Zillow is offering a 1% down payment option for prospective first-time buyers in Arizona. According to a press release, Zillow wants to help eager homebuyers obtain property faster than traditional means. Zillow recognizes that first-time buyers are struggling to save money for a home while paying high rent prices across the nation.

Experts at Zillow believe that the combination of record-breaking home price appreciation and rising interest rates means a majority of first-time buyers (64%) are putting down less than 20%, and one-quarter of first-time buyers are putting down 5% or less.

“For those who can afford higher rent payments but have been held back by the upfront costs associated with homeownership, down payment assistance can help to lower the barrier to entry and make the dream of owning a home a reality,” said Zillow Home Loans’ senior macroeconomist Orphe Divounguy in the press release. “The rapid rise in rents and home values means many renters who are already paying high monthly housing costs may not have enough saved up for a large down payment, and these types of programs are welcome innovations in lowering the potential barriers to homeownership for those who qualify.”

Exploring The Down Payment Option From Zillow

Now, Americans are feeling dejected as the housing affordability crisis grows and qualified home buyers are faced with few options, especially Millennials. In most desirable markets, starter homes are almost non-existent. Current homeowners are reluctant to sell because of the soaring interest rates and the ones who are selling their homes are doing so in a market that favors them.

Zillow isn’t the only company offering a 1% down payment option, either. Rocket Mortgage and United Wholesale Mortgage are also trying to attract new homeowners with this model.

The Pros

One of the positives about this mortgage option is that it speeds up the process for the potential buyer. Zillow has identified that current renters can’t simultaneously pay premium rent while saving to own a home. Zillow Home Loans anticipates that their 1% down payment option will add viable lending options for those looking to own a home without having to save a lot of money. In addition to the 1% down payment, Zillow Home Loans will contribute an additional 2% at closing.

For a buyer in Phoenix, Arizona, this could be a viable path to homeownership. Zillow estimates it takes about eleven months for a prospective buyer to save up for a down payment.

The Cons

Taking a lower down payment, especially less than the 20% option, means you must have private mortgage insurance. Private mortgage insurance or PMI typically has a standard interest rate between 0.5% to 1.5%  per year. Additionally, with a lowered down payment and current interest rates hovering near 7%, prospective homebuyers must calculate if this option is financially stable. First-time homebuyers already qualify for first-time homebuyer loans or FHA which allows you to put down as little as 3%. Even though Zillow offers to put an additional 2% down to match a buyer’s 1%, that 2% is going to commission fees and not the mortgage.

Overall, Millennials are struggling to find successful paths to homeownership compared to previous generations. Initiatives like Zillow’s 1% down payment program can help some first-time buyers, but ultimately it won’t fix the affordability housing issues many are facing today.