income at or below 80% of the area median income (AMI), a minimum credit score of 620 for the 1% down loan product at UWM, Rocket, Guild and G-rate.
The article was updated at 4:53 pm ET with comments from Zillow Home Loans.
