A recent survey of 2,000 Millennials revealed that 77% assumed they need to put down more than 5% to purchase a home, and 53% have not purchased yet because they don’t have enough for the down payment. A mortgage program that most Millennials are probably not aware of is the new 1% down Conventional mortgage, which means they can now purchase a home for the cost of only 2 months rent. Buyers also have the option of removing the mortgage insurance “PMI” from their payment, so they can obtain an even lower monthly payment. Check out the Q&A section below how to qualify for this program.
New Insights on Millennials and Homebuying
A recent study of over 2,000 Millennials revealed that many of them want to become homeowners, but most think they need a larger down payment than what is required to purchase a home.
Over 77% assumed they need to put down more than 5% to purchase a home, and 53% have not purchased yet because they don’t have enough for the down payment. Check out the other results below from the survey.
What most Millennials are not aware of, is that they can purchase a home today with only 1% down conventional financing, and receive an additional lender credit to cover all their closing costs.
The 1% Down Conventional Mortgage Program
The conventional 1% down mortgage is very popular with homebuyers right now, as it is helping them purchase a home with a low down payment and a low fixed rate.
To qualify for this new program, a buyer only has to come up with 1% down. Then the lender gives the buyer a 2% lender credit towards the down payment giving the buyer 3% equity at closing.
For example, a buyer in San Diego can purchase a home up to $435k. They only have to put down 1% ($4,350), the lender gives them a credit of 2% at closing, which means they will have a loan amount of $421,950, which is under the conventional loan limit of $424k.
We can also give the buyer a 2.5% broker credit to cover ALL their closing costs, which means they can purchase a home for the cost of only 2 months rent.
Buyers can also get a gift for the 1% down payment, so now prospective buyers can reach out to family and ask for a gift to help them purchase a home.
There is also an option to eliminate the monthly mortgage insurance “PMI” from the mortgage payment, so this is helping buyers obtain an even lower monthly payment. This is a great option for buyers, so now they don’t have to worry about having to remove the monthly PMI from their mortgage payment.
Please note, there is NO 2nd mortgage involved with this 1% down mortgage program, this is a regular conventional financing program.
Remember with FHA financing, if you put down less than 10% with FHA, you have to pay the monthly mortgage insurance for the life of the loan. Click HERE for a summary of the current FHA mortgage insurance rules.
Frequently Asked Questions for the Conventional 1% down mortgage
Here are the most frequently asked questions that buyers and real estate agents have in regards to the new conventional 1% down mortgage program.
1. What is the maximum loan amount with 1% down?
The maximum loan with 1% down is $424,100, which is the conventional loan limit.
For example, a buyer in San Diego or Orange County can purchase a home up to $435k, where the conventional loan limit is $424k. The buyer only has to put down 1% ($4,350), the lender gives them a credit of 2% at closing, which means they will have a loan amount of $421,950, which is under the conventional loan limit of $424k.
If you need to borrow over $424,100, the minimum down payment is only 5% down. You can finance up to $636,000 with a 5% down conventional jumbo loan. Click HERE for more information on how to qualify for the 5% down Conventional Jumbo mortgage with No monthly mortgage insurance “PMI”.
2. Can I receive the 1% down payment as a gift?
Yes, the 1% down payment can be gifted on this program. Closing costs can also be gifted if needed.
3. What credit score is required to qualify for this program?
We require a 700 credit score to qualify for this loan program.
4. Is the 1% down program for 1st time buyers only?
No it is available to all homebuyers. You cannot own another home at the time of closing.
5. Does a buyer have to get a 2nd mortgage or qualify for a outside down payment assistance program to qualify for this program?
No, there is NO 2nd mortgage or outside down payment assistance programs involved with this 1% down mortgage program. The borrower qualifies with a regular conventional mortgage.
6. Is private mortgage insurance “PMI” required with the 1% down mortgage program?
Yes, borrowers are required to pay private mortgage insurance “PMI” on the 1% down mortgage. The amount of monthly mortgage insurance you pay will depend on your credit score. There is also an option to eliminate the monthly PMI from the mortgage payment.
7. How do you eliminate the monthly mortgage insurance “PMI’ option on this program?
It’s very simple. All you have to do is take a slightly higher interest rate than normal, say from 4.25% to 4.5%, and we use a lender credit with the higher interest rate to eliminate the PMI from the mortgage payment. This is also known as lender paid mortgage insurance. Apples to apples the mortgage payment will be lower with No monthly PMI.
8. Can I use the 1% down on 2nd homes or Investment Properties?No, the 1% down is for Primary Residences only. On 2nd homes, you only have to put down 10% to obtain the No PMI payment option. On investment properties this program is not available, as you have to put down 20%, which eliminates the Mortgage insurance anyway.
9. Do condos qualify for this program?Yes, you can also purchase a condo using this program with only 1% down and get the No PMI option.
10. Can I use an adjustable-rate mortgage with the 1% down mortgage?
No, the 1% down mortgage requires a 30-year fixed rate mortgage only.
11. What is the maximum number of units for a home with the 1% down payment mortgage?
The 1% down mortgage is for single-unit homes only. This includes single-family detached homes and single-family attached homes such as condominiums and town homes. 2-unit homes, 3-unit homes, and 4-unit homes cannot be financed with the conventional 3% down mortgage.
12. What if I put down 3% or 5%, will I get a lower rate?Yes, if you put down 3% or 5% for the down payment, you will get a lower interest rate. With Conventional Financing, the larger the down payment, the lower the interest rate and monthly mortgage insurance you will get.
4 other reasons the Conventional 1% down program will benefit home buyers vs FHA financing
As lots of buyers use FHA financing to purchase a home due to it’s low down payment requirements, this 1% down conventional program is a great alternative to FHA financing.
There are some other great benefits to using this conventional program vs FHA financing, as conventional buyers have more options available especially when trying to purchase a condo.
1. This conventional program is a great option for buyers in complexes that are NON FHA approved, so now you have more inventory to choose from and agents have more homes to show them!
2. This conventional program will help you afford to purchase a single family home instead of a condo, as it frees up having to pay monthly FHA mortgage insurance and HOA dues, which can amount to a combined $600-$700 a month on a typical condo. This will open up a lot more inventory you to purchase.
3. Conventional does NOT have an anti-home flipping policy, which means conventional buyers are allowed to purchase homes that are being fixed up and flipped by investors with less restrictions. So now you don’t have to worry about the FHA’s strict anti-home flipping policies. FHA buyers have to wait 90 days before they can buy a flipped home.
4. Compared to conventional financing, FHA appraisals can be a little more strict in terms of asking sellers for repairs on a property, so this is another benefit of going conventional.
If you would like to get approved for this program, or you have any questions about any of this information above, please feel free to contact me directly at 858-442-2686. I look forward to chatting soon.
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