1% Down Mortgages: How to Buy a House With 1% Down
Buying a house is a considerable investment that used to require a substantial down payment upfront. In recent years various programs have made it possible for home buyers to purchase homes with as little as 3% down. However, in recent months specific lenders have taken it even further, making it possible for qualifying individuals to purchase a home with as little as 1% down.
Which lenders are offering 1% down mortgages?
As interest rates climb, lenders search for ways to make buying a home more enticing. In an effort to make purchasing a home more affordable and obtainable, these lenders had to get creative.
Rocket Mortgage has launched a program entitled ONE+. This program will allow individuals to pay as little as 1 percent of the purchase price.
United Wholesale Mortgage also offers a similar program that requires only 1 percent down.
How do these 1% down mortgage programs work?
Traditionally 3% is the minimum required to qualify for a conventional mortgage loan. To make it possible for borrowers to qualify with only 1%, Rocket Mortgage, and United Wholesale Mortgage cover 2% of the down payment through a grant. That way, the borrower only needs to supply 1%.
These down payment grants are, however capped to a specific dollar amount.
Rocket Mortgage will offer as much as $5000, which covers 2% of a $250,000 home.
And United Wholesale Mortgage will offer as much as $4000, which covers 2% of a $200,000 home. I
If the purchase price exceeds the above amounts, the borrower must pay the difference to reach a 3% down payment.
Typically if a borrow puts down less than 20%, they are required to pay Private Mortgage Insurance. This is a monthly fee that is paid with a borrower’s monthly mortgage payment. Generally, this can add several hundred dollars a month to a mortgage payment. However, these lenders are offering to absorb this cost so that the borrower can save hundreds of dollars every month on their mortgage.
Who Can Qualify?
The most significant stipulation is income. This program was created for borrowers who have low to moderate incomes. To qualify, borrowers can only make 80% or less of the median income in the area they are buying.
This tool allows you to see the median income in your area. If you earn less than 80% of your area’s median income, you may qualify.
Remember that you’ll still need to meet other loan requirements, such as a minimum credit score, proof of income, and debt-to-income thresholds.
What are the benefits of these mortgages?
These mortgage programs offer benefits such as:
-Saving hundreds of dollars each month on Private Mortgage Insurance.
-Eliminating the need for a significant down payment to purchase a home. This means borrowers may be able to qualify much sooner than they anticipated.
What are the potential risks?
While the benefits sound great, there are some potential risks home buyers should keep in mind. Such as:
-Purchasing a home with a small down payment means you can go underwater on your mortgage quickly and easily. For example, if you buy a $250,000 home with 1% down and a 2% grant from the lender, your mortgage loan amount will be at least $242,500. If the housing market drops and your home value drops to $230,000, you will own $12,500 more than your home’s market value. This means if you had to sell your home, you might actually have to pay $12,500 out of pocket to pay off your mortgage loan and sell your home.
-Purchasing with a small down payment means your monthly mortgage payment will be much higher than if you put 20% down. Putting less than 20% down means you will have a larger loan amount that will be more costly each month.
While there are pros and cons to 1% down mortgage loans, in the right scenario, they could benefit many potential home buyers.
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