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Add Zillow Home Loans to the list of lenders who are offering to help homebuyers with modest incomes get into a house with just 1 percent down.
The new programs from Zillow, Rocket Mortgage and United Wholesale Mortgage leverage Fannie Mae and Freddie Mac programs — HomeReady and Home Possible — that let borrowers earning less than 80 percent of the area median income (AMI) purchase a home with 3 percent down.
Fannie and Freddie are flexible as to where funds for the down payment can come from, with eligible sources including family members, employer-assistance programs and secondary financing.
So in order to ease the burden of coming up with even a 3 percent down payment, lenders offering 1 percent down loans contribute the additional 2 percent at closing in the form of a grant that’s applied to closing costs.
“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,” Zillow Home Loans’ Senior Macroeconomist Orphe Divounguy said in a statement.
Zillow said Thursday it will initially offer 1 percent down payment loans to first-time homebuyers in Arizona, but plans to expand the program to additional markets.
Rocket Mortgage followed suit in May, announcing the ONE+ mortgage which provides a 2 percent lender-funded grant and also picks up the cost of private mortgage insurance (PMI).
Rocket estimates that a qualifying buyer purchasing $250,000 home with a $2,500 down payment can save up to $245 a month on private mortgage insurance, which would add up to $20,500 during the 7 years it usually takes to build up the 20 percent equity needed to get out of PMI.
For borrowers who don’t qualify for HomeReady and Home Possible, Atlanta-based technology provider Down Payment Resource tracks assistance programs available through federal, state, county or local government agencies, and provides information about those programs through integrations with Zillow, Redfin, multiple listing services (MLSs), loan officers and agents.
Another option for borrowers scraping together a down payment are special purpose credit programs, offered by a growing number of lenders to borrowers who might otherwise be denied credit or offered less favorable terms.
Seeking to boost lending in minority communities, Wells Fargo announced this month that it will provide grants of up to $10,000 to help homebuyers in eight metro areas earning up to 120 percent of the area median make their down payments.
Zillow Home Loans growing purchase originations
Source: Zillow investor presentation.
In addition to generating leads for mortgage lenders, Zillow got into the business of actually making loans with the 2019 launch of its Zillow Home Loans division.
Based in Irvine, California, Zillow Home Loans sponsors 184 mortgage loan originators working out of 12 active locations, serving every state but New York, according to records maintained by the Nationwide Multistate Licensing System.
Although Zillow has struggled to grow its money-losing mortgage business, during the second quarter of 2023 purchase mortgage originations were up 73 percent from a year ago, to $336 million.
In reporting second quarter results, Zillow said it continued to build Zillow Home Loans’ purchase mortgage business “by improving integration between Zillow Home Loans and our Premier Agent network and increasing customer engagement on our apps and site.”
If Zillow can keep up the current pace, it will originate more than $1 billion in purchase loans this year. When interest rates were at record lows during the pandemic, Zillow Home Loans refinanced more than $1 billion in mortgages during the first three months of 2021 alone.
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