With a high enough income and a solid credit rating, people can now buy a $1 million home with a $10,000 down payment. Zillow has a new product that will allow people to buy a home with a down payment of as little as 1%. (See how big a house $200,000 will get you in each state.)
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The new program, the 1% Down Payment plan, will start in Arizona. Zillow hopes to expand into other markets. Zillow will contribute 2% at closing.
The goal of the program is simple. With interest rates above 7%, many people need help to afford both a high monthly payment and what is usually a down payment of 20%. Zillow’s plan provides home ownership for people who mostly rent today and have high incomes but not savings.
Zillow Home Loans’ senior macroeconomist, Orphe Divounguy, commented: “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.”
For Zillow, the 1% Down Payment plan may solve a problem. It has a home loan business. It is almost certainly crippled by the home affordability program, which is nationwide. It needs a means to prime the pump. The disadvantage for the buyer is that monthly payments will be higher with a tiny down payment than with a traditional mortgage.
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