Zillow Home Loans is offering to cover the entire minimum down payment for eligible FHA borrowers, adding a new financing incentive to its growing mortgage business and raising the competitive stakes for independent loan originators.
The program, announced Wednesday, provides up to 3.5% of the purchase price or appraised value, whichever is lower, through a second mortgage with no interest or monthly payment. The loan is forgiven after five years if the borrower makes on-time payments on the primary mortgage and continues occupying the home.
Available in 43 states and Washington, D.C., the program has no income cap or first-time-buyer requirement. Borrowers must have a minimum 640 credit score, qualify for an FHA mortgage, and finance through Zillow Home Loans.
Zillow already reaches consumers early in their home search, and the new offering gives those buyers another reason to consider its lending operation before shopping elsewhere.
"Buyers tell us the down payment is what's holding them back, and we hear the same thing from agents about their clients," said Eric Wilson, Zillow's senior vice president and general manager of mortgages. "This program helps us serve more qualified buyers by giving them a simple way to clear that hurdle, with their mortgage and down payment assistance handled in one place."
Assistance Comes With A Five-Year Commitment
The financing is structured as a forgivable second mortgage rather than an outright grant.
Borrowers who sell, refinance, or move out before the five-year forgiveness period ends must repay the assistance in full. That provision could become significant if mortgage rates decline and homeowners want to refinance.
On a $400,000 purchase, the program could provide up to $14,000 toward the down payment. A borrower refinancing before the five-year mark would need to account for repayment of that amount when evaluating the transaction.
The assistance also does not eliminate other FHA borrowing costs. Mortgage insurance still applies, and buyers must qualify for the full monthly payment on the primary mortgage.
Zillow said borrowers can contribute up to an additional 6.5% of their own funds, bringing the total down payment to 10%.
The program is unavailable in Arizona, Delaware, Florida, Massachusetts, New York, Rhode Island, and Virginia.
Down Payment Assistance Becomes A Competitive Tool
Zillow's launch comes as down payment assistance becomes available to a broader range of homebuyers.
Down Payment Resource identified a record 2,833 homeownership assistance programs nationwide in the third quarter. Of those, 311 had no income restrictions, while 1,080 did not require borrowers to be first-time buyers.
Second mortgages accounted for 1,581 programs, making them the most common assistance structure.
Zillow is entering an established market rather than introducing an entirely new financing concept. But its ability to offer assistance through an existing home-search and lending platform could make the product particularly attractive to buyers who want to handle their purchase financing in one place.
The company already offers a separate 2% down payment grant for eligible conventional borrowers, although that program carries income and first-time-buyer restrictions. The new FHA offering extends its assistance options to borrowers who may not qualify for those incentives.
Zillow's Bigger Play For Purchase Business
The new program also fits into Zillow's broader effort to connect home shopping and mortgage financing.
In June, Zillow launched a personalized buyer hub, bringing home searches, preapprovals, and loan officer connections into a more integrated experience.
The company's mortgage business has been growing. Zillow reported $84 million in second-quarter mortgage revenue, a 75% increase from a year earlier.
Now, it is adding a financing incentive for buyers with sufficient income to qualify for a mortgage but not enough savings for a down payment.
The competitive significance goes beyond the assistance amount. Zillow already has a relationship with consumers searching for homes, and the new program gives those buyers a financial reason to consider Zillow Home Loans before approaching another lender.
That raises the stakes in the purchase market. A competitive rate quote alone may not be enough to counter an offer that eliminates the borrower's minimum down payment.
But Zillow's assistance is not necessarily the least expensive financing option. Leaving room for brokers and retail LOs who can identify alternative assistance options and demonstrate how competing financing packages compare, both at closing and over the life of the loan.
