Kevin Graham writes for the Quicken Loans' Zing Blog, providing insights on the mortgage process, technology, and finance. Learn more about the Zing Blog.
Tell Your Clients: 1% Down Mortgages Ending Soon
Home shoppers may have to hurry to take advantage of content sponsor Quicken Loans' low down payment option before the program ends Nov. 1.
July 31, 2017
Property values have been on a general upward trend. While good for homeowners, this situation also raises the barrier to entry for prospective buyers, particularly in many of the nation’s hottest housing markets in the West and South. As you know, a lower down payment option helps with that.
As a real estate professional, you know that one of the biggest obstacles for both first-time and experienced home buyers is the down payment. But while many consumers assume they need 15 to 20 percent down to buy a home, you can help them understand there are other options. Quicken Loans may have a solution for your clients to consider. Under this loan option, your clients can put as little as 1 percent down for a conventional loan on their new home.* This means they could get a $200,000 home while putting down as little as $2,000. At the same time, they can get 3 percent equity in the property immediately.
There are requirements for every mortgage and this is no different. We’ll go over some of the basics first and then answer some of the most common questions we get about this loan option. But remember, applicants must act quickly because the option will end on Nov. 1.
When evaluating borrowers for this type of loan, we look at three major financial considerations:
- Their FICO score must be 680 or higher.
- In most cases, they can’t make any more than the median income for their part of the country. This limit may not apply if they’re in an underserved area.
- Their optimal debt-to-income (DTI) ratio will be less than 45 percent. Here’s a quick example of how we calculate that: Let’s say your client has $3,500 in monthly income, a $400 monthly credit card bill, and a car payment of $300. If their house payment is going to be $800 per month, their DTI would be about 43 percent. ($400 + $300 + $800 = $1,500, divided by $3,500).
There are also factors we need to consider in terms of the property. In order to use this loan, buyers must be purchasing a single-unit primary residence, condo, planned unit development, or townhouse. Co-ops or multiunit residences don’t qualify. This loan option can’t be used for a second home or investment property.
Frequently Asked Questions
Now that you’ve got the basics, let’s examine some of the most common questions we get about this type of mortgage.
Where does the additional 2 percent equity come from if a client only puts 1 percent down?
The additional 2 percent equity comes in the form of a grant from Quicken Loans that the client doesn’t have to pay back. This opens up homeownership to a wider field of buyers.
How does this loan option compare to an FHA mortgage?
This is a conventional loan. For clients with a FICO score of 680 or higher, choosing this option could make a lot of sense when compared to an FHA loan for a couple of reasons. The most obvious one is that a 1 percent down payment is lower than the 3.5 percent down typical on an FHA loan.
In addition, if they make the minimum down payment on an FHA loan, their monthly mortgage insurance premium will remain on the loan for the entire term. This dovetails nicely into our next question.
Does this option have private mortgage insurance?
The trade-off for having a down payment of less than 20 percent is that the client will have to pay PMI. However, unlike an FHA loan, this loan option follows the standard conventional guidelines, and mortgage insurance payments eventually end. This is different for each loan and depends on several factors, including loan-to-value ratio, property type, and age of the loan. Or, if your client wants to avoid a monthly mortgage insurance payment altogether, they can take a look at our PMI Advantage lender-paid mortgage insurance option.
Where can I find the income limits in my area?
As noted above, your clients can’t make more than 100 percent of their area’s median income to qualify for this mortgage. If they happen to be purchasing in an area that’s considered underserved, this doesn’t apply. So where can you find the limits in your area? Freddie Mac has a search engine that allows you to find the income limits in your area using the address of the property your clients are looking to purchase.
Have a question we didn’t answer here? Give our Agent Relations team a call at (888) 980-2891 or visit RealEstate.QuickenLoans.com.
* The payment on a $200,000 30-year fixed-rate loan at 4.75% (5.253% APR) with an LTV of 97% is $1043.30, which includes a mortgage insurance payment of $95. Taxes and homeowners insurance are not included. Rates shown valid on publication date of 07/07/2017. Restrictions may apply.
Based on an article originally published on the Quicken Loans Zing Blog.