published : 2023-08-26

Zillow Launches Novel 1% Down Payment Scheme

Ground-breaking Homeownership Program Initiates its Pilot in Arizona

An eager first-time homebuyer examining housing listings on the Zillow platform from a laptop, showing the anticipation of owning his first home. Image taken with a Canon EOS 5D Mark IV.

Pioneering a trail towards home ownership, Zillow is attempting to bait potential buyers by lowering the entry bar to the often-competitive housing market.

Introducing their innovative 1% down payment initiative, the company offers an enticing solution to homebuyers, particularly those feeling the sting of prohibitively high borrowing rates, insurmountable rents, and record-breaking home prices.

For the time being, this intriguing proposition is exclusive to properties across Arizona, although Zillow has declared intentions to broaden the program's availability across additional markets in the future.

Yet, the details of when and where these expansions will occur remain a mystery.

According to insiders, the program intends to slice the down payment requirement to an unprecedented minimum of 1%, a move Zillow posits will reduce the saving period for eligible buyers and unlock the door to home ownership for those waiting in the wings.

Middle-aged potential buyer in Arizona, standing in front of a $275,000 priced home contemplating the journey of home buying and affordability. Image captured using a Nikon D850.

In a magnanimous move, Zillow will also contribute a compensatory 2% at closing.

Putting this into practical terms, Zillow hypothesizes that a homebuyer making 80% of their area's median income and saving 5% would only be required to save for a jaw-dropping 11 months to afford the down payment on a $275,000 home in Phoenix.

In contrast, a conventional 3% down payment for the same property would require a sobering two and a half years.

Acknowledging the affordability crisis sweeping through many markets, Zillow recognizes that the monumental challenge of saving for a down payment is often the last hurdle standing between potential homeowners and their dream home, particularly for those burdened by towering rent payments.

Current data indicates that the standard asking rent nationwide is 3.6% higher than last year and a staggering 31% higher since the pandemic's onset.

Zillow's senior macroeconomist Orphe Divounguy working in his office, in the process of analyzing key housing market data and trends for better-informed decisions. Ancillary backdrop includes mortgage trends and graphs. Image taken with a Sony ALPHA 7 III.

Considering the skyrocketing home price appreciation and steady upward trajectory of interest rates, Zillow notes that over 60% of first-time homebuyers are now only able to afford considerably less than the typical 20% down payment, with a quarter limited to a mere 5%.

Zillow's senior macroeconomist, Orphe Divounguy, lauds initiatives such as these as welcome and innovative approaches to dismantling the barriers to homeownership for qualifying candidates.

Offering some practical advice for interested homebuyers, Zillow suggests first establishing a clear understanding of your credit profile, followed by a determination of your own affordability range.

Additional caution is advised against closing accounts, which will continue to pop up on your credit report, and pending high-scale purchases, such as a car until after securing a property.

More significantly, such a large purchase could unfavorably alter your debt-to-income ratio, subsequently affecting your home loan qualification.