In the past few months, 1% down payment mortgages have returned with a vengeance.
The programs have emerged as both home prices and mortgage rates remain stubbornly high.
Now San Diego-based Guild Mortgage has gone a step further by combining a 1% down loan with a temporary buydown.
If this isn’t enough to persuade a borrower to purchase a home, who knows what is?
Guild Mortgage 1% Down Payment Advantage
The new “1% Down Payment Advantage” program from Guild Mortgage allows borrowers to finance up to 99% of a home purchase.
On top of that, the company will lower your mortgage rate for the first year by 1% as well.
This is known as a temporary buydown, in which funds are placed in a buydown escrow account and dispersed during the first 12 months.
As a result, the home buyer enjoys a lower monthly payment for the first year, and only needs a 1% down payment.
The down payment piece works by combining a 3% down conforming loan and a 2% non-repayable grant offered by Guild, putting the loan-to-value (LTV) ratio at 97%.
The maximum amount of said grant is $5,000, meaning a maximum purchase price of $250,000 to get the full 2%.
A minimum FICO score of 620 is required and area median income limits apply (80% or less AMI) . Additionally, it has to be a primary residence. No second homes or investment properties.
Both first-time home buyers and repeat buyers are eligible, but homebuyer education is required.
It might even be possible to get your mortgage rate lowered by 2% the first year and 1% the second year.
To accomplish this, you’d need a seller contribution to temporarily reduce the rate by 2% for the first year, with Guild providing the 1% discount in year two.
This is known as a 2/1 buydown and provides payment relief for a full 24 months before the mortgage rate applies.
Guild Mortgage Payment Protection
But wait, there’s more. Guild is combining another perk to their 1% down program known as “Payment Protection.”
The way it works is simple. Upon closing, the borrower will receive a “Payment Protection Program Certificate,” which can be used to refinance with no lender fees.
You must have made six consecutive on-time payments on the purchase loan before applying for the refinance.
It has to be a rate and term refinance (no cash out allowed) and the loan must close no later than December 31st, 2025.
Waived fees include those paid to the lender, including origination, processing, underwriting, administration, closing, or funding fees.
However, third-party fees may still apply, such as title insurance, escrow, and so on.
To sum things up, Guild is basically throwing the kitchen sink at borrowers.
They’re offering a 2% grant toward the down payment, a 1% reduction in the mortgage rate during year one, and no lender fees if you refinance with them in the near future.
This speaks to how tough the current mortgage lending environment is at the moment. With mortgage rates nearing 7%, volume has fallen substantially.
Guild Mortgage is a top-30 mortgage lender nationally and funded nearly $20 billion in home loans during 2022.
But volume declined from around $34 billion a year earlier, forcing mortgage companies to get increasingly creative to drum up new business.
Good Deal or No?
As always, you’ve got to consider the big picture. First, does it make sense to buy a home at the moment?
Prices remain high and mortgage rates are no longer a bargain. And if you need a grant to make it work, you might be in over your head.
Second, is Guild offering the best combination of mortgage rate and fees relative to other options?
Sure, it’s nice to get a discount on your mortgage rate in year one and a grant toward the down payment, but other companies offer similar programs.
So you still need to take the time to shop around with other lenders, credit unions, banks, and mortgage brokers.
If Guild happens to offer the best price and throws in all these additional perks, perhaps they could be a solid choice.