BAM Key Details:

  • Zillow Home Loans is now offering a 1% down payment option, reducing the amount of time it takes for buyers to save for the up-front costs of buying a home, thereby making homeownership accessible to more people—especially first-time home buyers. 
  • Eligible buyers would pay 1% of the final purchase price, and Zillow Home Loans would contribute an additional 2% on closing. 

The monthly payment isn’t the only cost to consider before applying for a mortgage loan. For many, the up-front cost of the down payment is daunting enough. Many prospective first-time home buyers are paying high rents, which makes saving money more difficult. 

The majority (64%) of first-time buyers are making down payments of less than 20%. A quarter of them are putting down 5% or less. And for many, even saving for a 5% down payment means waiting another year or more. 

To make homeownership more accessible to these buyers, Zillow Home Loans is now offering a 1% down payment program. Eligible buyers can pay 1% of the final purchase price, and Zillow will pitch in an additional 2% at closing for a total 3% down payment. 

The difference between saving enough to put down 1% versus 3% means buyers could potentially buy a home a year and a half (or more) sooner than otherwise. 

Zillow is rolling out the program in Arizona, with plans to expand to other markets. A home buyer in Phoenix, for example, who earns 80% of the area’s median household income and who saves 5% of it each month, would need less than a year (11 months) to save enough for a 1% down payment on a $275,000 home. 

Saving for a 3% down payment would take them 31 months or about two and a half years. 

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.

Orphe Divounguy

Zillow Home Loans' Senior Macroeconomist

Do your clients know the steps to take to prepare for a mortgage?

While some of your clients will likely be pre-qualified by a mortgage lender before they move into the serious home shopping stage, some will need guidance on how to reach that step. 

You can help by identifying where they are now and discussing the next steps they need to take to prepare for getting a mortgage. 

Here are the key steps and strategies to cover on their home-financing journey: 

  1. Know your credit profile—Your client’s credit score, while important, is only part of the whole picture lenders consider when determining eligibility for a mortgage loan. 
  2. Improve your credit score—Once your client understands their credit profile, they can then take steps to improve their score by paying down existing debts, disputing any possible errors and putting safeguards in place to ensure every bill is paid on time. 
  3. Avoid closing accounts—Even if your client finds accounts they haven’t used in years, removing them could adversely affect their credit score by reducing their available credit. 
  4. Wait on financing large new purchases—Financing an auto purchase, for example, would show up on your client’s credit report and increase their debt-to-income ratio, negatively impacting the size of the home loan they could qualify for. 
  5. Get clear on what affordability looks like—Once your client has at least a 620 credit score (generally the bare minimum required by mortgage lenders) and a better understanding of their credit report, it’s time to calculate just how much home they can afford from month to month with their current income. 

Zillow has a few tools that can help with this: 

Zillow Home Loans would contribute the additional 2% at closing—not as a payment to the borrower. If any of your clients are interested in learning more, they can call 1-833-372-1449 to discuss the option with a representative. 

Takeaways for real estate agents

For some buyers at the top or middle of your funnel, the down payment could be the biggest obstacle between them and homeownership or buying their next home. So, sharing information about this new offer from Zillow Home Loans—or Rocket Mortgage’s 1% down program—could change everything for them. 

As long as rates remain high, fewer buyers will be out looking for homes, which means less competition for available homes. So, for buyers who can afford the monthly payment on the home they want, those higher rates present an opportunity that won’t be there when rates slide back down to 6%. 

Likewise, the market presents opportunities for agents like you willing to invest more time and energy to reach the targets you set. 

Because fewer agents are going to make that additional effort.