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Rocket Mortgage is the latest company to offer 1% down payment mortgages to address the ongoing affordability concerns.
The new program, called “ONE+,” offers a 2% grant from the Detroit-based lender to supplement a borrower’s 1% down payment.
Additionally, it offers private mortgage insurance at no cost that would normally be mandatory with such a small down payment.
Together, this could enable more potential home buyers to cross the finish line in what has proven to be a challenging environment.
It is available to both first-time home buyers and repeat buyers, as long as they meet the income and asset requirements.
How Rocket Mortgage ONE+ Works
In essence, it’s a 3% less mortgage backed by Fannie Mae, where Rocket offers 2% in the form of a mortgage subsidy.
This means the home buyer only needs to come up with 1% of the purchase price to qualify for the loan, but they end up with 3% equity.
For example, a $300,000 home purchase would require a $9,000 down payment if 3% was put down.
If you use ONE+, you can come away with only $3,000, with Rocket providing the remaining $6,000.
This would give you a loan amount of $291,000, as if you had come down with the full 3%, which is the minimum required for a conforming loan.
To sweeten the deal even more, ONE+ “fully eliminates” private mortgage insurance, which is required for loans above 80% loan-to-value (LTV).
The reduction of a mortgage insurance premium can provide additional savings, as it is usually paid monthly along with the rest of the mortgage payment.
Hence home buyers can bring less to the closing table and save on their home every month.
Rocket cited an example where a $250,000 home purchase with a 3% downgrade could result in a monthly PMI premium of $245.
In addition to the big savings, the borrower’s debt-to-income (DTI) ratio can make it easier to qualify for a home loan without that monthly fee.
Who is eligible 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 in that range, based on publicly available income data.
you can Use Fannie Mae’s Area Median Income Lookup tool to determine the maximum income from an area or specific address.
This will display the median income for the area with an 80% AMI and a 50% AMI, which I assume is gross income.
If your income is at/below that 80% limit, you may be eligible, assuming you meet the 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 (multi-unit properties are not permitted).
However, manufactured homes are eligible, so it has some flexibility regarding the type of property. It is not clear whether condos are allowed or not.
In terms of credit score, the minimum required is FICO 620, the standard for all loans backed by Fannie Mae and Freddie Mac.
And finally, the maximum loan amount allowed is $350,000.
Is it a good deal?
Finally, the Rocket Mortgage ONE+ is another 1% down payment mortgage option. There are other people.
In fact, United Wholesale Mortgage (UWM) launched a 1% down program in April, though it requires that you earn 50% or less of the area’s median income.
And their product is endorsed by Freddie Mac, which is another government-sponsored enterprise (GSE) along with Fannie Mae.
Rocket’s version is more flexible in terms of permitted income and offers mortgage insurance at no cost.
This allows you to combine a floating rate buydown (such as a 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 the credits are being thrown your way.
As always, take the time to see what other loan programs are out there. There are other lenders offering grants that allow as little as 1% down payment.
There are also other loan programs that require little or nothing at all, such as FHA loans, VA loans, and USDA loans.
And down payments aside, be sure to look at the big picture. What interest rate is being offered? What does the total housing payment look like?
You have to analyze the whole deal to see if it’s worth it.
For the record, you can also apply for One+ through a mortgage broker through Rocket Pro TPO.
Read more: Top Mortgage Lenders in 2022: Rocket Surpasses UWM for #1 Spot
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