On May 22nd, Rocket Mortgage started ONE+, a program to help mid- and low-income borrowers buy a house with only 1% down and no private mortgage insurance (PMI). Rocket is offering this conventional mortgage product as part of their affordable housing initiative, and executives insist they’ll use strict credit standards to qualify homebuyers and prevent a repeat of the subprime mortgage crisis of the early 2000s.
But the lender will have to mitigate the risk of the low down payment somehow. And this deal doesn’t include closing costs, which can add another 3% to 6% to your loan’s cost.
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To participate in Rocket’s new program, you apply for the loan with 1% down, and Rocket gives you a grant worth 2%. That means you go into the loan with 3% equity, which is the minimum allowed to qualify for guarantees from government-backed agencies Fannie Mae and Freddie Mac.
You can opt to pay more than 1% and still take advantage of this program, but your total down payment, including Rocket’s 2% grant, can’t exceed 4.99%.
The program also waives mortgage insurance premiums, so you don’t have to pay PMI on the loan, which can save you hundreds of dollars each month.
Rocket’s qualifications are pretty straightforward.
Rocket doesn’t list its debt-to-income (DTI) requirement, saying only that if you can meet their DTI standard with your qualifying income, you don’t have to claim any bonus income that might take you over the 80% median income threshold.
The program is available nationwide to both first-time and repeat homebuyers. However, if you don’t qualify for ONE+, you still may have a chance at other low down payment mortgage options available in your area.
This program can help homebuyers get into a home a lot faster without having to spend years saving up for a more typical 3.5% to 5% down payment. And the savings on PMI definitely makes the payments on these loans more budget-friendly.
But there’s always a tradeoff on deals like these, and we’re just not sure what the drawbacks of the ONE+ program will be yet. You can most likely count on paying a higher interest rate than you would with a larger down payment. Though Rocket covers the other 2% to conform with the conventional mortgage standard of at least 3% down, your monthly payments will be higher than if you’d paid 5% or 10%. But that’s true for any mortgage.
You also need to be prepared to pay closing costs, which includes title fees, a home appraisal and loan processing costs and can range from 3% to 6% of your loan’s value.
Extending a loan that large can mean paying over double the interest, so it’s probably not in your best interest.
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