Saving up the money for a down payment remains a major obstacle for hopeful homebuyers. In a recent Bankrate survey, 40% of non-owners looking to buy a home say their inability to pay both the down payment and closing costs prevent them from becoming homeowners.
In an attempt to woo this market of willing but cash-strapped homebuyers, mortgage lenders have created loan products requiring very little money down. One of the latest examples, launched by Rocket Mortgage in May 2023, is ONE+. This program allows eligible homebuyers to put as little as 1% down for a conventional loan and could come as a relief to stressed-out home seekers.
However, anyone signing up for ONE+ needs to factor in the trade-offs that come with a small down payment, including a higher monthly payment and a longer road to full equity in the home.
CNBC Select examines the program's features, advantages and potential risks, and compares ONE+ to other low down-payment alternatives.
How ONE+ by Rocket Mortgage works
Rocket Mortgage
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
Terms
8 – 29 years, including 15-year and 30-year terms
Credit needed
Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met
Minimum down payment
3.5% if moving forward with an FHA loan
Already have a mortgage through Rocket Mortgage or looking to start one? Check out the Rocket Visa Signature Card to learn how you can earn rewards
Pros
- Can use the loan to buy or refinance a single-family home, second home or investment property, or condo
- Can get pre-qualified in minutes
- Rocket Mortgage app for easy access to your account
Cons
- Runs a hard inquiry in order to provide a personalized interest rate, which means your credit score may take a small hit
- Doesn't offer USDA loans, HELOCs, construction loans, or mortgages for mobile homes
- Doesn't manage accounts for jumbo loans after closing
The new loan option by Rocket Mortgage allows qualified borrowers to put as little as 1% down toward a home purchase, with the lender covering another 2% of the loan amount. If you feel comfortable paying more than 1% for the down payment, you can put down as much as 2.99% and still qualify for Rocket's grant, making for a combined maximum down payment of 4.99%.
Another feature of ONE+ is that it doesn't require you to make private mortgage insurance (PMI) payments. Mortgage insurance protects the lender in case the borrower stops making mortgage payments. It's paid as a monthly fee and generally required on conventional loans where the down payment is less than 20% of the property's purchase price. Typically, PMI costs from 0.1% to 2% of the loan balance per year and the borrower can eliminate it when they reach 20% equity. ONE+, however, removes this expense for homebuyers.
Let's say you're purchasing a $300,000 home with a ONE+ mortgage loan. Your down payment is 1% ($3,000) and Rocket Mortgage contributes another 2% ($6,000) for a total down payment of $9,000. With a 30-year fixed loan at a 6% interest rate, your monthly principal and interest payment will be $1,745. You won't need to pay PMI, and that can save you as much as $485 in monthly payments (assuming your PMI would have been 2%).
How to qualify for ONE+
To take advantage of the ONE+ loan option, you must meet several requirements, including:
- Making less than 80% of the median income in the area where you're looking to buy. Rocket Mortgage suggests using Fannie Mae's lookup tool to find your area's median income.
- A FICO® score of 620 or higher.
- Purchasing a single-unit primary residence. A Rocket Mortgage spokesperson confirmed that condominiums may be eligible along with single-family and manufactured homes.
Based on publicly available income data, Rocket Mortgage estimates that more than 90 million people can meet the income requirements. Further, both first-time and repeat homebuyers can qualify and the program is available nationwide.
"We know that there's a lack of supply in this country," said Bob Walters, CEO of Rocket Mortgage. "This helps this community of potential borrowers or potential homeowners get a leg up in a market that's already fairly competitive."
Alternative programs for low down payments
The ONE+ program isn't the only option for homebuyers struggling to come up with a down payment.
"Rocket Mortgage brought this out to kind of compete with United Wholesale Mortgage," said Logan Mohtashami, a housing data analyst at HousingWire. "They came out with somewhat of a similar program as well." You should note that United Wholesale Mortgage works through independent mortgage brokers and not directly with homebuyers (as Rocket does), in case you're concerned about dealing through an intermediary.
Other lenders might offer their own low-down-payment mortgage loans too. For example, Citi's HomeRun program allows borrowers to put down as low as 3% without having to pay monthly PMI. Chase Bank also offers down payment options as low as 3% if you apply for the DreaMaker loan. It's always best to compare multiple options and consider the potential advantages and drawbacks of each before deciding on the lender and loan type.
CitiMortgage®
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
Terms
15 – 30 years
Credit needed
580
Minimum down payment
3%
Terms apply.
Chase Bank
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans
Terms
10 – 30 years
Credit needed
620
Minimum down payment
3% if moving forward with a DreaMaker℠ loan
Terms apply.
Offers first-time homebuyer assistance?
Yes — click here for details
More options for lower down payments
Additionally, homebuyers who need help funding their down payments can look into the following types of mortgage loans:
- FHA loans allow you to put as little as 3.5% down if your credit score is at least 580.
- USDA loans offer a 0% down payment option for properties in certain rural areas. You must meet income requirements to qualify.
- VA loans also require no money down but are only available to qualified military service members and veterans.
- HomeReady by Fannie Mae offers a 3% down payment loan for low-income homebuyers with a credit score of at least 620.
- Conventional 97 by Fannie Mae also offers a 3% down payment option but without any income requirements. This type of loan also requires a credit score of 620 or higher.
- Freddie Mac's Home Possible mortgage loan is another 3% down payment option for borrowers with a credit score of at least 620.
Note that, unlike ONE+, these alternatives require some form of mortgage insurance or its equivalent. This, coupled with the fact that Rocket Mortgage requires that eligible homebuyers only put 1% down while contributing 2% on their behalf, makes ONE+ an especially appealing low-down-payment option.
Is ONE+ by Rocket Mortgage worth it?
Like any mortgage where you start with little equity, ONE+ comes with certain drawbacks. A lower down payment often sets you up for higher monthly payments, since the amount you owe (and pay interest on) is more when you put 3% down vs. 20% (for example).
A low down payment can also expose you to risks if the broader market (and your personal financial situation) turns sour. "If you're toward the end of an economic expansion and then you lose your job, there's always a risk that you eventually become a foreclosure candidate," Mohtashami warns. "We call that 'late-cycle lending risk'."
In the late cycle, economic activity reaches its peak, which historically precedes a recession. In that scenario, it's possible to buy a home with a low down payment and, as home prices begin to fall, you end up with negative equity. In other words, your house is now worth less than what you owe on it. And if something jeopardizes your ability to make your monthly payments (say losing your job) and you can't sell your home for at least what you owe, you're putting yourself in a vulnerable financial situation.
That risk, however, isn't unique to the program — it's something you have to consider anytime you make a small down payment. And even with that in mind, ONE+ can be an excellent choice, especially for qualified first-time homebuyers who are short on the kind of cash required to buy a house.
Money matters — so make the most of it. Get expert tips, strategies, news and everything else you need to maximize your money, right to your inbox. Sign up here.
Bottom line
ONE+ by Rocket Mortgage makes an enticing offer to homebuyers by allowing them to put as little as 1% down without worrying about private mortgage insurance. Still, make sure to do the math to determine whether you're financially ready for such a big purchase and explore additional down payment assistance options to find what works best in your situation.
Catch up on CNBC Select's in-depth coverage of credit cards, banking and money, and follow us on TikTok, Facebook, Instagram and Twitter to stay up to date.