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Ask HN: What happens to the 2% Zillow “contributes” to its 1% down mortgage?
Zillow is "offering" a 1% down mortgage:
https://www.zillowgroup.com/news/zillow-home-loans-new-1-down-payment-option/
However, the minimum down payment that Freddie Mac will buy and securitize is 3%:
https://myhome.freddiemac.com/buying/down-payments-and-pmi#:~:text=The%20reality%20of%20down%20payments&text=What%20most%20people%20don%27t,®%20or%20HomeOne®%20mortgages.
This 2% gap is made up by Zillow, who claims to "pay" the other 2%:
>Borrowers who qualify can now put just 1% down on a home, and Zillow Home Loans will pay the other 2%.
I find that hard to believe. Impossible even.
I can't find anywhere the true story behind this 2%. Right now my leading hypotheses are:
1. It's really a second lien and you have effectively borrowed those 2% from Zillow.
2. They jack up your rate (within the allowable rates) such that when they sell the loan to Fannie/Freddie they get the 2% back.
3. They "own" 2% of your home in equity (like Hometap, https://www.hometap.com).
Anyone have a clue?
- senttoschool 3y ago>The 2% is paid through closing and not as a payment to the borrower. Most likely through the profit that Zillow would get by underwriting your loan and then selling it to the government. IE, if Zillow makes 4% on your loan, they will give up 2% to earn 2%.
- bojangleslover 3y agoThen why are they doing this? Do you think the “good guy” narrative they’re pushing with it is truly good enough marketing to justify eating several % of their profit margin on originations?
- senttoschool 3y agoFor volume. Zillow Loans is trying to make a name for itself. Right now, mortgages are still dominated by traditional banks and companies like Rocket Mortgage.