Zero Interest Supplemental Home Loan Program (ZIP Loan)

Zero Interest Program

The Zero Interest Supplemental Home Loan Program (ZIP loan) is a loan product available through the University of California’s Home Loan Program (“Program”). The ZIP loan is intended to support equitable access to the housing market for new faculty in aid of their purchasing a principal place of residence in the Bay Area. With the approval of their academic unit(s), new recruits with a Faculty Recruitment Allowance (FRA) have the option to convert all or part of their FRA into a ZIP loan with no monthly payments, zero percent interest, and a forgiveness feature, rather than taking the FRA as a cash disbursement. 

A ZIP loan provides secured subordinate (secondary) financing, most often paired with a Mortgage Origination Program (MOP) loan in first position (a ZIP loan may not be used in combination with a SHLP loan). Effectively, a ZIP loan can be used to decrease the minimum down payment required by the Program for a home purchase from 10% to as little as 5% (95% Loan to Value), to reduce the principal amount that a faculty member needs to borrow as a MOP loan, or to augment their down payment and, so, increase their purchase power.

Only one ZIP loan and one ZIP participant is allowed per home purchase. The ZIP participant will be designated as the Primary Borrower for the Program loan(s). The Primary Borrower will assume all tax reporting and forgiveness parameters tied to the Program loan(s). The ZIP loan can only be carried by the Primary Borrower and is not assumable by another borrower or survivor. If the designated co-borrower is also an Academic Senate member with an FRA, they must choose to take their FRA as cash disbursement.

Loan Overview

  • Interest Rate: 0%

  • Payment: No Monthly Payment

  • Loan Term: 10-11 years, depending on the funding date

  • Maximum Loan Amount: Equal to or less than Faculty Recruitment Allowance commitment, with some restrictions 

  • Minimum Loan Amount: $10,000

  • Lien Position: 2nd position

  • Transaction Type: Purchase (same property requirements as the MOP)

Loan Forgiveness

Ten percent (10%) of the original principal of the ZIP loan may be forgiven annually with the written endorsement of the department chair or equivalent designee, provided that the participant:

  1. Continues to be employed as an eligible participant

  2. Is in good standing; and

  3. Is not in default on any term or condition of a Program loan.

A faculty member is to be considered in Good Standing if:

  1. They are carrying out their faculty duties as defined in their appointment or are on any applicable approved leave;

  2. there has been no substantiated finding of misconduct as defined by Section 015 of the Academic Personnel Manual (APM 015) in the period since they were last reviewed to see if they were in good standing;

  3. they are not currently under suspension without pay imposed by a formal disciplinary process or have an informal agreement with the University in lieu of formal disciplinary action;

  4. they are up to date on their mandatory trainings in the UC Learning Center; and

  5. they are in compliance with all University policies.

The annual forgiveness process begins in July of each year. Loans whose initial fund date falls between July and December will be reviewed for forgiveness during the forgiveness processing period the year after funding. As such, loan terms will vary between 10-11 years, depending on the funding date. For example, the first forgiveness review period for a loan that was funded in July 2023 would begin in July 2024. 

All Program loans are condition-of-employment loans (i.e., borrowers must remain employed by the University in an eligible title). The ZIP loan can be declared due and payable before the original due date (“loan acceleration”) for several reasons, including:

  1. The ZIP participant separates from the University, including by retirement, voluntary or involuntary termination, or death; or transfers to another University campus;

  2. the borrower becomes ineligible under the Program guidelines (e.g., change in series, reduction in percent time, falling out of Good Standing status, or other reasons);

  3. if the property securing the loan is sold or transferred.

If the loan due date is accelerated, any outstanding principal balance (original principal balance, less any forgiven amount) is fully due and payable within six months, and payment is not contingent upon the sale price or fair market value of the house or any other factor. This is considered a “balloon payment.” At the end of the loan term, provided no loan acceleration has been triggered, the entire ZIP loan principal will have been forgiven with no payback needed.

Please note: Any loan forgiveness and imputed interest will be reported as taxable income, in the year forgiven, on the participant’s December payroll, subject to standard withholding requirements and will appear on their W-2 form. The IRS considers the ZIP loan to be a below market-rate loan, subject to imputed interest. Participants should consult with their tax advisor if they have any questions concerning their particular tax situation.