Zillow's FHA Down Payment Assistance: What's the Catch for Las Vegas Buyers?

Zillow Will Cover Your Down Payment. So What's the Catch?

If you have been watching the headlines, you have seen it. Zillow Home Loans now covers up to 3.5% of the purchase price on an FHA loan. No interest. No monthly payment. Stay five years and it is forgiven.

On the Las Vegas median home price of $470,000, that is $16,450 you would not have to save.

That is a strong headline. As a broker, my first question is the one I ask about every offer: what does the rest of the loan cost? The answer decides whether this is a great deal or just a convenient one.

I should be upfront. I compete with lenders like Zillow Home Loans. I will tell you what is good about this program and where I would ask questions before signing anything.

What Zillow Is Offering

The program launched on October 28. Here is what Inman reported and what coverage of the launch added.

The excluded states are Arizona, Delaware, Florida, Massachusetts, New York, Rhode Island, and Virginia. Nevada is not on that list, so Las Vegas buyers can use the program.

That is a broad program. Many state and local programs set income limits, require first-time buyer status, or limit where you can buy. This one does not, and that is its biggest selling point.

Now look at the lender row. The assistance only exists if Zillow Home Loans is your lender. So the question is not only how good the assistance is. It is how good the whole package is.

The Number That Matters Most: The Rate

Zillow's Nevada rate page, last updated October 27, lists these published rates.

Read the FHA row twice. A 7.125% rate looks reasonable. But it comes with 1.872 points, which would be roughly $8,500 on a loan of about $461,500 if the same pricing applied. The APR is higher than the rate because it counts points and FHA mortgage insurance.

The page does not say whether this pricing applies to loans that include the down payment assistance, and the launch coverage describes the first mortgage only as carrying a standard rate. I would not assume either way. Ask for it in writing.

Here is why every quarter point matters. Take a $470,000 Las Vegas home with the $16,450 in assistance. The FHA first mortgage is $453,550, and the 1.75% upfront mortgage insurance premium rolled in brings it to about $461,500. Here is the principal and interest starting from Zillow's published FHA rate.

Principal and interest only. This excludes monthly FHA mortgage insurance, taxes, and homeowners insurance. The rates above 7.125% are hypothetical examples, not Zillow quotes.

Look at the 7.625% row. A half point above Zillow's published FHA rate costs about $9,420 over the five years it takes to earn forgiveness. That is more than half of the $16,450 you received. And it keeps costing you after the second loan is forgiven, for as long as you keep the loan.

Points are optional, and they trade cost now for a lower rate. A quote with fewer points and a slightly higher rate can come out ahead, depending on how long you keep the loan. That is why I compare the APR and the total cost, not just the rate.

None of this makes the program a bad deal. If the rate and costs are competitive, $16,450 in forgiven money is a real benefit. It just means you cannot judge the offer without the rate, points, and APR on paper.

The Fine Print Worth Reading Twice

• The five-year clock is real. You have to make on-time payments and live in the home for five years. Sell, move out, or refinance before then, and the full amount comes due.
• Refinancing gets harder. If rates drop in year two or three, you would have to repay the assistance before you could refinance. My post on whether you should refinance shows how to run that math, and you can include the repayment in it.
• FHA mortgage insurance still applies. Under HUD's FHA schedule, the upfront premium is 1.75% of the base loan, about $7,937 here. A 30-year loan with less than 5% down also carries an annual premium of 0.55% for the life of the loan, about $208 a month.
• Closing costs are a separate bill. The program is described as covering the down payment. In my experience, closing costs run 2% to 5% of the loan, which is roughly $9,000 to $23,000 here. My post on closing costs shows where that money goes.
• It is tied to one lender. You cannot take the assistance and shop the first mortgage somewhere else.
• You still need to qualify for the full payment. The second loan has no monthly payment, but the assistance does not lower what you pay on the first mortgage.

So, Is There a Catch?

Not exactly. It is a real program with real benefits. It is worth the most when the whole loan is priced fairly.

It may fit well if you:

• Earn too much for income-limited state programs
• Do not qualify for first-time buyer programs
• Plan to stay in the home at least five years
• Get a written quote that holds up against other lenders

Shop carefully if you:

• Might sell, move, or refinance in the next five years
• May qualify for Nevada Housing Division help
• Have savings to cover part of the down payment yourself
• Are being quoted points that look high for the rate

How It Compares to Nevada Programs

Nevada has its own down payment assistance. Nevada Housing Division programs can come as a grant or a second loan, and some versions never need to be repaid if you meet the occupancy rules. They often have income limits and credit requirements, which the Zillow program does not.

I cover those programs in my post on down payment assistance in Nevada. Confirm current terms with the Nevada Housing Division, since programs change.

If you are not sure FHA is the right loan at all, my post on FHA vs. conventional loans breaks it down. My guide to down payment options covers the lower down payment paths that exist outside any one program.

Five Questions to Ask Before You Say Yes

Whichever lender you talk to, get these answered in writing.

1. What is my exact rate, points, and APR with the assistance, and without it?
2. Is the first mortgage priced differently because I am using the assistance?
3. What exactly do I have to do over the five years to have it forgiven?
4. What happens if I sell or refinance before five years?
5. What is my total cash to close, including closing costs and points?

Then put that Loan Estimate next to one from another lender. A comparison on paper is the only way to see which package costs less.

The Bottom Line

Zillow's program is not a trick, and it will help the right buyer. But $16,450 only stays a good deal if the loan attached to it is priced fairly. Zillow's Nevada page shows a 30-year FHA rate of 7.125% with 1.872 points, but until you see the rate, points, and APR for your own loan in writing, you do not know what you are getting.

Already have a quote from Zillow or another lender? Bring it to me. I will compare it against other FHA options and Nevada programs so you can see the numbers side by side. See if we're a fit or book a call directly.

Frequently Asked Questions

Is Zillow's down payment assistance a grant?

No. It is a second loan at 0% interest with no monthly payment. It is forgiven after five years of on-time payments on the first mortgage and living in the home. If you sell, move out, or refinance before then, it comes due in full.

How much does the Zillow program cover?

Up to 3.5% of the purchase price or appraised value, whichever is lower, which is the FHA minimum down payment. Buyers can add their own funds, up to a 10% total down payment. FHA mortgage insurance still applies.

Is Nevada eligible for the Zillow program?

Yes. The program is available in 43 states and Washington, D.C. Arizona, Delaware, Florida, Massachusetts, New York, Rhode Island, and Virginia are excluded, so Nevada buyers can apply.

Do I have to use Zillow Home Loans?

Yes. The assistance comes with an FHA mortgage from Zillow Home Loans, so you cannot pair it with a loan from another lender. You also need a 640 credit score and have to qualify for the full monthly payment.

What if I want to refinance before five years?

The second loan comes due in full if you refinance before the five years are up. A refinance in year two or three would require repaying the assistance, so factor that in if you are counting on a rate drop.

How does it compare to Nevada down payment assistance?

Nevada Housing Division programs can have income limits and other requirements, while Zillow's program has no income cap and no first-time buyer rule. Terms, rates, and costs differ, so compare a written Loan Estimate for each before you decide.

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Mike Prenesti, NMLS #1033445. C2 Financial Corporation, NMLS #135622. Equal Housing Opportunity. Licensed in Nevada. This article is for educational purposes only and is not a commitment to lend or financial advice. Program availability, rates, and requirements vary by lender and borrower. Not all borrowers will qualify. Program guidelines vary by investor and are subject to change.