A new program has just become available to help more people get into a home, but, it isn’t widely known yet. It’s the 1% down payment program. While more banks and mortgage companies are offering the 3% down payment mortgages again after the housing crisis made them almost impossible to obtain, this new program requires even less money down for buyers seeking to move from renting to owning.

The Program

The 1% down payment program is actually a partnership between Freddie Mac and a number or mortgage providers. This program was designed for Millennials and first-time buyers with a focus on middle-class borrowers. What many may not realize is this program is part of the Home Possible Advantage program from Freddie Mac, which requires a down payment of at least 3 percent. While buyers pay only one percent down, the mortgage company contributes the additional funds to buyers to meet the requirement for Freddie Mac’s program.
 

In practical terms, the recipient is expected to receive an extra $5 per month. This increase is designed to keep up with inflation rates. One of the highest increases came in 1980 with 14.3 percent.

Check if you qualify for the 1% mortgage program

The Requirements

Because of the low down payment, the mortgage provider has several stipulations in place that buyers must meet to qualify. Here are the basic requirements for this program:

• FICO score of 680 or above
• Income is less than median income for the county where the applicant lives
• Debt-to-income ratio of 45 percent or less
• Single-family home or condo

The program is for purchase only, not for refinancing. It may not be used for purchasing a second home or investment property. In addition, first-time buyers must take a free online homeownership course to qualify for the program.

The Benefits

With all of the restrictions, many homebuyers will still be interested in the program because of its benefits. Unlike FHA loans and other mortgages, which include upfront and life-of-loan mortgage insurance premiums, this 1% down program has no mortgage insurance requirements. This fact allows buyers to start out with more equity in their homes and continue to build it faster.

A second benefit is that buyers come to the table at closing with less money while still starting out with the 3% equity. Many first-time buyers couldn’t come up with the entire 3%, which limited them in their ability to qualify for loans and buy a home. Saving the required 3% becomes even harder as home prices continue to climb.

The goal of the 1% down payment program is to help more people get into their first home. The only other comparable loans are USDA and VA with 100 percent loans, which are limited to those who buy in rural areas or those who are or have been in the military.

Buyers who don’t want to go through FHA or other government-backed programs for some reason now have a conventional loan they can choose. It’s another option to help buyers select the program that makes the most sense for their situation.

Unlike loans in the past that were classified as subprime loans, the 1% down payment program has strict stipulations for buyers to be approved and ensure they can afford the mortgage. This program requires a solid credit history and responsible debt management with a higher credit score than some other programs and a manageable DTI.

Buyers who are looking for a mortgage option with a lower down payment requirement may want to consider this 1% down payment program. If they qualify for the loan, buyers can move into home ownership with less money and more equity.

Check if you qualify for the 1% mortgage program