Rocket Mortgage is the latest company to offer a 1% down payment mortgage to address ongoing affordability concerns.
The new program, coined “ONE+,” offers a 2% grant from the Detroit-based lender to supplement the borrower’s 1% down payment.
Additionally, it offers private mortgage insurance at no cost that would typically be compulsory with such a small down payment.
Together, this could enable more prospective home buyers to cross the finish line in what has proven to be a challenging environment.
It’s available for both first-time home buyers and repeat buyers, as long as they meet income and property requirements.
How Rocket Mortgage ONE+ Works
In a nutshell, it’s a 3% down mortgage backed by Fannie Mae, where Rocket Mortgage provides 2% in the form of a grant.
This means the home buyer only needs to come up with 1% of the purchase price to qualify for the loan, but they close with 3% equity.
For example, a $300,000 home purchase would require a down payment of $9,000 if putting down 3%.
If you used ONE+, you could come in with just $3,000, with Rocket providing the remaining $6,000.
That would leave you with a loan amount of $291,000, as if you had come with the full 3%, which is the minimum required for a conforming loan.
To sweeten the deal even further, ONE+ “completely eliminates” private mortgage insurance, which is required for loans above 80% loan-to-value (LTV).
This lack of a mortgage insurance premium can provide additional savings, as it’s usually paid monthly alongside the rest of the mortgage payment.
So home buyers can bring less to the closing table and save each month they own their home.
Rocket cited an example where a $250,000 home purchase with 3% down could result in a monthly PMI premium of $245.
Aside from the big savings, it could be easier to qualify for a home loan without that monthly charge factored into the borrower’s debt-to-income (DTI) ratio.
Who Qualifies for Rocket Mortgage ONE+?
The main requirement for the program is that income must be equal to or less than 80% of the area median income (AMI).
Rocket Mortgage estimates that more than 90 million Americans fall into that range, based on publicly available income data.
You can use Fannie Mae’s Area Median Income Lookup Tool to determine maximum incomes by area or specific address.
It will display the area median income, which I believe is gross income, along with 80% AMI and 50% AMI.
If your income is at/below that 80% threshold, you may be eligible assuming you meet other underwriting guidelines.
Speaking of, the property itself must be a primary residence (the home you live in full time). And it must be a single-family home (no multi-unit properties permitted).
However, manufactured homes are eligible, so this is some flexibility regarding property type. It’s unclear if condos are permitted.
In terms of credit score, the minimum FICO required is 620, the norm for all loans backed by Fannie Mae and Freddie Mac.
And finally, the maximum loan amount allowed is $350,000.
Is This a Good Deal?
Ultimately, Rocket Mortgage ONE+ is another 1% down payment mortgage option. There are others out there.
In fact, United Wholesale Mortgage (UWM) launched a 1% down program back in April, though it requires that you make 50% or less than the area median income.
And their product is backed by Freddie Mac, which is the other government-sponsored enterprise (GSE) along with Fannie Mae.
Rocket’s version is more flexible in terms of income allowed and provides mortgage insurance at no cost.
It also allows you to combine a temporary rate buydown (such as 2/1 buydown) if provided by the seller, builder, or real estate agent.
So it’s possible to take advantage of a few different things at once, assuming credits are being thrown your way.
As always, put in the time to see what other loan programs are out there. There are other lenders offering grants that allow for a 1% down payment.
And down payment aside, be sure to look at the big picture. What’s the interest rate being offered? What does the total housing payment look like?
You’ve got to analyze the entire deal to see if it’s worth it.
For the record, you can also apply for ONE+ via a mortgage broker through Rocket Pro TPO.