Buying a house with low down payment
The 1% Down Conventional Loan
With all my conversations with First-time homebuyers, the biggest worry is about a down payment. Traditional options such as FHA, USDA, and even Fannie Mae's HomeReady program have provided paths forward, but each came with its own limitations. Enter the 1% down conventional loan—a new, innovative program that is reshaping how buyers enter the housing market.
The Traditional Landscape
FHA Loans: The Federal Housing Administration (FHA) has long been a go-to for first-time buyers due to its flexible credit requirements. With as little as 3.5% down, it's been accessible to many. However, FHA loans come with upfront and monthly mortgage insurance premiums (MIP), which can add significant long-term costs.
USDA Loans: Designed for rural and suburban homebuyers, USDA loans offer zero-down financing. But there's a catch: location and income restrictions apply, making it unsuitable for many urban or higher-income buyers.
HomeReady by Fannie Mae: HomeReady offers 3% down options and reduced mortgage insurance for creditworthy low-income borrowers. However, it has income caps tied to the property's census tract, limiting availability in certain markets.
DPA (Down Payment Assistance) Programs: Available at the state and local level, DPAs help bridge the gap with grants or second loans to cover down payments. While beneficial, they often come with added complexity, repayment conditions, or higher interest rates.
The Emergence of the 1% Down Program
The 1% down conventional loan offers a streamlined, low-barrier entry into homeownership. Here’s how it works:
Borrower contributes 1% of the home price as a down payment
Lender contributes an additional 2% (often as a grant), bringing the total to 3% down
Conventional underwriting standards apply (e.g., Fannie Mae/Freddie Mac guidelines)
No repayment of the 2% grant required
This structure makes the program both competitive with and often superior to traditional low-down-payment options.
Key Benefits
Lower Upfront Cost: Compared to FHA's 3.5% or HomeReady's 3%, the borrower only needs to contribute 1%.
No Mortgage Insurance Premium (MIP): Unlike FHA, conventional loans avoid the high-cost MIP in favor of more affordable private mortgage insurance (PMI).
No Geographic Restrictions: Unlike USDA, the 1% down program is not limited by property location.
Forgivable Assistance: This 1% down grants does not require repayment, unlike DPA programs.
Example Scenario
Let’s say you’re buying a $300,000 home:
With FHA: 3.5% down = $10,500 + upfront MIP
With HomeReady: 3% down = $9,000 + PMI (based on income and credit)
With 1% Down Program: $3,000 from buyer + $6,000 from lender = $9,000 total down, but only $3,000 from your pocket.
Considerations
While the 1% down program is a major step forward, it does have guidelines and limitations:
Minimum credit score (often 620-660)
Income and DTI thresholds (based on lender and investor overlays)
Typically for primary residences only
May not be available in all states or through all lenders
The 1% down conventional loan is a powerful new tool for buyers looking to minimize their upfront investment without sacrificing loan quality. It combines the best aspects of conventional lending with the accessibility that first-time and moderate-income buyers need.
Compared to older options like FHA or USDA, the 1% down program often results in lower long-term costs, fewer restrictions, and more flexibility. It’s especially attractive in today’s market, where affordability and inflation continue to challenge first-time buyers.
If you’re a homebuyer or loan officer, now is the time to explore the 1% down option. It just might be the key to opening more doors than ever before.
Steps to Buy a Home with the 1% Down Payment Program
Check Your Eligibility: Ensure you meet the credit score, income, and occupancy requirements for the 1% down program.
Get Pre-Approved: Work with a participating lender who offers the program to obtain pre-approval and understand your budget.
Find a Home: Shop within your pre-approved price range and select a home that qualifies under the program's guidelines.
Submit an Offer: Once your offer is accepted, your lender will finalize the mortgage application and initiate the underwriting process.
Provide Your 1% Contribution: This is your portion of the down payment, due at closing.
Lender Contributes 2%: The lender adds the additional 2% grant to complete the 3% requirement. This contribution is forgiven after 6 months of on time payments.
Close on Your Home: Finalize all paperwork, sign your loan documents, and get the keys to your new home.
With the right guidance and preparation, buying a home with just 1% down is not only possible—it’s the best option.
