• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

The details

Of course a 1% down payment loan sounds wonderful, but what’s the catch? There are a number of caveats for who can even take advantage of these programs.

Both loans require you to have an income at or below 80% of the median income in your area. A minimum credit score of 620 is also necessary. ONE+ is also only available to homebuyers purchasing single-family units.

Now of course the benefits of the new loan to buyers are pretty obvious. If you’re purchasing a $350,000 home through ONE+, for example, you don’t have to pay $70,000 to meet the 20% threshold to eliminate the need for loan insurance. You don’t even have to reach the $10,500 required for the 3% threshold. Instead, you would put down just $3,500. This could help a borrower improve their cash flow, preventing them from going under quickly.

Seeing mortgages with such low down payment requirements may remind market watchers of the 2008 crisis, where borrowers received loans they eventually were unable to pay. Poor underwriting practices were a big part of the problem, according to the International Monetary Fund.

Walters insists his company’s requirement borrowers meet specific credit standards acts as a safeguard against the same pitfalls.

“We are not reducing the qualifications and putting people into loans they can’t afford,” Walters told MarketWatch.

“While a program like this isn’t going to solve the supply problem in America, what it does is level up some of the folks who really are struggling in a market that’s often competitive, and where prices have risen,” he added.

More: Best mortgage lenders of 2023

Stop overpaying for home insurance

Home insurance is an essential expense – one that can often be pricey. You can lower your monthly recurring expenses by finding a more economical alternative for home insurance.

Officialhomeinsurance can help you do just that. Their online marketplace of vetted home insurance providers allows you to quickly shop around for rates from the country’s top insurance companies, and ensure you’re paying the lowest price possible for your home insurance.

Explore better rates

Interest rate

These mortgages may reduce upfront costs, but the question remains, how long would it take borrowers to pay back such a loan?

Sure, you’ve paid 1% down on a home, but mortgage interest rates remain high. The average 30-year fixed rate climbed to 6.57% this week.

It’s clear what Rocket Mortgage and UWM are getting out of this scenario. Borrowers will be locked in at high rates. What’s more, it will likely take longer for them to pay off these mortgages given the target consumers are low-to-moderate income earners.

Yet, if you’re desperate for a home, these loans could still provide you with savings in terms of keeping cash in your pocket upon purchase. Furthermore, the 2% coverage provided is considered a “grant,” so you don’t have to pay that back.

At the end of the day, it’s always a good idea to meet with your financial adviser before agreeing to anything, especially a mortgage that could see you owe your hard-earned income for decades.

Sponsored

Follow These Steps if you Want to Retire Early

Secure your financial future with a tailored plan to maximize investments, navigate taxes, and retire comfortably.

Zoe Financial is an online platform that can match you with a network of vetted fiduciary advisors who are evaluated based on their credentials, education, experience, and pricing. The best part? - there is no fee to find an advisor.

About the Author

Amy Legate-Wolfe

Amy Legate-Wolfe

Freelance contributor

Amy Legate-Wolfe is an experienced personal finance writer and journalist. She has a Bachelor of Arts in History from the University of Toronto, a Freelance Writing Certificate in Journalism from the University of Toronto Schools, and a Master of Arts in Journalism from Western University. Amy has worked for Huffington Post, CTVNews.ca, CBC, Motley Fool Canada, and Financial Post. She is skilled at analyzing trends and creating content for digital and print platforms. In her free time, Amy enjoys reading and watching British dramas on BritBox. She is a mother and dog-mom to a Wheaten Terrier.

What to Read Next

FHA loan calculator

Our FHA loan calculator will help you determine how much of a loan you'll need. It will give you a clearer picture of your financial requirements at closing.

Disclaimer

The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.