ZeroDown, a San Francisco-based startup, says it helps buyers purchase homes by taking the down payment out of the equation.
The company is designed to give a “leg up to buyers who are reasonably well-off but still struggling to afford the region's pricey homes,” National Mortgage News reports.
To use ZeroDown, a qualifying client pays the company a $10,000 fee and chooses a house for sale. Then ZeroDown buys the home using funds borrowed from bank lenders. The client can move in right away and immediately begins making a monthly payment to ZeroDown in lieu of a mortgage. As the client makes those monthly payments, he or she builds up credit toward an eventual down payment.
After two to five years, the client can cash out those credits — which after five years will typically equal 9% of the home's value, the company says. ZeroDown will add another 5% from the company's own cash reserves for a total of 14%. That means the client only has to come up with 6% of the home's value on his or her own to reach the 20% normally recommended for a down payment. At that point, the client secures a traditional mortgage and buys the home from ZeroDown.
San Jose-based realtor Mike Gaines worried ZeroDown's novel business model could have unforeseen ramifications for home buyers. It's particularly concerning in the Bay Area, he said, where the market's exorbitant prices raise the stakes on every decision. Until the house is actually in the client's name, he or she is paying enormous amounts of rent to ZeroDown, Gaines said.
