The housing market has gotten so unaffordable that Zillow is now offering prospective homebuyers a 1% down payment option

• Zillow thinks it has an answer to the affordability crisis that has taken over the housing market.
• The company is offering prospective homebuyers the option to put a 1% down payment on a house.
• The affordability shock in the housing market has been sparked by a surge in interest rates and still-high home prices.

Zillow is offering prospective homebuyers the option to put just a 1% down payment on a home purchase amid an ongoing affordability crisis sparked by soaring mortgage rates.

The 1% Down Payment program from Zillow Home Loans is designed to reduce the time needed for consumers to save money for a down payment. For now, it's only offered to eligible borrowers in Arizona, though the company intends to expand the program to other states.

"An analysis by Zillow Home Loans shows that by reducing the down payment burden to 1% of the purchase price, a homebuyer looking to purchase a $275,000 home in Phoenix, Arizona, who makes 80% of their area's median income and saves 5% of their income would only need 11 months to save for the down payment," Zillow said.

By comparison, a similar homebuyer saving for a 3% down payment would require 31 months to reach their savings goal.

Homebuyers typically aim for a 20% down payment on a house to avoid the need to pay for private mortgage insurance, but plenty of consumers also opt to put a down payment of between 5% and 20%. The record-low 1% down payment target offered by Zillow beats out Freddie Mac's mortgage option of just a 3% down payment.

Zillow said it would contribute an additional 2% to the down payment at closing for qualified borrowers. It's not a payment to the borrower.

But the 1% down payment option doesn't solve the housing affordability crisis, as smaller down payments lead to bigger monthly mortgage payments because borrowers have to take on more debt.

And as long as interest rates stay high while home prices remain elevated, the affordability picture will not improve.

The average 30-year fixed mortgage rate is now decisively above 7%, which has tacked on an extra $1,000 in monthly mortgage payments for the median US home that sells for $416,000, compared to last year's mortgage rates of about 4%.

Zillow's new down payment option comes as the company is expanding to be more than a platform to browse homes for sale.

It seeks to become a one-stop shop for prospective homebuyers, offering direct access to real estate agents and home loans underwritten by them. The move comes after the Zillow ended its home flipping business after big losses.