Zillow is offering 1% down payment to lure struggling homebuyers

Zillow Group Inc. has introduced a mortgage program featuring a remarkably low 1% down payment in an effort to attract potential homebuyers who are struggling in one of the most unaffordable housing markets in nearly forty years.

Zillow's 1% down payment offering stands below even Freddie Mac's 3% minimum requirement. Notably, Zillow has also pledged to cover 2% of the down payment at the closing stage, according to an announcement made on Thursday.

This move comes at a time when mortgage rates in the United States have surged to a 22-year peak, adding more pressure on prospective homebuyers. The average rate for a 30-year fixed loan reached 7.23%, marking the highest rate since May 2001, as revealed by Freddie Mac in a statement.

The introduction of the 1% down payment initiative is part of Zillow's strategy to expand its customer base and potentially level the playing field with larger industry competitors. However, this move might impact Zillow's profit margins, and the commitment to pay 2% of the down payment at closing could have long-term financial implications.

Initially, Zillow is rolling out this new program in Arizona before considering expansion into other markets. It's worth noting that Zillow had previously ventured into home flipping with ambitious plans, but faced significant losses, leading to the discontinuation of that initiative in 2021.