A new week, a new 1% down mortgage product, the latest coming from Fort Washington, Pennsylvania based lender Newrez.
Call it a sign of the times, with housing affordability the worst it has been in decades thanks to high home prices and elevated mortgage rates.
Known as “RezSource,” the new program relies upon a 2% lender contribution to minimize out-of-pocket costs.
It takes a standard 3% down payment mortgage backed by Freddie Mac and whittles it down to just 1%.
And it’s available to both low-income borrowers and first-time home buyers. Read on to learn more.
RezSource 1% Down Offers Up to $5,000 in Lender Contributions
Similar to other programs, the latest 1% down mortgage from Newrez includes a 2% lender contribution.
This means the borrower winds up with a mortgage set at 97% LTV, the maximum allowed for a conforming loan backed by the likes of Fannie Mae or Freddie Mac.
The end result is less money required from the borrower, an equity cushion, and potentially easier qualification.
The maximum dollar amount of the lender contribution is $5,000, which is determined by the lesser of 2% of the appraised value or purchase price.
My understanding is this 2% doesn’t need to be paid back as it is a credit to the borrower.
For example, someone buying a $250,000 property would be able to maximize the credit while only needing $2,500 via their own contribution.
Taken together, they’d come to the table with $7,500 (only $2,500 from their own sources), resulting in a 3% down payment.
This is enough to qualify for Freddie Mac Home Possible, which comes with reduced mortgage insurance premiums and reduced or waived pricing adjustments.
Who Qualifies for RezSource?
- Owner-occupied home buyers purchasing a primary residence
- Income must be at/below area median limit
- Can be a first-time buyer or repeat buyer
- Loan must be a 30-year fixed-rate product
- Minimum loan amount of $25,000 ($10k in Michigan)
In order to qualify for RezSource, you need to meet the general requirements of Freddie Mac Home Possible.
Most importantly, this includes an income that is no more than 80% of the Area Median Income (AMI) based on where the property is located, which you can look up here.
The property must also be an owner-occupied, primary residence. But 1-4 unit properties, condos, co-ops, and even manufactured homes are eligible with certain restrictions.
If all occupying borrowers are first-time buyers, homebuyer education is required for at least one borrower.
It’s unclear what the minimum FICO score requirement is, though it’s likely 620 or higher.
In terms of loan type, the Newrez program only allows for 30-year fixed rate loans, and the minimum loan amount is $25,000 in all states but Michigan ($10,000).
Is RezSource a Game Changer?
Ultimately, this new offering from Newrez is all about the 2% lender contribution.
The main perk is that the lender is chipping in 2% of the purchase price on your behalf, which is certainly a plus. Who doesn’t like free money?
But beyond that, you still need to qualify for the monthly payment, and keep your DTI ratio below maximum allowable limits.
So this product might be best served for the borrower who has sufficient income, but is perhaps a little light in the asset department.
In other words, many 1% down mortgage programs exist and you’ll need to compare and contrast the pros and cons of each.
Things to look for include maximum lender contribution, max area median income allowed, and additional perks, like closing cost credits and PMI waivers.
And as always, you’ll need to compare mortgage rates from the different lenders, which will also add up over time via your monthly payment.
An ideal combo should include the largest lender contribution, a low mortgage rate, and limited closing costs.