To open the door for more home buyers, lenders are rolling out 1% down payment programs for conventional loans to offset the initial costs of purchasing a home. With the approach of lowering the cost to get into a home, companies like Guild Mortgage and Rocket Mortgage have recently announced their available programs.
“Programs like a 1% down conventional loan are meaningful for buyers because they allow the consumer the ability to take money otherwise used for a down payment to buy the rate down or keep that cash in reserves,” says Nicollette Chapman, vice president of Zonda’s national sales, mortgage data solutions. “When paired with a builder incentive, it’s a very powerful offering.”
In terms of lender size and which mortgage companies are able to offer 1% programs, Chapman says the options and pricing are largely dependent on the risk and appetite of the investors involved. “Although several larger mortgage companies are offering the 1% conventional loan, smaller brokerages may also be able to do the same thanks to offerings available through wholesale channels,” she notes.
Guild’s 1% Down Payment Advantage includes a 1% down payment and a temporary 1% one-year lender interest rate buydown that is designed to make homeownership more attainable to low- to moderate-income home buyers. The program is available to first-time and repeat home buyers purchasing single-family homes with incomes equal to or less than 80% of the area median income (AMI).
“We know that accessibility to homeownership goes beyond just lowering the down payment. It’s about ensuring long-term sustainability by tackling the three critical financial challenges of buying and maintaining a home: upfront costs, monthly expenses, and financial resilience after purchasing a home,” says David Battany, Guild’s executive vice president of capital markets.
“With our 1% Down Payment Advantage program, we support home buyers in all three of these areas. By putting an extra two points of cash into their reserves on day one and offering a 1% one-year interest rate buydown that reduces their monthly mortgage payment, we assist borrowers to more quickly build up their cash reserves, which helps sustain them in their new home during their critical first five years of homeownership when most first-time home buyers typically have low cash savings reserves,” Battany continues. “This sets the stage for a successful homeownership journey, arming them with the confidence and means to handle life’s unexpected surprises.”
Just last month, Rocket Mortgage debuted its ONE+ program, a 1% down home loan option. This is achieved by buyers putting down 1% of the purchase price and Rocket Mortgage covering the remaining 2% needed to meet the conventional loan’s threshold. Additionally, ONE+ eliminates monthly mortgage insurance fees that are traditionally required for down payments that are less than 20% of the purchase price.
“We have seen tremendous interest in ONE+ since we launched the program, and it’s no surprise. Housing affordability is on everyone’s mind,” shares Bill Banfield, executive vice president of capital markets. “Saving money, both on a down payment and by eliminating the expensive mortgage insurance fee, helps home buyers keep more in their pocket to use for other household items or build their savings.”
Rocket Mortgage’s program is available for home buyers purchasing single-family homes with an income equal to or less than 80% of the AMI. The lender estimates that more than 90 million people can meet the income requirements for this program, based on publicly available income data.
By the numbers, a home buyer who is purchasing a $250,000 home needs a minimum down payment of 3%, or $7,500. With the program, the buyer would only need a $2,500 down payment, and the fee-free mortgage insurance could save as much as $245 per month on a loan of $242,500.
“We talk with people from all walks of life every single day—many of whom are ready to own a home and could easily make the monthly mortgage payments but are having trouble saving for a down payment. ONE+ is a response to that feedback and the latest example of Rocket’s commitment to creating programs that help make homeownership more attainable,” says CEO Bob Walters.
For home builders who are interested in offering similar programs, Chapman shares, “In this market environment, a builder’s lender of choice can without question tilt the scales in their ability to be profitable. Now is the time to prioritize meetings with lender partners, ensuring the consumer has the loan products necessary to move them off the sideline.”
