Zillow Home Loans will now lend eligible FHA borrowers their entire minimum down payment through a second loan that carries no interest, requires no monthly payment and is forgiven after five years, the company announced Oct. 28. The program covers up to 3.5% of the purchase price in 43 states and Washington, D.C., with no income cap and no first-time-buyer requirement.
The launch moves Zillow, which describes itself as the most visited real estate app and website in the U.S., further into down payment assistance, a field where buyers have mostly relied on state and local housing agencies, nonprofits, employers and some lenders, and it gives Zillow a new reason for shoppers on its site to finance with Zillow Home Loans rather than another lender.
How Zillow’s FHA down payment assistance works
According to Zillow’s release, the terms are:
- Amount: up to 3.5% of the purchase price or appraised value, whichever is lower. Buyers may add up to 6.5% of their own money to reach a 10% down payment.
- Structure: a second loan at 0% interest with no monthly payment.
- Forgiveness: after five years of on-time mortgage payments and owner occupancy.
- Repayment: due in full if the buyer moves out, sells or refinances before year five.
- Eligibility: a minimum 640 credit score, an FHA loan through Zillow Home Loans, a primary-residence purchase, and qualifying for the full monthly payment under standard underwriting.
The first mortgage is an ordinary FHA loan with a standard interest rate and monthly payment, and FHA mortgage insurance still applies. The program is not available in Arizona, Delaware, Florida, Massachusetts, New York, Rhode Island or Virginia; the release does not say why those states are excluded.
On a $350,000 purchase, 3.5% comes to $12,250, which is the cash a borrower would otherwise need to bring to closing for the down payment alone. Closing costs are a separate matter; the release addresses only the down payment.
The case Zillow is making
Zillow argues that the up-front cash, not the monthly payment, is what keeps many renters from buying. The company cited its own survey of more than 57,000 buyers and prospective buyers, which found that 70% use savings for a down payment, about 30% rely on a gift or loan from family or friends, more than 25% sell stocks or other investments and more than 20% tap retirement accounts.
“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. The program, he said, gives qualified buyers “a simple way to clear that hurdle, with their mortgage and down payment assistance handled in one place. For buyers who can afford the monthly payment, we can now cover the full minimum down payment.”
Existing assistance programs, the release notes, often limit eligibility to first-time buyers, set income ceilings or serve only certain areas; Zillow says its version does not require buyers to go through an extensive process with an additional entity. Zillow says its listings will continue to show state and local programs a buyer may qualify for, and that its loan officers will still present conventional loans with as little as 3% down and VA loans with no down payment for eligible veterans.
The fine print that matters
Two conditions deserve attention from agents advising buyers. First, the assistance is available only with a Zillow Home Loans FHA mortgage, so a buyer who takes it cannot shop the first mortgage elsewhere. Second, the full second loan comes due on a refinance within five years. A buyer who expects to refinance if rates fall would need to repay the assistance at that point or wait out the forgiveness period; that is our reading of the published terms, not a scenario Zillow addresses.
The 640 minimum credit score is also above the 580 floor that HUD sets for FHA borrowers making a 3.5% down payment, so the program is narrower than the FHA market as a whole.
The tie between Zillow’s search traffic and its mortgage arm is already contested in court. In Dupuis v. Zillow Group, a proposed class of agents alleges that Zillow’s Preferred Agent ratings are tied to how many buyers agents send to Zillow Home Loans for pre-approval; a federal judge in Seattle let all five counts proceed in September, a ruling that is not a finding on the merits. Zillow had moved to dismiss the case. The new release does not mention the litigation.
Lenders and trade groups have been pushing on FHA costs from the other direction. The Mortgage Bankers Association this month urged regulators to cut FHA annual mortgage insurance premiums as part of a broader affordability agenda. Zillow’s program leaves those premiums untouched but removes the cash barrier for borrowers who qualify.
Zillow did not disclose how much capital it has set aside for the second loans or how many buyers it expects to serve. More coverage of lending is in our Mortgage section.
