Zillow Home Loans announced its 1% Down Payment program to allow eligible first-time home buyers to pay as little as 1% down on their next home purchase. This program is initially being offered on properties located in Arizona, with plans to expand to additional markets.
“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. This program is available to buyers who meet minimum credit requirements and who can afford to make a mortgage monthly payment but simply don’t have enough saved up to come up with the necessary down payment,” Rian Furey, Zillow senior vice president and president, Zillow Home Loans, told NMP.
To be eligible for the program, borrowers must have credit scores 620 and higher, and have income equal to or less than 80% of the area median income (AMI).
In May, Rocket launched a similar program called ONE+, available to all qualifying conventional borrowers and Rocket Pro TPO broker partners. Additionally, the program eliminates monthly mortgage insurance fees traditionally required for buyers who are less than 20% down. More importantly, ONE+ is available to homebuyers purchasing single-family homes, including manufactured homes, whose income is equal to or less than 80% of their AMI.
UWM was first out of the gate in April with a 1% down mortgage program. However, it was met with skepticism because it was only available to homebuyers with an income at or below 50% AMI and a 97% loan-to-value (LTV) ratio. The numbers were considered unrealistic because the amount available for mortgages would not typically cover available homes. For example, in an area with an AMI of $70,000, the borrower could earn a maximum of $35,000, which suggests the most expensive home available might be around $150,000.
After Rocket launched its program, three days later UWM changed its guidelines, allowing borrowers with less than 80 percent of the area median income (AMI) to qualify.
With the 1% Down Payment program, borrowers who qualify can now save just 1% to cover their portion of the down payment and Zillow Home Loans will contribute an additional 2% at closing. The 2% is paid through closing and not as a payment to the borrower. The 1% Down Payment program can reduce the time eligible home buyers need to save and open homeownership to those who are otherwise ready to take on a mortgage, the company said in a statement.
Zillow said the combination of record-breaking home price appreciation and rising interest rates means a majority of first-time buyers (64%) are putting down less than 20%, and one-quarter of first-time buyers are putting down 5% or less.
An analysis by Zillow Home Loans shows that by reducing the down payment burden to 1% of the purchase price, a home buyer looking to purchase a $275,000 home in Phoenix, Arizona, who makes 80% of their area's median income 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.
According to Redfin, which analyzes real estate data, the median sales price in July 2023 for an Arizona home was $434,500. In July 2023, there were 28,311 homes for sale in Arizona, down 29.0% year over year. The number of newly listed homes was 8,564 and down 38.4% year over year. The average months of supply is two months, down one year over year.
