Rocket Mortgage is the latest company to offer a 1% down payment mortgage to address ongoing affordability concerns.
Coded “ONE+,” the new program offers a 2% grant from the Detroit-based lender to supplement a borrower’s 1% down payment.
In addition, it provides private mortgage insurance at no cost that would normally be mandatory with such a down payment.
Together, this could enable more potential homebuyers to cross the finish line in what has proven to be a challenging environment.
It is available to both first time homebuyers and repeat buyers, as long as they meet the income and property requirements.
How does Rocket Mortgage ONE+ work?
In short, it’s a low 3% mortgage backed by Fannie Mae, with Rocket Mortgage providing 2% in grant form.
This means that home buyers only need to have 1% of the purchase price to qualify for the loan, but they lock in 3% of the equity.
For example, a $300,000 home purchase would require a $9,000 down payment if a 3% reduction.
If you use ONE+, you can only get $3,000, with Rocket saving the remaining $6,000.
That would leave you with a loan amount of $291,000, as if you had come in at the full 3%, which is the minimum required for a compatible loan.
And to sweeten the deal even further, ONE+ “completely cancels” private mortgage insurance, which is required for loans above 80% loan-to-value (LTV).
This lack of mortgage insurance premiums can provide additional savings, as they are paid monthly along with the rest of your mortgage payment.
So homebuyers can bring a little to the closing table and save each month they own their home.
Rocket cited an example where buying a $250,000 home with a 3% decline could result in a PMI monthly premium of $245.
Aside from substantial savings, it may be easier to qualify for a home loan without these monthly fees factoring into the borrower’s debt-to-income (DTI) ratio.
Who qualifies for Rocket Mortgage ONE+?
The main requirement for the program is that the income be equal to or less than 80% of the area median income (AMI).
Rocket Mortgage estimates that more than 90 million Americans fall into this range, based on publicly available income data.
You can use Fannie Mae’s District Median Income Finder to determine the maximum income by district or given address.
It will display the average income for the area, which I believe is the total income, along with 80% AMI and 50% AMI.
If your income is at/below the 80% threshold, you may qualify assuming you meet other underwriting guidelines.
Speaking of which, the property itself must be a primary residence (the house you live in full time). It must be a single-family home (multi-unit properties are not allowed).
However, manufactured homes qualify, so this is some flexibility in terms of property type. It is unclear if private apartments are allowed.
In terms of credit score, the minimum required FICO score is 620, which is the standard for all loans backed by Fannie Mae and Freddie Mac.
Finally, the maximum loan amount allowed is $350,000.
Is this a good deal?
Finally, Rocket Mortgage ONE+ is another mortgage option with a 1% down payment. There are others out there.
In fact, United Wholesale Mortgage (UWM) launched a 1% reduction program in April, even though it requires that you make 50% or less of the average income in the area.
And their product is backed by Freddie Mac, the other government-sponsored foundation (GSE) besides Fannie Mae.
The Rocket version is more flexible in terms of income allowance and offers mortgage insurance at no cost.
It also allows you to incorporate a temporary price purchase (such as a 2/1 buydown) if offered by the seller, builder, or real estate agent.
So it’s possible to take advantage of a few different things at once, assuming the credits are thrown your way.
As always, take the time to learn about the other loan programs out there. There are other lenders that offer grants that allow for a 1% down payment.
There are also other loan programs that require little or nothing, such as FHA loans, VA loans, and USDA loans.
And no matter the down payment, be sure to look at the big picture. What is the offered interest rate? What does your total housing payment look like?
You should analyze the whole deal to see if it is worth it.
For the record, you can also apply for ONE+ via a mortgage broker through a Rocket Pro TPO.
Read more: Best Mortgage Lenders in 2022: Squeak Rocket Passes UWM for First Place