The Ins and Outs of 1 Down Mortgage Loans

Getting a mortgage with only 1% down may sound too good to be true, but these types of loans actually do exist! As a mortgage broker, I want to provide an in-depth look at how 1 down mortgage loans work and who can qualify for them.

What Exactly is a 1 Down Mortgage?

A 1 down mortgage loan allows homebuyers to purchase a home with just 1% down payment The lender covers the additional 2% down payment in the form of a grant that the borrower does not have to repay This results in a total down payment of 3%,

For example, if you purchase a $200,000 home, you would only need to provide $2000 down and the lender would contribute an additional $4000 grant. So you are putting 3% down in total, even though you are only providing 1% out of your own funds.

The Benefits of 1 Down Mortgages

There are several advantages to 1 down mortgage loans:

• Low down payment requirement – Only having to save 1% for a down payment makes homebuying more accessible, especially for first-time buyers.

• Receive down payment assistance – Getting an extra 2% down in grant form from the lender makes these loans even more appealing.

• Competitive interest rates – 1 down mortgages are conventional loans, so they typically have better interest rates than FHA or USDA loans with similar down payments.

• No mortgage insurance – Some lenders, like Rocket Mortgage, offer 1 down mortgages without mortgage insurance. This can save thousands over the life of the loan.

Qualifying for a 1 Down Mortgage

While 1 down mortgages have tempting benefits, they do come with eligibility requirements. Here’s what you need to qualify:

• Credit score of 620+ – Most lenders require a minimum credit score in the low to mid 600s.

• Income at or below 80% of area median – Your income must not exceed 80% of the median income in the area where you want to buy. Lookup tools can check the limit.

• Purchase price under conforming loan limits – There is typically a cap on the purchase price, around $350,000. High-cost areas may be higher.

• Owner-occupied single family home – These loans are for primary residences only, not investment properties. Condos may be restricted too.

Meeting these requirements is crucial. Those who earn too much or have credit scores below 620 will not qualify for a 1 down mortgage loan.

Where to Get a 1 Down Mortgage

Currently, only a handful of lenders offer 1 down mortgage programs:

• Rocket Mortgage – Their ONE+ loan has no mortgage insurance and up to $7,000 down payment assistance.

• United Wholesale Mortgage – Their 1% down conventional loan is available through brokers. Grants are capped at $4,000.

• Zillow – Recently launched 1% down loans in select states. Plans to expand nationwide.

These lenders pioneered 1 down mortgages. If they gain popularity, expect more options from other lenders down the road.

Alternatives for Low Down Payment Loans

If you don’t qualify for a 1 down mortgage, you still have alternatives:

• FHA loans – Require just 3.5% down with a 580 credit score minimum. But mortgage insurance is more expensive.

• VA loans – No down payment needed if you are a veteran or surviving spouse. Income limits apply.

• USDA loans – Also 100% financing if you buy in an eligible rural area and meet income caps.

• HomeReady or Home Possible – 3% down conventional loans from Fannie Mae and Freddie Mac if your credit score is at least 620.

Saving up 3-3.5% down probably won’t take much longer than 1% down. But you miss out on the extra lender assistance.

The Pros and Cons of 1 Down Mortgages

Let’s recap the key advantages and disadvantages:

Pros

• Ultra low 1% down payment
• Receive a 2% grant from the lender
• No mortgage insurance with some lenders
• Competitive interest rates
• Easier to qualify than most low down payment mortgages

Cons

• Strict eligibility requirements
• Limited lender options right now
• Higher risk of ending up underwater on the loan

The pros seem to outweigh the cons, especially if you receive down payment assistance. But run the numbers to see if it truly makes sense for your situation.

Common Questions about 1 Down Mortgages

Here are answers to some frequently asked questions about 1 down mortgage loans:

Can I really buy a house with only 1% down?

Yes, if you qualify for a 1 down mortgage! You put 1% down and the lender contributes 2% as a grant.

What credit score is needed?

You’ll need a credit score of at least 620 for most 1 down mortgages. Some lenders may go a bit lower.

Is income limited for these loans?

Yes, your income must be at or below 80% of the median income in the area you want to buy. Lookup tools can verify you qualify.

Who offers 1 down mortgages?

As of now, mainly Rocket Mortgage, United Wholesale Mortgage, and Zillow. But more options may be coming as these loans gain traction.

What if I don’t qualify for a 1 down mortgage?

Consider FHA, VA, and USDA loans which also allow low down payments for certain borrowers. Or save for 3% down with HomeReady/HomePossible.

Are 1 Down Mortgage Loans Right for You?

If you want to buy a home with minimal cash out of pocket, a 1 down mortgage can make that possible. Just be sure you meet the eligibility criteria. And compare costs and rates to alternatives like FHA or HomeReady loans. A 1 down mortgage is an exciting new option for first-time buyers, but make sure it aligns with your home buying goals and financial situation.

As a mortgage broker, I’m happy to go over your options in detail and see if we can get you qualified for one of these innovative new 1 down mortgage loans. Reach out today to get the process started!