Zillow Home Loans launched a down-payment assistance program on Oct. 28 for buyers who finance a purchase with a Federal Housing Administration mortgage. The program provides an interest-free second mortgage worth up to 3.5% of the home’s purchase price, matching the minimum down payment generally required for an FHA loan.
The second mortgage does not have to be repaid if the borrower makes on-time payments for five years. At the end of that period, Zillow says the assistance is forgiven. But the balance becomes due if the borrower moves out, sells the property or refinances the mortgage before the five-year term ends.
“Buyers tell us the down payment is what’s holding them back, and we hear the same thing from agents about their clients. This program helps us serve more qualified buyers by giving them a simple way to clear that hurdle.” — Eric Wilson, senior vice president and general manager of mortgages at Zillow
Who can qualify
The program requires a credit score of at least 640. It is not available in Arizona, Delaware, Florida, Massachusetts, New York, Vermont or Virginia. Unlike many other lender down-payment assistance programs, Zillow’s offering has no income limit, according to the company.
Borrowers can also put as much as 6.5% of the purchase price toward an additional down payment. Combined with the assistance, that could bring the total down payment to as much as 10%. The assistance itself, however, is structured as a second mortgage rather than a grant at closing.
| Program feature | Terms reported by Zillow |
|---|---|
| Assistance amount | Up to 3.5% of the purchase price |
| Cost | Interest-free second mortgage |
| Forgiveness | After five years of on-time payments |
| Credit-score requirement | 640 or higher |
| Income limit | None |
How the assistance fits with FHA loans
FHA loans are government-backed mortgages available to borrowers who meet the lender’s requirements. The source material describes a general FHA minimum credit score of 580 and a required down payment of 3.5%. Zillow’s program sets a higher score threshold of 640 for borrowers seeking its assistance.
The down payment remains a major obstacle for renters who hope to buy. In a CNBC and SurveyMonkey Quarterly Money Survey published in October, 52% of renters identified the down payment as something they could not afford, the largest share among the barriers cited. Local governments and nonprofit organizations also offer assistance programs, while national lenders provide other financing options.
For a Zillow borrower, the five-year condition is central to the offer. A borrower who remains in the home and makes on-time payments can have the second mortgage forgiven. A borrower who sells, moves or refinances earlier faces repayment of that assistance, according to the program’s stated restrictions.
