1% to 3% Down Payment on a House?! Yes, It's Possible, Here's How

• Author: Noah Koch
• Posted: 2024-05-07

 

Realize the Dream of Homeownership With Little to No Down Payment

Zillow, one of the most visited real estate sites in the United States, recently introduced a 1% down payment initiative. At such an extremely low, competitive rate, it's possible to save up for a sufficient down payment within a single year.

As of this writing, Zillow rolled out the program in Arizona to great success. The program extends to other states in the coming months. Enthusiastic homebuyers eagerly await the day.

 

Exactly What is the Zillow 1% Down Payment Program?

The Zillow 1% down payment initiative is a small loan for eligible buyers. Qualified buyers receive an additional 2%. At a total of 3% down, you're essentially mortgaging 97% of your new home's purchase price.

This comes with pros and cons. The pros and cons pertain to potential market shifts, your income, your ability to actually afford the home and the length of time you intend to stay in your new home.

 

The Pros and Considerations of the Zillow 1% Down Payment Program

Pros

The most obvious benefit of the program is the relief it provides low- and moderate-income homebuyers. Such a low down payment makes the distant dream of home owmnership a reality for people who can't otherwise afford to save a 20% down payment.

The program also reduces the amount of time required for anyone to save and remit a down payment on a home. This changes the game in an increasingly nuanced housing market where prices continue to rise daily.

Considerations

Currently, the Zillow 1% down payment initiative is only open to first-time homebuyers with a minimum FICO score of 620. The purchased home must be the primary residence that you occupy, and completion of a prerequisite homeownership education course is mandatory.

 

Important Questions to Bear in Mind

What length of time do you intent to spend in your new home?

Borrowing 97% of your house's purchase price might result in a mortgage that's greater than your house's selling price. This scenario often coincides with major fluctuations in local real estate prices during market downturns like the current one.

Do you expect to be in a higher tax bracket down the line?

An income increase gives you more to leverage, allowing you to pay down more of the principal. Doing so reduces the amount that incurs interest, saving money in the long run.

Can you actually afford a house?

If you've never been a homeowner, the monthly, yearly and overall cost of owning a home might suprise you. Renters often make the error of thinking a $1,500 montly rental is the same as a $1,500 monthly mortage payment.

However, owning a home involves a laundry list of additional expenses. These are expenses that many renters never have to worry about:

HOA fees
Homeowner's insurance
Property taxes
Paying for trash pickup
Repairs and maintenance
Yard upkeep

With enough income it's possible to manage the above financial responsibilies, mortgage and everything else. This makes the Zillow 1% down payment initiative a wonderful way to ditch renting and build equity.

 

Buy a House With Down Payment Assistance Programs

The Zillow 1% down payment program isn't the only game in town. Federal, local and state organizations have down payment assistance programs, too. Eligibility requirements vary, but most of the programs apply to first-time homebuyers.

The government's American Dream Downpayment Initiative helps low-income families achieve the coveted goal of first-time homeownership. The Department of Housing and Urban Development (HUD) oversees distribution of the funds. To be eligible, families must have a total income lower than 80% of their area's median income.

HUD-approved non-profits and state public housing programs across the nation feature down payment assistance programs of various kinds. Assistance amounts vary: in Arkansas, the HUD-funded Arkansas Development Finance Authority (AFDA) offers assistance with your down payment and your closing costs.

You must have a minimum credit score of 640, a 45% debt-to-income ratio and an annual income of less than $137,000. These programs often come 'bundled' with a host of other helpful services, namely counseling:

• Housing counseling
• First-time homebuyer counseling
• Financial/credit counseling
• Foreclosure prevention counseling
• Ongoing support, advice and resources

Start the Homebuying Process Today

It's never been easier to make a down payment on your new home. With little to no money saved, you can still realize the dream. Down payment programs are a great place to start. Consider working with a company like Zillow or with one of many HUD-funded homebuyer programs in your area. This might be the very time for you to finally achieve the admiral goal of homeownership.