Zillow launches a loan program to help homebuyers with rising mortgage rates

Zillow launches a loan program to help homebuyers with rising mortgage rates

Zillow Group has announced a new 1% down payment program, aiming to open up the housing market to those who previously could not afford the upfront cost of buying a home.

Zillow (trading symbol: Z) said in a press release Thursday that Zillow Home Loans launched a 1% down payment program in Arizona, and plans to expand it to other markets. Borrowers eligible for the program will only have to put up to a 1% down payment on a home, and Zillow Home Loans will contribute an additional 2% at closing.

“Most markets are in the midst of an affordability crisis, and saving for a down payment remains one of the biggest barriers for many potential homebuyers,” Zillow said in the press release.

The program is being launched during one of the most expensive times to buy a home in the last few decades. The average interest rate on a 30-year mortgage was 7.23% as of Thursday, according to Freddie Mac. This is the highest level since 2001.

“Rapidly rising rents and home values ​​mean that many renters who are already paying high monthly housing costs may not have enough savings for a large down payment, and these types of programs are welcome innovations in reducing potential barriers to home ownership,” he said. Orphe Divounguy, chief macroeconomist at Zillow Home Loans, in the statement: “Those who qualify.”

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The program is likely to be a move to boost business in Zillow’s mortgage sector. This year has been a difficult year for mortgage lenders. The Mortgage Bankers Association said earlier this week that home order volume, a leading indicator of future sales, fell last week to its lowest level since 1995.

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The trade group expects total mortgage origination to reach $1.7 trillion in 2023, down from $2.3 trillion in 2022 and $4.4 trillion in 2021.

Zillow said in a letter to shareholders that it originated more than 70% purchaser loans in the second quarter of the year compared to a year earlier — even as revenue in the mortgage sector fell 17% from a year earlier, to $24m. The decline in segment revenue was “due to higher interest rates impacting demand and depressing revenue from our mortgage market,” the company wrote.

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Zillow’s home financing program is one of the company’s key areas of focus, executives said on an earnings call outlining a vision of becoming the “super housing app.” Since the company divested from the Zillow Offerings program, through which it bought and sold homes, Zillow has promoted its commitment to becoming a central hub for all aspects of the home search.

“We’re building the foundation for a great first-party direct-to-consumer mortgage origination business,” Zillow CEO Rich Barton said on an early August earnings call. Buyers who begin their mortgage search on Zillow can then be referred to the company’s other services, such as partner agents.

The program could be good news for first-time buyers, who may find that saving for a down payment is one of the biggest hurdles to homeownership. Typically, first-time buyers in 2022 will pay a 6% down payment, according to the National Association of Realtors report.

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However, a 3% discount on the purchase of a home leaves plenty of homeowners to finance—especially at a time when interest rates are at multi-decade highs. The buyer of a $400,000 home, who cuts the interest rate by 3% on the 30-year average fixed interest rate for this week, will owe about $400 more per month than if he had bought it for the same price last year.

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Shares of Zillow fell 1.4% at noon Friday, to $49.45. The stock jumped 53.5% in 2023.

Write to Angela Palumbo at [email protected] and Shaina Mishkin at [email protected]

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