A 1 percent down mortgage is a 3 percent down conventional loan wearing a headline. You put in 1% of the purchase price, the lender contributes the other 2% as a genuine grant you never repay, and underneath sits the same HomeReady or Home Possible loan Fannie Mae and Freddie Mac have offered for years. We came into the episode behind this article skeptical, because headlines like this are usually misinformation, and this one held up. The money is real. The decisions live in the fine print: a hard income cap that eliminates most borrowers in expensive markets, caps on either the grant or the loan size, mortgage insurance treatment that differs by program, and an automated approval that not every 620 credit score will clear. Here is the whole picture.
HomeReady (Fannie Mae) and Home Possible (Freddie Mac) are 3% down conventional programs for buyers at or below an income limit, and their guidelines allow other parties to contribute toward the borrower's down payment. The 1%-down offers use exactly that door: the lender contributes up to 2% of the price, you contribute 1%, and the loan closes as a standard 3%-down HomeReady or Home Possible. (Program specifics in this article, the lenders, caps, and rates, reflect the market as of this episode, 6/13/2023, when two national wholesale lenders, United Wholesale Mortgage and Rocket, ran the programs; offers like these come and go, so confirm what currently exists with a lender.)
The lenders were not profiting on these loans. UWM estimated at the time that roughly 10% of its monthly volume would qualify, at a cost around $20 million a month, and both lenders were losing money on purpose, buying goodwill and market share. For you, the mechanics compound nicely, because HomeReady and Home Possible carry two structural advantages of their own, per Fannie and Freddie guidelines at the time (confirm current rules): loan-level price adjustments are waived entirely on both HomeReady and Home Possible for income-eligible buyers, which improves the base rate, and required mortgage insurance coverage drops to 25% instead of the standard 35% on a 3%-down loan.
Eligibility turns on one number: your qualifying income must be at or below 80% of the area median income for the location of the property you are buying, per the programs' rules. Fannie Mae publishes a lookup tool where you enter the specific property address, not a county or your current town, and it returns the area's median income and the 80% line.
The phrase qualifying income does real work here. Underwriting adds up the income of everyone on the loan, calculated per guideline rules, and any income you need in order to qualify must be counted. But income you do not need does not have to be declared. A real file of ours: a wife with a W-2 job plus about $1,000 a month of driving income that would have pushed the household over the line; the W-2 income alone carried the debt-to-income ratio, the side income stayed off the application, and the program worked. What you cannot do is count half of an income source; each source is all in or all out.
Geography decides who this helps. In high-cost metros the math rarely pencils, and when we searched all of Los Angeles County at the time, the homes cheap enough to fit an 80%-of-AMI budget amounted to a literal handful of condos, most carrying HOA dues that erased the savings. Where the programs shine is the wide stretch of the country where entry homes are modest relative to local incomes: much of the Midwest and inland markets, where a clean three-bedroom house and a median paycheck can still meet in the middle.
The advertised floor is a 620 credit score, the standard Fannie and Freddie minimum (confirm current requirements), but the real gatekeeper is the automated underwriting system. The AUS weighs the whole file, and a 622 score with 1% in the bank and a debt-to-income ratio pushing the conventional ceiling of 50% is unlikely to see an approval; in practice these files often cap nearer 45% with minimal down and lower scores. Approval odds rise with score, reserves, and headroom in the ratios. Put plainly: this is free money for borrowers who profile as successful homeowners, and a black box decides who those are.
The two program designs we compared split on three details, and the pattern is worth understanding even as specific offers change:
The remaining fine print: primary residences only, though the programs were never limited to first-time buyers; no 2-4 unit properties, even if you plan to live in one unit; condos and PUDs are fine; manufactured homes were case-by-case with a larger down payment. And the grant covers down payment only. Closing costs and prepaids are a separate bill, coverable the usual ways: a negotiated seller credit, which we mapped in how seller credits work, or a lender credit traded for a higher rate.
The episode's example market was Omaha, where solid three- and four-bedroom homes ran about $250,000 and Fannie Mae's tool put the area median income at $95,100, making the 80% line $76,080, about $6,340 a month. On a $250,000 purchase, 3% down is $7,500. Under the grant-capped program you bring $3,500 and the lender adds $4,000; under the loan-capped program you bring $2,500 and the lender adds the full $5,000.
The payment: a $242,500 loan, 30-year fixed, at that day's illustrative 6.875% works out to about $1,593 in principal and interest by the standard amortization math, and the episode penciled roughly $1,966 all-in with taxes and insurance. Against $6,340 of monthly income, that is around a 31% housing ratio, leaving room for a car payment and a credit card under the conventional AUS ceiling of 50% total debt-to-income. A buyer earning $60,000 in the same market could still make it work. The point of the example is proportion: in markets where this program fits, it fits with room to breathe.
The 1%-down structure loses to alternatives in three common situations. If your income is over the 80% line, you are simply out, and the fallback is a standard 3% down conventional loan with no income cap, one of several paths we ranked in lowest down payment mortgage options. If your price point sits far above the caps, the grant shrinks into a rounding error and a well-negotiated seller credit can be worth more. And if your credit score is in the lower tiers, FHA deserves a serious look even against waived LLPAs, because FHA pricing stays nearly flat across scores while conventional mortgage insurance does not; the honest comparison is a same-day side-by-side, which is the whole method of FHA vs conventional.
One caution carries beyond any single program. Most offers that sound like this one are not this one: the typical down payment assistance program is a repayable silent second lien, or free money paid for through a noticeably higher rate. These two were the rare true grants, and the lenders ate the cost. So put every successor program through the same question: what does the money actually cost me? If nobody can answer cleanly, assume it is priced in somewhere.
Jeb's caution from the listing side of the business: a buyer with 3% total equity has no cushion. Selling a home runs roughly 5% to 7% in costs depending on your market, so if prices sit flat for a couple of years and you have barely touched the principal, selling could mean writing a check to leave. This financing wants a long time horizon, real reserves after closing, job stability, and a payment you are comfortable carrying. The program can make the entry cheap; it cannot make the timing right. If you are honestly unsure which side of ready you are on, our free two-minute readiness quiz will tell you where you stand.
If the income limit fits you and the timing is right, leaving a genuine grant on the table would be foolish. The remaining questions are structural: which program variant fits your price point, whether your qualifying income can be documented under the line, and whether FHA outright beats the whole arrangement for your credit profile. Programs like these live in the wholesale channel, and Josh's team shops nearly 100 investors, which is how those comparisons get run honestly on a free Roadmap call: about 20 minutes, and you leave knowing which door is actually cheapest for your file.
Stop guessing what you can really afford
Tell Josh and his team your situation, and you'll get the exact price range you qualify for, the loan that gets you the most home for your money, and a step-by-step plan to close. They handle your loan directly, never a referral, and go far beyond a basic pre-approval, so you stop second-guessing, tour with confidence, and write offers sellers take seriously.
Build my Roadmap →It is a conventional loan built on Fannie Mae's HomeReady or Freddie Mac's Home Possible 3% down programs, where the lender contributes up to 2% of the purchase price toward your down payment as a grant. You bring 1%, the loan closes with 3% down, and the grant is never repaid. The programs behind this episode came from two national wholesale lenders, and offers like them change over time, so confirm current availability with a lender.
The core requirement is income at or below 80% of the area median income for the property's location, per HomeReady and Home Possible rules, checkable by address on Fannie Mae's lookup tool. You also need an automated underwriting approval, which weighs credit, debt-to-income, and reserves together; the guideline floor is a 620 score, but thin files near the limits often fall short. The home must be a primary residence, and the programs are not limited to first-time buyers.
On the programs covered in this episode, no. The 2% was a true grant, funded by the lender at a real cost to itself, with no lien and no repayment. That makes these offers unusual: most down payment assistance is either a silent second lien you eventually repay or free money financed through a higher interest rate. Before using any similar program, ask directly what the money costs you and where it is recovered if the answer is nothing.
It depends on the program design. HomeReady and Home Possible reduce the required mortgage insurance coverage to 25% instead of the standard 35% on a 3% down loan, per agency guidelines, so the PMI is cheaper to begin with. In the versions we compared, one lender had the borrower pay that reduced monthly premium while the other paid the mortgage insurance itself. For income-capped borrowers with tight ratios, lender-paid MI can decide whether the loan qualifies at all.
For income-eligible borrowers with solid credit, usually yes, because the loan-level price adjustment waiver and the grant stack in your favor. For lower credit scores the answer flips more often than people expect: FHA rates and mortgage insurance stay nearly flat across scores, while conventional PMI gets expensive fast as scores drop. The only honest answer is a same-day, side-by-side quote of both loans on your actual file, comparing total monthly payment and cash to close.