The minimum down payment requirement for all conventional mortgages is 3%; however, with this program, you only put 1% down and receive 2% as a non-repayable grant. In a nutshell, it's making the American dream of homeownership a reality again,.
The problem with 20% down?
Homeownership is the well-known secret to generational wealth. With prices on the rise and incomes relatively stagnant, it can take the median earner over a decade to save up 20%. While conventional loans only require 3% down, the myth of 20% down still prevails. Even conventional loan programs with low down payments have downsides aka PMI and a larger monthly mortgage payment
The solution?
Put 1% down and get 2% for free
Down payment assistance may have a catch, like higher interest rates or a limited choice of lenders. Since the down payment assistance is given as a grant, you don't have to pay it back and will own 3% equity in your home immediately.
Zero private mortgage insurance (PMI)
The other big downside of putting less down is PMI or private mortgage insurance, which can be >$100 per month. With 1% down, there's no PMI so you can keep your monthly payments affordable.
Get low rates, with no LLPAs
When you put less money down or have low credit scores, Fannie Mae and Freddie Mac apply changes to your interest rate called loan level pricing adjustments or LLPAs. With 1% down there are NO LLPAs. That means you'll get the best rate without any add-ons.
1% down eligibility
It is an affordable home-buying program not limited to first-time buyers, but there are some qualification criteria.
A credit score of 620 or higher
A home price no more $350,000
A debt-to-income ratio of 50% or lower
An income for all borrowers of no more than 80% of the area’s median
Proof that at least one borrower will be a full-time resident in the property
1% down income limits
Income levels and home prices vary greatly across the country. To qualify the combined income of all borrowers must not exceed 80% of the area’s median income.
In Houston, TX, for example, the median income is $94,100, so the income limit for 1% down borrowers is $75,280 (80% of $104,300). Comparatively, the median income for Austin, Texas is $122,300, so the income limits would be $97,840. To make things easier Fannie Mae has an AMI tool to show median income limits across the country.
Education requirements for 1% down
To further the mission of housing affordability, homebuyers must complete the home viewe course online fanniemae.com/education