The 1 Percent Down Mortgage: How It Works and Who Benefits

Is there such a thing as a 1 percent down mortgage? In other words, can you really make a 1-percent down payment when you buy a home? Well, you may be able to if you have a modest income and a 620 credit score.

But such mortgages are in their infancy. And only three lenders currently offer them. However, if they prove a success, others will likely join in and some of those may have easier eligibility rules. Already, one innovator is offering such a loan free of mortgage insurance.

In this article (Skip to ...)

• What is a 1 percent down mortgage?
• How do these mortgages work?
• Pros and cons of a 1 percent down mortgage
• Lenders that offer a 1 percent down mortgage
• Other low down payment mortgage options
• 1 percent down mortgage FAQ

What is a 1 percent down mortgage?

The clue’s in the name. With one of these, you really do have to make only a 1 percent down payment when you buy a home.

The first 1 percent down mortgage was introduced as recently as April 2023. So, you can expect them to evolve quite quickly.

Undoubtedly, many mortgage lenders are watching how this innovation works out for the pioneers and their borrowers. If they like what they see, 1 percent down mortgages could become widely available mortgage programs.

How does one of these mortgages work?

The mechanics couldn’t be more straightforward. As long as you’re eligible, you bring 1% of the home’s purchase price to the closing. And the lender brings the other 2% as a gift. That’s a no-strings grant, which never has to be repaid.

In fact, it’s even better than that. Because, if you have a 3% down payment, the lender may still give you the 2% grant, taking your down payment to 5%. Just note that 5% seems to be the maximum under these programs.

Another thing to bear in mind is that a lender might have a cap on the grant it will provide. For example, UWM says it won’t chip in more than $4,000 in total.

Finally, be sure to study your mortgage quote (loan estimate) carefully. Because 1 percent down mortgages are still so rare, we haven’t been able to assess how competitive their interest rates and closing costs are compared with other home loans. So, it’s down to you to make sure you get a great deal.

Qualifying for a 1 percent down mortgage

There are two main qualifying hurdles for you to clear in order to be eligible for one of these loans. The first is straightforward: You need a FICO credit score of 620 or higher.

The second is a bit more complicated. It concerns something we mentioned earlier: a modest income.

But what does that even mean? Well, luckily, there’s a definition for these loans. It states that your income must be at or below 80% of the area median income (AMI) where you’re planning to buy.

Still unclear? You’re not alone. You can use a lookup tool on Fannie Mae’s website to check that AMI for your area. Multiply that by 80% (or .8 on a calculator). If your income is the same or lower, you can go ahead and apply. But, if it’s higher, you’re out of luck. Check out the other low down payment mortgages we mention below.

Rocket Mortgage gives an example of AMI in action: “You can’t qualify if you make higher than 80% of the median income in the area in which you’re looking to buy. For example, if you live in Macomb County, Michigan, the area median income is $90,800. You can’t use [earn] more than $72,640 to qualify for this ($90,800 ×.8 = $72,640).

UWM says its other qualifying criteria are the same as those for Freddie Mac’s Home Possible® or Fannie Mae’s HomeReady® loans. And we shouldn’t be surprised if other lenders have the same requirements. You may also find lenders restricting these mortgages to single-unit family homes for owner occupation.

Pros and cons of a 1 percent down mortgage

The 1 percent down mortgages can offer an enticing path to homeownership with minimal upfront costs, but they also have their pros and cons to consider.

The pros of these mortgages are apparent:

1. The lender gifts you 2% of the purchase price
2. First-time homebuyers can achieve their homeownership dreams more quickly than if they had to save up a 3% or 3.5% down payment
3. Your savings can be used for what you want: closing costs, furniture, and other financial goals.

The cons are:

1. Not everyone is eligible for this loan product
2. You need to be sure you’re getting a competitive deal overall
3. Your risk of spending some time with your home “underwater” (when your home’s value is less than your mortgage balance) is higher

It’s worth expanding on that last point. Having an underwater mortgage loan can trap you in your home. You can’t easily sell or refinance because you can’t “redeem” (fully pay back) your existing mortgage loan.

This doesn’t usually matter if you want to stay put anyway. In the past, average home values have typically recovered (and then some) fairly quickly. But, if you absolutely need to move during that underwater time, you can feel trapped. One escape route may be to rent out the home.

Lenders that offer a 1 percent down mortgage

At the time of writing this article, only three lenders offered these mortgages. Those are:

Rocket Mortgage

The Rocket Mortgage 1 percent down product is called ONE+ loan. And it is the one that charges no mortgage insurance. On a $250,000 mortgage, Rocket reckons that could save you $245 every month for an average of seven years. That’s more than $20,000 in total.

Rocket doesn’t specify a cap on its down payment grant but quotes an example of $6,000. So it’s more generous than UWM’s $4,000 cap.

Rocket Mortgage used to be called Quicken Loans and says it is America’s largest mortgage lender. It came top in the 2022 J.D. Power U.S. Mortgage Origination Satisfaction Study.

United Wholesale Mortgage (UWM)

Like Rocket, UWM says it’s “the #1 overall mortgage lender and purchase lender in the nation.” While they can’t both be No. 1, there are probably different data sources and ways of interpreting the numbers.

Borrowers can’t approach UWM directly. It operates through its partners, which are mortgage brokers, correspondents and financial institutions. So, you should ask brokers whether they can help get you a UWM Conventional 1% Down loan.

Zillow

The latest lender to offer 1 percent down mortgages is Zillow Home Loans, which launched its program in August 2023. At that point, its offering was available only in Arizona. But it said it planned to expand to other states.

In its launch press release, it is light on the details of its eligibility criteria for these mortgage loans and we are assuming that its income and credit score requirements are the same as the others.

Zillow expands on one of the benefits of its new home loans: "... by reducing the down payment loan amount to 1% of the purchase price, a home buyer looking to purchase a $275,000 home in Phoenix, Arizona, who makes 80% of their area’s median income and saves 5% of their income would need only 11 months to save for the down payment. By comparison, the same buyer who needed to save 3% of the purchase price would require two and half years (31 months) to save that amount.”

With Zillow offering 1 percent down mortgages now, it will be interesting to see how other lenders respond.

Other low down payment mortgage options

A few lucky people can qualify for a 0% down mortgage. And they might not be inclined to make even a 1% down payment.

Those are the people who are eligible for:

• VA loans — You must be a veteran or service member or someone in a tightly defined and closely associated group. Surviving spouses are one example
• USDA loans — You must adhere to income limits and be buying in a place designated as rural by the U.S. Department of Agriculture

If you can’t get one of those, you may be able to get a loan with a 3% down payment. Choose between Freddie Mac’s Home Possible® or Fannie Mae’s HomeReady® loans. But you’ll need a 620 credit score to qualify.

If your score is between 580 and 619, you could apply for an FHA loan. These come with a 3.5% down payment. However, if you have time, there are mortgage insurance advantages if you drive your score up to 620 and go for a Fannie or Freddie loan.

The bottom line

A 1 percent down mortgage could provide an exciting opportunity for those on modest incomes who wish to become homeowners. Your lender gifts you 2% of the home’s purchase price so that your total down payment on closing is 3%.

Providing you qualify in other ways puts you in line for a conforming loan, which meets Fannie Mae or Freddie Mac’s rules. And that provides real advantages for your mortgage insurance costs over an FHA loan.

Indeed, Rocket Mortgage says it won’t charge any mortgage insurance on its 1 percent down mortgage, which might save you $20,000+ compared to a standard Fannie or Freddie loan.

So, for those who can get them, these new mortgages can be great. Just be sure to check that your overall deal is competitive.

1 percent down mortgage FAQ

Can you put down 1% on a house?

Yes, if your income, credit score, and other circumstances meet the qualifying criteria for a 1 percent down mortgage. You could also do so if you’re eligible for a 0% down loan and choose to make a down payment, which might earn you a lower mortgage rate.

How does a 1 percent down mortgage work?

You put down 1% and your lender gives you a 2% grant, making a 3% down payment. That’s the minimum for a conforming loan from Fannie or Freddie and those typically offer attractive deals.

How do you get a 1% down mortgage?

If you think you’re eligible, apply on Rocket’s website, contact Zillow (Arizona only at the time of writing), or ask mortgage brokers about UWM’s product. Other lenders may begin offering these products soon so watch out for those.