Zillow is trying to attract more homebuyers into the marketplace by lowering the barrier to entry.
To do so, the company launched a 1% down payment program, helping potential buyers who’ve been priced out of the market due to high borrowing rates, excessive rents and elevated home prices.
For now, homebuyers can take advantage of this offering for properties in Arizona. Zillow announced that it plans to expand the program to additional markets.
The company didn’t specify when or where the program will expand.
The program, according to Zillow, will lower the down payment to as little as 1%, which the company says will “reduce the time eligible homebuyers need to save and open homeownership to those who are otherwise ready to take on a mortgage.” Zillow also said it will contribute an additional 2% at closing.
In certain cases, this would make it possible for buyers to save up for a down payment in under a year. For instance, Zillow noted that a buyer who makes 80% of their area’s median income and saves 5% of their income would only need to save up for 11 months to afford the down payment to buy a $275,000 home in Phoenix.
If a buyer needed a 3% down payment on that same home, it would take two and a half years to save.
“Most markets are in the midst of an affordability crisis, and saving for a down payment remains one of the biggest barriers for many potential homebuyers,” Zillow said, adding that this is especially the case for those who have been making high rent payments.
Currently, the typical asking rent nationwide is up 3.6% compared with a year ago and 31% higher since the start of the pandemic, according to Zillow.
The record-breaking home price appreciation, coupled with rising interest rates, has forced more than 60% of first-time buyers to put down less than 20%, according to Zillow. In fact, one-quarter of first-time buyers are putting down 5% or less.
“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,” said Orphe Divounguy, Zillow home loans’ senior macroeconomist, said.
1. Understand your credit profile and try to improve your credit score.
2. Avoid closing accounts because these accounts will continue to show up on your credit report.
3. Avoid financing large purchases, such as a car, until after closing on a home. This will impact your debt-to-income ratio. That will negatively affect the amount of home loan a buyer will qualify for.
4. Determine what affordability looks like. After getting a good understanding of the credit report, it’s important for buyers to understand how much they can afford.