Zillow Launches FHA Down Payment Loan in 43 States

Zillow Home Loans launched a down payment assistance program on Oct. 28 for eligible buyers using Federal Housing Administration mortgages. Available in 43 states and Washington, D.C., the program uses a second loan to cover as much as the FHA minimum down payment.

The assistance can equal up to 3.5% of the purchase price or appraised value, whichever is lower. It has no interest or monthly payment and can be forgiven after five years if the borrower makes the primary mortgage payments on time and continues living in the property.

For sellers, the immediate significance is a potentially larger pool of buyers who can handle a mortgage payment but have not accumulated enough cash for the down payment. It does not eliminate underwriting, appraisal or closing risk, and it should not be treated like a cash offer.

The second loan removes one hurdle, not the entire cash barrier

Eligible borrowers do not have to be first-time buyers, and the program does not impose an income ceiling. They must have a credit score of at least 640, buy a primary residence and qualify for the full FHA mortgage payment under standard underwriting.

Those conditions matter when evaluating an offer. Zillow is assisting with the down payment, but the buyer still must document income, debts, credit and occupancy. The primary FHA loan still carries its regular interest expense, monthly payment and mortgage insurance. Buyers may also need funds for closing costs, inspections, prepaid expenses and any appraisal-related gap their contract requires them to cover.

Sellers should therefore avoid reading “down payment assistance” as “all cash needs covered.” A useful preapproval should identify the primary FHA mortgage and the accompanying assistance loan. The listing agent can also ask the buyer’s lender whether both pieces have been reviewed, what documentation remains outstanding and whether the proposed closing schedule is realistic.

The program is unavailable in Arizona, Delaware, Florida, Massachusetts, New York, Rhode Island and Virginia. Sellers in those states should not assume a Zillow Home Loans borrower can use this particular product, although other assistance programs may exist.

FHA appraisal and property condition still shape the deal

The assistance does not change the basic structure of an FHA-financed transaction. The home must still support the agreed price through an appraisal, and FHA property requirements can bring condition issues into sharper focus than they might be in some conventional or cash deals.

Before accepting an FHA offer, sellers should review known defects that could complicate financing. Peeling paint, safety concerns, damaged systems or incomplete work may prompt further review or repairs. Not every older or imperfect home will have a problem, but sellers should not assume the new assistance makes property-related loan conditions disappear.

The assistance amount is based on the lower of the purchase price or appraised value. If an appraisal comes in below the contract price, the available second-loan amount may also be calculated from that lower figure. The buyer and seller would then need to address the price difference under the contract’s appraisal provisions. Assistance with the minimum down payment is not a substitute for an appraisal-gap plan.

Sellers comparing offers should look beyond the financing label. A well-underwritten FHA buyer with documented assistance and sufficient remaining funds may present less uncertainty than a higher-priced buyer whose financing has barely been reviewed. Price matters, but so do lender readiness, contingencies, requested repairs and the buyer’s ability to absorb ordinary closing expenses.

Offer review should focus on execution rather than buyer cash alone

The second loan must be repaid in full if the buyer sells, refinances or stops occupying the home before the five-year forgiveness period ends. That obligation belongs to the buyer after closing and generally does not reduce the seller’s proceeds. Still, understanding the product helps sellers distinguish a legitimate financing structure from vague claims that a buyer’s down payment is “covered.”

Buyers can combine the program with up to 6.5% of their own money for a total down payment of 10%. That flexibility means two buyers using the same program may have very different financial profiles. One may rely on the full assistance amount, while another may contribute substantial personal funds.

A seller reviewing such an offer should seek clear answers to several questions: Has the lender verified the buyer’s 640-or-higher qualifying score? Has primary-residence occupancy been confirmed? Is the assistance approval included in the preapproval process? Does the buyer have separate funds for inspections, closing expenses and possible repairs? Has the lender accounted for both the FHA mortgage and second loan in the timeline?

These are execution questions, not reasons to reject assisted financing. The program could help qualified households enter the market without gifts from relatives, investment sales or retirement withdrawals. Zillow’s buyer survey found that 70% of respondents used savings for a down payment, while roughly 30% used family gifts or loans. More than one-quarter sold investments, and over one-fifth drew from retirement accounts.

Sellers may see broader demand, but not an automatic price boost

In markets where down payment savings are keeping otherwise qualified buyers on the sidelines, the launch may generate additional showings or offers in FHA-accessible price ranges. The effect will depend on local inventory, buyer awareness, lender capacity and whether the property is suitable for FHA financing.

It would be premature to assume the program will increase a home’s value or create immediate bidding pressure. One lender’s product does not change comparable sales, property condition or local supply. Its practical effect is narrower: some buyers who could afford the monthly obligation may now have another path through the upfront down payment requirement.

Sellers preparing to list should ask their agent how commonly FHA financing appears in the local price band and whether obvious condition issues could limit that audience. When an assisted offer arrives, compare the complete package rather than favoring or dismissing it based only on the loan type. The strongest offer is the one most likely to reach closing on acceptable terms, with its financing, appraisal and property-condition risks understood from the start.