ECONOMY & WORK
MONEY 101
NEWS
PERSONAL FINANCE
NET WORTH
About Us Contact Us Privacy Policy Terms of Use DMCA Opt-out of personalized ads
© Copyright 2023 Market Realist. Market Realist is a registered trademark. All Rights Reserved. People may receive compensation for some links to products and services on this website. Offers may be subject to change without notice.
MARKETREALIST.COM / NEWS

Buying A Home? America's Top Lenders Are Offering Loans That Require 1% Down; What Are The Associated Risks?

Low down payment loans broaden access to homeownership but entail potential risks
UPDATED JAN 22, 2024
Cover Image Source: Getty Images | Christopher Furlong
Cover Image Source: Getty Images | Christopher Furlong

In an effort to enhance accessibility to homeownership, two major lenders in the United States, the United Wholesale Mortgage and the Rocket Mortgage, have introduced home loan programs that only require a 1% down payment. These initiatives are designed to broaden homeownership opportunities for individuals with lower to moderate incomes who may encounter difficulties in saving for a conventional down payment.

While these programs offering low down payment options come with advantages and opportunities, it is crucial to carefully consider the related factors and risks.



 

United Wholesale Mortgage, the nation's largest home mortgage lender, has recently launched a loan program that only necessitates a 1% down payment. Under this program, borrowers are expected to contribute 1% of the sale price of the home, and United Wholesale Mortgage contributes an additional 2%, resulting in a minimum total down payment of 3%. The objective of this program is to expand homeownership opportunities for families who may encounter challenges in saving for a conventional down payment.

Source: GettyImages | Mike Mulholland  Stringer
Source: GettyImages | Mike Mulholland Stringer

Rocket Mortgage, a prominent lender, has also introduced its own low down payment program known as One+. Eligible borrowers have the option to put down as little as 1% for a conventional loan. Rocket Mortgage supplements this by contributing an additional 2% of the loan amount, allowing borrowers to achieve a combined maximum down payment of 4.99%. The One+ program eliminates the need for private mortgage insurance (PMI), which is typically required when the down payment is less than 20% of the property's purchase price.

The 1% down loan programs present several benefits and opportunities for borrowers. Firstly, these programs make homeownership more affordable by reducing the upfront costs associated with purchasing a home. By requiring only a minimal down payment, borrowers can enter the housing market earlier and expedite their progress towards achieving their down payment savings goals.



 

While low down payment loans offer certain advantages, it is important for borrowers to thoroughly study the risks. One primary consideration is the potential for higher monthly payments. With a lower down payment, the loan amount and the interest paid over the loan term are higher compared to a larger down payment. Consequently, borrowers may face elevated monthly mortgage payments, which can strain their monthly budget.

Source: GettyImages | Christopher Furlong  Staff
Source: GettyImages | Christopher Furlong Staff

Another significant factor to consider is the risk of being "underwater" on the mortgage. When borrowers make a minimal down payment, they have less equity in the home. In the event of a housing market downturn or if the borrower needs to sell the property in the future, they may owe more on the mortgage than the current value of the home. This circumstance can make it challenging to sell the property or refinance the loan, potentially trapping the borrower in a difficult financial situation.

Low down payment loans may also impose more stringent credit score requirements and income restrictions. Borrowers must have a minimum credit score of 620 and cannot earn more than 80% of their area's median income. These requirements ensure that borrowers possess adequate financial stability to manage homeownership responsibilities, but they may limit the eligibility of some potential homebuyers.

Source: GettyImages | Tim Boyle  Staff
Source: GettyImages | Tim Boyle Staff

It is essential to explore alternative loan options and make comparisons. Several alternatives are available for borrowers seeking lower down payments:

FHA loans: These loans mandate a minimum down payment of 3.5% and are backed by the Federal Housing Administration. 

USDA loans: Geared towards rural homebuyers, USDA loans offer a 0% down payment option for eligible borrowers. Income requirements must be met to qualify.

VA loans: Exclusively available to qualified military service members and veterans, VA loans provide the opportunity for 0% down payment financing. 

Conventional loans with low down payment options: Various conventional loan programs, such as HomeReady by Fannie Mae and Conventional 97, offer down payment options as low as 3%. 

Source: GettyImages | Joe Raedle  Staff
Source: GettyImages | Joe Raedle Staff

These programs aim to promote homeownership and enhance accessibility for lower- and moderate-income borrowers. However, borrowers must carefully evaluate the benefits and risks associated with low down payment loans, consider alternative options, and make a decision that aligns with their financial goals and circumstances.

MORE ON MARKET REALIST
Many who didn't like Seacrest at first seemed to have come around through the season.
1 day ago
The guest couldn't believe her ears when she heard that her old gift from a friend was worth $10,000.
2 days ago
The presentation from the founders of "Bear Minimum" managed to move multiple Sharks.
2 days ago
While the expert on the BBC show did his duty of sharing an appraisal, the guest did not budge.
2 days ago
Fans couldn't believe how quickly the contestant solved the Bonus Round puzzle.
2 days ago
The entrepreneur was called a clever negotiator by all sharks although most of them dropped out.
2 days ago
The guest was in tears after learning that her family's prized possession was worth over $100,000.
3 days ago
The guest got incredibly lucky to find a Benny Andrews painting while looking at junk.
3 days ago
The guest was shocked to learn that someone would pay $20,000 for Queen Victoria's undergarments.
3 days ago
The guest's family heirloom turned out to be exactly as valuable as he thought.
3 days ago
The guest who assumed it was an ancient Chinese artifact said it felt like 'a stab to the heart'
4 days ago
While all the sharks burned calories, most were unwilling to burn their money.
5 days ago
In an interview with CNET's Patrick Colin, Harrison showed off his vintage tech items.
5 days ago
The item, which didn't seem too useful as a cup, turned out to be a significant piece of history.
5 days ago
The player had everyone on the edge of their seats as time was running out.
5 days ago
The member complained that the store had half-eaten boxes of food on the shelves for customers.
5 days ago
The owner of Michael Jordan's three rookie cards from 1986 to 1987, who got them for $12, was hoping to get $1,000 for the set.
6 days ago
The ring with a rare Kashmir Sapphire turned out to be worth a lot more than the guest anticipated.
6 days ago
The host once again got candid to open up about one of his greatest fears.
6 days ago
The guest's $1,500 investment went up by nearly 10 times in value.
7 days ago