• Affording a down payment is a major hurdle for many would-be buyers.
  • Top lenders introduced a mortgage that requires just 1% down payment, versus the usual 3% minimum.
  • It's available to first-time and repeat homebuyers and could save them thousands of dollars.

Imagine getting approved for a mortgage on the home of your dreams and making a down payment of just 1% of the purchase cost. 

That has become reality for many lower income Americans thanks to new mortgage programs introduced by United Wholesale Mortgage and Rocket Mortgage — the two largest US lenders in 2022 — that aim to make homeownership more affordable at a time when high interest rates and home prices have put the the market into a deep freeze.

The programs from Rocket Mortgage and UWM  let some homebuyers who make 80% or less of their area's median income put just 1% down on a home, 2 percentage points less than the minimum for a conventional loan. The lenders make up the difference, and that, for example, can result in a savings of $4,000 toward the downpayment on a $200,000 home.

"We thought about how we were going to help consumers that are on the fence," Alex Elezaj, the chief strategy officer at UWM, told Insider. "A couple thousand dollars is make it or break it for a lot of people that are trying to get into a home."

Housing affordability in the United States is at an all-time low. Elevated inflation has brought on the steepest Federal Reserve interest rate increases since the 1980s, pushing up borrowing costs for many Americans. In a stark contrast to the homebuying bonanza of 2021, housing demand has fallen sharply with buyers grappling with a year of higher mortgage rates and stubbornly high home prices.

This has led to fewer home sales nationwide, and a recent jump in rates has dashed hopes for a better spring selling season, at least for now. Originations of home loans are expected to drop more than 19% this year, after falling by nearly half in 2022, according to the Mortgage Bankers Association.

The mortgage programs are making buyers more confident 

Addressing down payments — which have become the largest hurdle to homeownership for a millennial generation in their prime homebuying years — is a way to bring buyers back to the market, according to the lenders and brokers trying to close deals. 

Whitney Beaubien, an independent mortgage broker from Belleville, Michigan — a small town of less than 4,000 people just 32 minutes outside of Detroit — said that UWM's 1% down payment program has already helped several of her clients close the deal on their home purchases. 

"I had a client who was already pre-approved through their bank and received an offer for payment assistance of 3% down," Beaubien told Insider. "I was able to win them over with 1% down payment assistance, as well as give them a better rate." They saved thousands of dollars in closing costs, she said.

"These 1% down payment assistance programs are really making homeownership more affordable for borrowers, Beaubien added."

A few thousand dollars goes a long way In Belleville, Michigan, where the median home-sale price is $232,000, according to Redfin. Assuming a borrower wants to make a 3% down payment, the outlay would amount to $6,690. However, if they were to use UWM's 1% down payment program  — which caps its grants at $4,000 — they are looking at spending only $2,690.

Beaubien said the savings gained from UWM's down payment assistance program is truly making a difference for her clients.

"A lot of homebuyers, especially first-time homebuyers, will get discouraged about what the closing costs and down payment may look like," Beaubien said. "The nice part about the product is that it allows them to get into a home without the fear of not having enough money saved up."