Lending giant Rocket Mortgage rolled out a 1% down, no-insurance-fee home loan program — aims to target more than 90M US borrowers. Is this 2008 all over again?

Amy Legate-Wolfe
Updated 5 min read
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The housing sector continues to be one of the hardest places for Americans to break into these days. Soaring prices coupled with increased interest rates for mortgages has led many to give up the dream of homeownership.

But a pair of new nationwide borrowing programs would have those people believe home ownership might not be so far out of reach.

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Rocket Mortgage announced May 22 that it was introducing a 1% down home loan program. The new loan, called ONE+, also includes mortgage insurance at no cost to the homebuyer, Rocket Mortgage said in a statement, and could save more than 90 million Americans thousands of dollars.

The new ONE+ mortgage targets low-to-moderate income earning Americans. Borrowers would make a 1% down payment, with Rocket Mortgage covering the remaining 2% for the threshold for conventional loans. The program also eliminates monthly mortgage insurance fees, which are usually applied if a buyer places a down payment less than 20% of the purchase price.

"We talk with people from all walks of life every single day — many of whom are ready to own a home, and could easily make the monthly mortgage payments, but are having trouble saving for a down payment,” Rocket Mortgage CEO Bob Walters said in a statement. “ONE+ is a response to that feedback and the latest example of Rocket's commitment to creating programs that help make homeownership more attainable."

In a similar move, United Wholesale Mortgage (UWM) announced May 24 that it was expanding its Conventional 1% Down payment assistance program, launched in April, where borrowers could make a 1% down payment, with UWM covering an additional 2% up to $4,000.

These new loans sound like they could be a great deal for prospective homebuyers. The median sales price of new houses sold in April 2023 was $420,800, with the average price being $501,000, according to the U.S. Census Bureau. But, as always, the devil is in the details.

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.

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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.

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.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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