Home Insurance Can You Get a Mortgage With 1% Down?

Can You Get a Mortgage With 1% Down?

by Joshua Garcia

Buying a home has become increasingly difficult in recent years, as the cost of homeownership continues to rise. One major obstacle for potential homeowners is the down payment, as many renters struggle to come up with the necessary funds. However, mortgage lenders have begun to offer more affordable mortgage programs to widen their pool of borrowers. One such program is the 1% down mortgage, which allows borrowers to purchase a home with just 1% of the purchase price in cash.

It is important to understand how these mortgages work and whether they are suitable for your needs and future plans. Traditionally, the lowest down payment you could make on a conventional mortgage was 3%. Government-backed mortgages allowed for no down payment, but only to borrowers who met specific eligibility criteria. With a 1% down mortgage, the borrower is only required to bring 1% of the purchase price in cash, while the lender provides a 2% grant to achieve a total down payment of 3%.

This type of mortgage can be a game changer for many lower-income households, as it significantly reduces the amount of money needed to become a homeowner. For example, instead of needing at least $7,500 for a $250,000 home with a 3% down payment, a borrower would only need $2,500 with a 1% down mortgage. The lender would provide the other $5,000 as a grant, in addition to a loan to cover the remaining purchase price.

Currently, the two major mortgage lenders offering nationwide 1% down mortgage programs are Rocket Mortgage and United Wholesale Mortgage. Rocket Mortgage’s program, called ONE+, is available to borrowers making 80% or less of the area median income, with a minimum credit score of 620. The ONE+ mortgage does not require private mortgage insurance (PMI), which is generally required on conforming loans with down payments below 20%. United Wholesale Mortgage’s program, called the Conventional 1% Down mortgage, also requires 80% or less of the area median income and a minimum credit score of 620. However, UWM’s program does require PMI and the grant from UWM is limited to a maximum of $4,000.

Zillow Home Loans also recently introduced a 1% down payment program, but it is currently only available in Arizona. Zillow has not provided additional details about their program, including income limits or whether it requires PMI.

There are pros and cons to consider when it comes to 1% down mortgages. On the positive side, these mortgages allow homeowners to spend less on their down payment and receive additional equity from the lender’s grant. This extra savings can be used for other financial goals, such as purchasing new furniture or building an emergency fund. However, there are drawbacks as well. These mortgages can result in larger monthly payments and the borrower could end up underwater if home values drop. Additionally, refinancing may be difficult if you only have 3% equity in your home.

If a 1% down mortgage does not meet your needs or you do not qualify for one, there are other affordable options available. FHA loans, backed by the Federal Housing Administration, require a down payment of just 3.5% and have less stringent credit requirements. VA loans, available to current servicemembers and veterans who meet minimum service requirements, require no down payment or mortgage insurance. USDA loans, guaranteed by the Department of Agriculture, enable low-to-middle income borrowers in eligible areas to buy a home with no money down.

Many individual lenders also offer their own mortgage programs with low down payment options and additional perks, such as closing cost grants or flexible credit requirements. It is important to explore all available options and compare the terms and conditions before making a decision.

Overall, 1% down mortgages can be a great opportunity for lower-income households to become homeowners. However, it is crucial to fully understand these mortgages and consider the potential risks and benefits before committing to one. Consult with mortgage experts and assess your financial situation to determine if a 1% down mortgage is the right choice for you.

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