As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.
It’s a great time to sell your home right now. In the Quicken Loans Home Value Index, there’s been healthy annual growth in home prices.
It’s not just us, either. Highly tracked indexes all over the housing industry are showing sizable yearly gains in home prices. Part of the reason for this is builders not being able to meet market demand fast enough to keep up with low inventory.
Even in this seller’s market, home buyers may have one big reason to want to buy right now: Rates are really low. No one can predict how long they’ll stay that way. If you see a rate you like, there’s no reason not to get preapproved with a rate lock.
On another hand, with higher home prices, making the down payment can be a challenge. The good news is there are several good low down payment options available, including one where clients can put down as little as 1% while gaining 3% equity.* Quicken Loans will stop taking applications for this program beginning January 31, 2018.
This means that well-qualified buyers can get into a $200,000 home with a down payment of as little as $2,000 and start with 3% equity through a 2% grant from Quicken Loans. Outside of a VA loan – which is only open to eligible active-duty service members, veterans of the military and their surviving spouses – this is among the best low down payment options out there.
As with any loan, there are certain qualifications and conditions that have to be met. We’ll go over those and spend a little time talking about what makes this program particularly attractive right now.
1% Down Requirements
This could be a great loan option for a lot of prospective home buyers. Before we go any further, let’s talk about the requirements for this loan.
There are three basic qualifications that clients must meet in terms of credit and finances in order to qualify for this loan.
- You have to have a 680 FICO credit score.
- For the best chance of approval, your debt-to-income (DTI) ratio shouldn’t exceed 45%.
- Your income can’t be more than 100% of the median income in your area. You can use this search engine to find your area’s income limits. Limits may not apply in areas considered underserved by Freddie Mac.
In addition to the financial considerations, there are some restrictions on the types of property that can be purchased.
- You must be purchasing a one-unit primary property. Multi-unit residences, second homes and investment properties aren’t eligible for this loan option.
- You can purchase a single-family residence, planned-unit development (PUD) home, townhome, condo or site condo. No co-ops are eligible.
The next questions that I’m sure it comes to mind are why this program and why now? There are a couple of conditions impacting the market right now that make putting down 1% a good option for people looking to get into a house but who have limited savings.
Rising Home Prices
As mentioned above, we’re in a cycle where home prices are rising. This is great for sellers because they can get more money out of the sale of their home. It’s also great for homeowners because once they’ve purchased a home, continued rising home prices means they’ll gain more equity in the home at a fast pace. This then enables homeowners to convert more of their equity into cash (via a cash-out refi down the road), if they choose.
However, it’s not as good for buyers who are looking to pay as little as possible for the home they want.
As of the latest data, the average U.S. price of a new home was $313,700. This is up 6.3% on the year. If you’re looking to buy an existing home, the price goes down to an average of $258,300, but this is still up 6.2% on the year.
Some people might be tempted to rent under these circumstances, but that looks less appealing when you consider that renters spend 29.2% of their income on rent. Yet homeowners spend only 15.5% of their income on their mortgages, according to data from leading real estate site Zillow.
If you’re ready, it could be helpful to buy now in case home prices continue to rise in the coming months. Having this 1% down option could help people with a small savings amount be able to make a down payment.
Rising Interest Rates
Mortgage interest rates are still really low, but they can’t stay that way forever. There are signs rates might rise soon.
As part of its mandate to combat inflation, the Federal Reserve sets the short-term interest rates at which banks borrow from each other. Although not directly correlated to mortgage rates, when the market is in agreement with the Fed about the conditions of the economy, mortgage rates can move in tandem with these shorter-term rates.
Although the Federal Reserve has kept short-term interest rates at or near 0% since the beginning of the economic crisis at the end of the last decade, they now believe the economy is at a stage in its recovery where it can sustain higher interest rates to keep inflation at bay.
Short-term rates have been raised four times since the end of 2015. Although you never know what’s going to happen, the Fed has tentative plans to increase short-term rates one more time this year.
One can never predict mortgage rates, either. Though, it wouldn’t be unreasonable to think they might go up if the Fed makes its move later this year. If you’re in the market to buy a home, it would be a good idea to lock your rate.
If you’re interested in our 1% down payment program, you can get started online. If you’d rather get started over the phone, one of our Home Loan Experts would be happy to take your call at (800) 785-4788. You can leave your questions in the comments below.
*The payment on a $200,000 30-year fixed-rate loan at 4.625% (5.125% APR) with an LTV of 97% is $1,123.28, which includes a mortgage insurance payment of $95.00. Taxes and homeowners insurance are not included. Rates shown valid on publication date of 08/25/2017. Restrictions may apply.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.