Forgo the down payment with this rent-to-own fintech startup focused on the Bay Area.
Buying property in cities like San Francisco or Seattle can be prohibitively expensive — especially for first-time homeowners. ZeroDown claims it can help you access a home at a fraction of the cost. But even if you have the required $3,000 to $10,000 service fee and can pay the inflated monthly rent, it might make more financial sense to either rent and save or buy the house without renting first.
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Our take on ZeroDown
In competitive metro markets, a service like ZeroDown may appeal to hopeful homebuyers who see the prices of homes go up year over year and who can’t or don’t want to compete in bidding wars for their dream home. You also get the opportunity to try out a property and neighborhood before committing to purchase.
But between the service fee, the ZeroDown-imposed appreciated sales price and the high monthly payments that cover the program’s concierge service and other incidentals, you may be paying more than you need for minimal returns.
Using this service is a serious financial risk. You’re basically betting that home values won’t stagnate or decrease while you rent and that the appreciated home’s value will exceed average increases while you’re in the home.
How does ZeroDown work?
ZeroDown doesn’t offer mortgages or other home loans. Instead, it’s a rent-to-own program for potential homebuyers in the San Francisco, Seattle, Austin and Dallas-Fort Worth areas.
When you find a house you’re interested in, you can qualify with ZeroDown and they purchase the home with a cash offer.
If the offer is accepted, ZeroDown effectively becomes the owner of the home:
- You move in and sign a two-year lease on the property.
- If you decide not to buy the property, you still have to complete the two years of your lease before you can move out.
- If you want to live there permanently, you have to get your own mortgage, but you don’t have to compete against other homebuyers or offers.
- You have the exclusive option to buy the house at any time before your lease is up, starting 30 days after you move in, at the price ZeroDown paid for your home plus 2.5% a year in appreciation, or 1.25%, if you buy within the first six months.
- If the house appreciates more than that in the time you live there, you get that equity. If the house price goes down, you still pay the appreciated price.
The ZeroDown website indicates you can buy anytime between 30 days and three years, but it doesn’t say what happens after those three years and hasn’t returned our multiple calls to get answers. So, you’ll definitely want to ask as many questions as you can before signing a contract with this service.
Costs and fees
ZeroDown charges a flat starter fee that’s much lower than the typical down payment required in a high-priced area — but it’s not cheap. Your starter fee of $3,000 to $10,000 depends on where you live.
|Area||Counties included||Starter cost|
|San Francisco Bay, California||Alameda, Contra Costa, San Francisco, San Mateo, Santa Clara, Marin||$10,000|
|Greater Austin, Texas||Bastrop, Caldwell, Hays, Travis, Williamson||$5,000|
|Greater Seattle, Washington||King, Pierce, Snohomish, Thurston, Kitsap, Skagit, Island, Lewis, Mason||$10,000|
|Dallas-Fort Worth, Texas||Collin, Dallas, Denton, Ellis, Hunt, Johnson, Kaufman, Parker, Rockwall, Tarrant, Wise||$3,000|
You pay half of the starter fee when you sign up for the service:
- If ZeroDown is unable to buy the home you want, you get that money back.
- If the company purchases the home, you pay the other half when you sign the lease on the property and move in.
ZeroDown also charges monthly rent, which can be higher than your typical monthly rent or mortgage payment on the property, because it includes:
- Concierge service for home repairs
- Property taxes
- Homeowner’s insurance
You’re also responsible for buying renters insurance in addition to the homeowners policy you pay for through your monthly payment. And if your home is part of a homeowners association (HOA), those fees are added to your rent to be paid by ZeroDown.
Crunching the numbers
To give you an idea of how all these fees from ZeroDown may add up, we created an example below to show what you might pay using ZeroDown as well as estimates of what you would pay to rent or buy the same property.
For this example, we used a house worth $1.5 million in San Francisco and estimated what you might pay in rent for the property, as well as what your mortgage payment would look like if you financed the property with a 20% down payment.
|20% Down Payment||—||—||$300,000|
|Property taxes||Included in monthly payment||—||$1,498|
|Renters/Homeowners insurance||$20 for Renters; Homeowners is included in the monthly payment||$20 – Renters||$104 – Homeowners|
|Monthly HOA fees||$400||$400||$400|
According to ZeroDown’s 2.5% annual appreciation, at the end of two years, you could buy the home for $1,575,938. And because San Francisco’s home values increase 4.8% per year, that home could be worth $1,647,456 at that time — a rise in equity of $71,518 over the appreciated purchase price.
That may seem like a good deal, but at the end of two years, you’ll have paid:
- $4,350 more per month in rent plus your $10,000 fee, for a total of $114,400 more
- $3,696 more per month than a mortgage plus your $10,000 fee, for a total of $98,704 more
In either scenario, you’ll have paid out much more with ZeroDown than the equity built in the house.
Do I qualify for ZeroDown?
You won’t find a list of eligibility requirements online. Instead, qualifying requires a soft pull on your credit and a review of your income, debt obligations, financial history and employment history.
You’ll link your bank account for ZeroDown to authenticate through Plaid — a third-party fintech company. It will collect and analyze such risks as:
- Identifying personal and employment information.
- Your credit score and history.
- Up to 24 months of your banking history.
- Details on previous mortgages, outstanding debts or collateral.
- Public records that disclose bankruptcy, judgments, liens and payments.
- Employment and education information in your LinkedIn profile.
Prepare to enter personal, employment and financial details when applying that include:
- Full name and personal contact information.
- Employment information, including two recent pay stubs.
- W2s and 1099s from the past year.
- Personal tax return from the past year.
- List of assets, including savings, real estate, car titles and other investment records.
- List of debts, including student loans, auto loans, personal loans and credit cards.
ZeroDown reviews and complaints
As of August 2022, ZeroDown doesn’t have a profile on Trustpilot. The company does have a profile with the Better Business Bureau (BBB), but it’s not accredited. It has an A+ rating with no reviews or complaints.
The service’s website has a running list of recently purchased homes with cherry-picked testimonials from its customers, as well as a few video testimonials from satisfied clients. But with no independent online reviews, you may not know what to watch for as you go through the process.
The r/personalfinance subreddit has a couple of threads that break down the data to answer whether ZeroDown is a scam. The data used is from two years ago when ZeroDown’s program offered purchase credits, which it no longer does, and added more appreciation to the purchase price of its properties than it does now.
But weighing the company’s services against renting and saving for a down payment on your own is an important step before diving into a service like ZeroDown.
What are ZeroDown’s benefits?
This fintech startup has the financial backing to offer perks to those who don’t yet have the hefty down payments required to buy a home, including:
- Avoid the bidding wars. Once you’ve lived in the house at least 30 days, you have the exclusive option to buy it, without having to worry about being up-bid in a competitive market.
- Build equity while you rent. For every year you live in the house, 2.5% appreciation is added to the sales price, but the equity you build could outstrip that, depending on the location of the home and the market.
- You don’t have to buy. If your circumstances change, or you simply don’t like the house or neighborhood as much as you previously anticipated, you can move out after renting for two years.
What to watch out for
ZeroDown says it’s merely the “temporary custodian” of the home you intend to buy when signing up. But it’s the homeowner while you’re the renter, so consider these potential drawbacks:
- Two-year requirement. You have to live in your home for at least two years. If you opt to move out of your ZeroDown home after that, you lose all equity built up in the property and all the extra money you paid to cover property taxes and the concierge service.
- What happens after 36 months? The website indicates your window to buy the property only extends up to three years from when you move in, even if your salary isn’t at a point where you can afford it. What happens after is unclear, and our calls to learn more weren’t returned.
- Untransparent site and support. The site’s focus is on properties like a real estate agency, making service details hard to find. Our calls to reps went unanswered, leaving us to wait for an emailed response that never materialized.
Alternatives to ZeroDown
ZeroDown offers a unique option for buying a home, but its market is severely limited and its fees can add up quickly. If you’re interested in a rent-to-own service but live outside ZeroDown’s service area, there are some alternatives to consider.
For instance, Divvy is a similar rent-to-own service with a more expansive market. Its fee structure is also a little more straightforward.
You pay a down payment of between 1% to 2% of the home’s purchase price and a monthly payment. About 75% of the monthly payment goes toward rent, and the other 25% goes toward your future down payment if you decide to buy the home.
With Trio, lease-to-own with fixed monthly payments and there’s no down payment required. You only pay a 1% origination fee and a flat $1,295 underwriting fee to use the service.
Rent-to-own programs like these provide a path to homeownership, but they’re not right for everyone. Always do your own due diligence and make sure you fully understand the process and any associated fees before moving forward.
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How to qualify with ZeroDown
ZeroDown’s site isn’t intuitive, which is a barrier to qualifying.
Use the steps below to get an estimate of what ZeroDown thinks you may qualify for and set up an appointment to start your application.
- Go to ZeroDown’s website and select Sign Up to create an account.
- Select Sign up here and enter your full name and email address. Choose Create Account.
- Navigate to the bottom of the page and select About, hit Financing Home and then My Dashboard.
- Select Edit above Your Estimated Buying Power and follow the prompts to enter information about your goals, price range and what you’re looking for in a home. Hit Next.
- Enter your financial information and select Next.
- Note the estimate of how much house you can afford and select how you want a ZeroDown representative to contact you.