Rocket Mortgage vs United Wholesale Mortgage - Comparing 1% Down Payment Programs

Well, good news! Companies like Rocket Mortgage and United Wholesale are making it easier than ever before to buy a home without worrying about upfront costs.

Both have programs that allow you to buy a home with just 1% down. In this article, we'll compare these two programs to help you understand which one might be best for you.

ONE+ by Rocket Mortgage Explained

Rocket Mortgage's ONE+ program offers a unique loan structure. Qualified borrowers have the option to put down as little as 1% of the home's purchase price.

Additionally, Rocket Mortgage will contribute another 2% towards the loan. If a borrower chooses to pay more than the 1%, they can contribute up to 2.99%. When combined with Rocket’s 2%, the total down payment could be as much as 4.99%.

A significant feature of the ONE+ program is its omission of private mortgage insurance (PMI) payments. PMI is typically required for conventional loans where the down payment is less than 20% of the home's value.

It is a safeguard for lenders in the event that a borrower defaults on their mortgage payments. PMI usually costs between 0.1% to 2% of the total loan balance each year.

Once the borrower achieves 20% equity in their home, PMI payments can typically be discontinued. With the ONE+ program, this fee is not required, regardless of the down payment amount.

Potential Savings with ONE+ Illustrated

Consider a scenario in which a home is purchased for $300,000 using the ONE+ mortgage loan.

If a borrower opts for the minimum 1% down payment, this amounts to $3,000. Rocket Mortgage’s contribution of 2% would be an additional $6,000.

This results in a combined down payment of $9,000. Given a 30-year fixed loan at a 6% interest rate, the monthly principal and interest payment would amount to $1,745.

Since PMI is not a requirement for ONE+, the absence of this fee could equate to a monthly saving. For example, if PMI would have been 2%, the potential monthly savings would be approximately $485.

Eligibility Criteria for Rocket Mortgage ONE+

If you're considering the ONE+ loan program, you'll need to fulfill certain criteria:

• Your income should be below 80% of the median income of the location you intend to buy in. To determine your area's median income, Rocket Mortgage recommends using the lookup tool provided by Fannie Mae.

• You should have a FICO® score of at least 620.

• The property you aim to buy must be a single-unit primary residence. Condominiums, single-family homes, and manufactured homes are all included, as confirmed by a representative from Rocket Mortgage.

Rocket Mortgage's data analysis indicates that over 90 million individuals could potentially satisfy the income condition.

It's noteworthy that both newcomers to home buying and those who've bought homes before can apply. Moreover, this program is accessible throughout the country.

Bob Walters, Rocket Mortgage's CEO, mentioned,

Conventional 1% Down by United Wholesale Mortgage Explained

United Wholesale Mortgage (UWM), recognized as America's leading mortgage lender, introduces its Conventional 1% Down program. Through this initiative, eligible borrowers can make a down payment of just 1% of the purchase price of the home.

Furthermore, UWM will generously offer an additional 2%—capped at $4,000—towards the down payment. This means when combined, a borrower's total down payment amounts to 3%.

The central aim behind UWM's Conventional 1% Down program is to hasten the process for potential homebuyers to achieve their required down payment. By contributing the extra funds, UWM ensures that borrowers have 3% equity in their homes right from the outset.

Potential Savings with Conventional 1% Down Illustrated

Imagine purchasing a $300,000 home through the Conventional 1% Down mortgage.

A borrower's 1% down payment would be $3,000. With UWM’s contribution of an extra 2%, another $6,000 is added. This leads to a combined down payment of $9,000.

Assuming a 30-year fixed loan with a 6% interest rate, the monthly principal and interest payment becomes $1,745.

(Please note, specific savings related to PMI or other factors for UWM's program haven't been provided, and hence can't be compared directly as in the Rocket Mortgage example.)

Eligibility Criteria for United Wholesale Mortgage Conventional 1% Down

Those interested in the Conventional 1% Down program should meet these prerequisites:

• Your earnings should be at or below 50% of the Area Median Income (AMI).

• The loan-to-value ratio (LTV) should be at 97%.

UWM's decision to reintroduce the Conventional 1% Down initiative is motivated by their dedication to equip independent mortgage brokers with a distinct advantage. This advantage extends to both potential borrowers and real estate agents.

The overarching intention is to streamline homeownership, making it more budget-friendly and accessible to prospective homeowners across the nation.

Mat Ishbia, UWM's president and CEO, remarked,

Comparing Rocket Mortgage's ONE+ vs. UWM's Conventional 1% Down

When comparing the ONE+ program by Rocket Mortgage with the Conventional 1% Down program by United Wholesale Mortgage (UWM), several key differences emerge:

Down Payment Contribution

• Rocket Mortgage - Borrowers can put down as little as 1% of the home's purchase price, with the option to contribute up to 2.99%. Rocket Mortgage will then add an additional 2%, which could result in a total down payment of up to 4.99%.

• UWM - Borrowers are required to contribute 1% of the home's purchase price. UWM will then provide an additional 2% towards the down payment, capped at $4,000. This results in a total down payment of 3%.

Private Mortgage Insurance (PMI)

• Rocket Mortgage - A major feature of the ONE+ program is the absence of PMI payments, irrespective of the down payment amount.

• UWM - Specific details about PMI have not been provided in the information about UWM's program.

Income-Related Eligibility

• Rocket Mortgage - Borrowers should have an income below 80% of the median income of their intended purchase location.

• UWM - Borrowers' earnings should be at or below 50% of the Area Median Income (AMI).

Credit Score Requirement

• Rocket Mortgage - Borrowers should have a FICO® score of at least 620.

• UWM - The credit score requirement hasn't been specified.

Property Eligibility

• Rocket Mortgage - The property should be a single-unit primary residence, inclusive of condominiums, single-family homes, and manufactured homes.

• UWM - Specific property type criteria have not been provided.

Maximum Contribution

• Rocket Mortgage - No maximum limit specified on Rocket Mortgage's 2% contribution.

• UWM - Their 2% contribution is capped at $4,000.

Program Aim & Accessibility

• Rocket Mortgage - ONE+ seeks to aid potential homeowners in a competitive U.S. market, marked by a notable shortage of available homes.

• UWM - Conventional 1% Down aims to make homeownership more affordable, ensuring that borrowers achieve 3% equity right from the start and bolstering the position of independent mortgage brokers.

Which Program We Think Is Better

When deciding between Rocket Mortgage's ONE+ and UWM's Conventional 1% Down programs, a detailed comparison is necessary.

Both programs essentially allow a borrower to commit just 1% as a down payment.

However, Rocket Mortgage's ONE+ has a slight edge since it permits a total combined down payment of up to 4.99% (with the borrower's and Rocket Mortgage's contributions combined), compared to UWM's 3%.

The absence of PMI in Rocket Mortgage's ONE+ program provides a clear financial advantage. With conventional loans typically requiring PMI for down payments under 20%, the potential savings can be substantial over time.

Rocket Mortgage allows for borrowers with income up to 80% of the area's median income, offering a more lenient range compared to UWM's stricter 50% threshold.

UWM's $4,000 cap on their 2% contribution may limit the benefit for homes priced over $200,000. Rocket Mortgage does not specify such a cap.

While Rocket Mortgage emphasizes aiding potential homeowners in a competitive market, UWM focuses on enhancing the position of independent mortgage brokers.

Considering the potential for higher combined down payments, significant PMI savings, broader income eligibility, and no explicit cap on contribution, Rocket Mortgage's ONE+ program seems to offer a more comprehensive advantage to potential homeowners.

However, personal circumstances and preferences play a crucial role, and one should consult with a financial advisor to determine the best fit.

Lower Down Payment Alternatives

For homebuyers who are looking for ways to minimize their upfront payment, there are several mortgage loan options available:

FHA Loans

The Federal Housing Administration (FHA) loan program offers a pathway for potential homeowners to secure financing, especially those who might struggle to qualify for traditional mortgages.

Originating during the Great Depression as a response to the housing crisis, FHA loans have since provided millions with the opportunity to own homes.

Distinctive for their low down payment requirement—typically 3.5% for borrowers with a credit score of 580 or above—FHA loans are more accessible to those with modest savings.

Additionally, they are more lenient when it comes to credit histories, often catering to individuals with lower credit scores.

However, borrowers should be aware that they will be required to pay for mortgage insurance, both as an upfront cost and a recurring annual premium.

This insurance protects lenders in the event of default, enabling them to offer these loans with such generous terms.

It's worth noting that FHA loans aren't issued directly by the Federal Housing Administration. Instead, they are provided by FHA-approved lenders like MakeFloridaYourHome but backed by the government.

This government guarantee reduces the risk for lenders, making it easier for borrowers to secure favorable loan terms.

Whether you're a first-time homebuyer or someone seeking a more accommodating financing option, FHA loans can be a viable route to homeownership.

USDA Loans

The United States Department of Agriculture (USDA) loan program is a unique mortgage initiative aimed at assisting rural and suburban homebuyers.

Established to bolster rural development, USDA loans provide an affordable way for eligible individuals and families to purchase, renovate, or refinance homes in specified rural areas.

A hallmark of USDA loans is the possibility of zero down payment, which is a rarity among other mortgage options.

This feature significantly reduces the barrier to homeownership for many who might have difficulty accumulating a substantial down payment.

Moreover, USDA loans often come with competitive interest rates and more lenient credit requirements, making them accessible to a broader range of potential homebuyers.

There are two primary types of USDA loans - the Guaranteed Loan and the Direct Loan.

While the Guaranteed Loan is more common and is backed by the USDA but provided by outside lenders, the Direct Loan is funded directly by the USDA, targeting low to very low-income applicants.

Despite their advantages, USDA loans do come with income limitations, which vary by region and household size. Additionally, the property in question must be located within an eligible rural area, as defined by the USDA.

Overall, for those seeking a home in less urbanized areas, the USDA loan offers a viable and often advantageous financing path.

VA Loans

The VA loan program, backed by the U.S. Department of Veterans Affairs, offers exclusive mortgage benefits to eligible veterans, active-duty service members, National Guard members, reservists, and certain military spouses.

Designed to honor and support those who have served the nation, VA loans provide an accessible path to homeownership without the need for a down payment.

One of the standout features of VA loans is the elimination of private mortgage insurance (PMI), a requirement typical in conventional loans when down payments are less than 20% of the home's value. This omission leads to significant monthly savings for borrowers.

Additionally, VA loans often come with competitive interest rates, generally lower than those of conventional mortgages, and have more flexible and lenient credit requirements.

To utilize the VA loan program, borrowers must obtain a Certificate of Eligibility (COE), proving their service history and duration.

It's also worth noting that there's a limit on the amount the VA will guarantee, but this ceiling varies by county and often exceeds average home prices.

While VA loans eliminate many barriers to homeownership for the military community, they do come with a funding fee, a one-time charge that can vary based on the loan amount, type, and service history.

However, given their many benefits, VA loans remain a valuable tool for those who have served.

HomeReady by Fannie Mae

HomeReady is a mortgage program introduced by Fannie Mae, aimed at assisting low- to moderate-income borrowers and first-time homebuyers in achieving the dream of homeownership.

Recognizing the diverse financial challenges many individuals face, HomeReady offers several unique features that distinguish it from conventional loans.

A highlight of the HomeReady program is the reduced down payment requirement; borrowers can put down as little as 3% of the home's purchase price.

Furthermore, this down payment can come from a variety of sources, including gifts, grants, and even contributions from a co-borrower who doesn't reside in the home.

Another attractive feature is the program's flexibility in recognizing non-traditional income sources. This means rental income from a boarder or earnings from a household member not listed on the loan can be considered as part of the borrower's qualifying income.

To promote informed homeownership, borrowers are required to complete an online educational course, called Framework, to prepare for the responsibilities of home buying and ownership.

However, it's essential to note that HomeReady loans come with income limits, which vary based on the area's median income.

As such, not everyone will qualify, but for those who do, HomeReady provides an accessible and flexible path to homeownership.

Conventional 97 by Fannie Mae

The Conventional 97 loan program, offered by Fannie Mae, provides a valuable solution for homebuyers seeking a low-down-payment mortgage option.

As the "97" suggests, this program allows borrowers to finance up to 97% of the home's purchase price, which translates to a down payment of just 3%. This makes homeownership more attainable for those with limited savings for a large down payment.

One of the standout features of the Conventional 97 program is its applicability to both first-time and repeat homebuyers, offering a broader reach compared to some other low-down-payment programs. The 3% down payment can come entirely from the borrower's own funds or as a gift from a relative.

Another advantage is that the Conventional 97 loan doesn't have specific income limits, distinguishing it from certain other programs like HomeReady. This ensures a wider range of borrowers can access its benefits.

However, to be eligible, the property being financed must be a single-unit dwelling that will serve as the borrower's primary residence. And, like other conventional loans, borrowers need to meet credit score and debt-to-income ratio requirements.

Overall, the Conventional 97 program presents an alternative route to homeownership, bridging the gap for those closer to a conventional loan but still needing a low-down-payment solution.

Freddie Mac’s Home Possible Mortgage

This program stands out due to its flexible credit terms and low down payment options, often as little as 3% of the home's purchase price.

Moreover, the down payment can come from various sources, including family contributions, employer assistance, and secondary financing, providing versatility for potential homeowners.

Key to the Home Possible program is its applicability to a diverse array of property types. Whether it’s a single-family home, a condo, or even certain multi-unit properties, there's potential for financing under this initiative.

One distinguishing feature is the program’s consideration of broader eligibility criteria.

For instance, Home Possible takes into account income from non-borrower household members, which can be a boon for multi-generational families. It also provides reduced mortgage insurance requirements, leading to potential monthly savings.

Another unique aspect is the Home Possible program's emphasis on borrower education. First-time homebuyers are often required to complete a homeownership education course, ensuring they are well-prepared for the responsibilities of owning a home.

In essence, Freddie Mac's Home Possible Mortgage paves the way for a broader range of individuals to step onto the property ladder, armed with knowledge and backed by flexible financing.

Bottom Line

Rocket Mortgage and United Wholesale Mortgage (UWM) have introduced innovative loan programs aimed at making homeownership more accessible to potential buyers.

Rocket Mortgage's ONE+

• Offers a unique loan structure where borrowers can put down as little as 1%, with Rocket Mortgage contributing an additional 2%.

• Provides the significant advantage of no PMI payments.

• Allows for a combined down payment of up to 4.99%.

• Requires borrowers to have an income below 80% of the area's median and a FICO® score of at least 620.

UWM's Conventional 1% Down

• Enables borrowers to make a down payment of 1%, with UWM adding an additional 2%, capped at $4,000.

• Focuses on aiding independent mortgage brokers and accelerating homeownership.

• Mandates borrowers' earnings be at or below 50% of the Area Median Income (AMI).

When comparing the two, Rocket Mortgage's ONE+ appears to provide a broader range of benefits, notably the potential PMI savings and higher combined down payments.

However, the best choice will depend on an individual's specific circumstances, and potential borrowers should seek advice from financial professionals before making a decision.