Wow… Quicken Loans Now Offering 1% Down Mortgages… But Not For Everyone???

Not sure where to even begin with this so let’s just go straight to HW’s report…

So how does Quicken Loans get from 1% down from the buyer to the 3% necessary to take part in Freddie Mac’s program? Quicken grants the extra money to the borrower, Banfield said.

“We require 1% from consumer and we give the consumer a 2% grant, so the client has 3% equity immediately,” Banfield told HousingWire.

But the 1% down program isn’t offered to everyone, Banfield said. There are several rules as to who is eligible.

First, Quicken’s 1% down loans are only available for purchase mortgages. No refinances are permitted. Second, the program can only be used on a single-family home or condo, not a second home, investment property or co-op.

Additionally, borrowers must have a FICO score of 680 or above, must earn less than the median income for their county, and must carry a debt-to-income ratio of 45% or less.

Also, as part of the program, Quicken Loans makes a free online course on homeownership available to all eligible borrowers. First-time buyers are required to take the online course to be eligible for the program.

So why does this program make sense for a borrower, other than the low down payment, of course?

According to Banfield, the terms of this loan are advantageous over a loan backed by the Federal Housing Administration, for example.

“The truth of FHA is that its max loan-to-value ratio is 96.5%,” Banfield explains. “But most buyers roll in their upfront mortgage insurance premium of 1.75%, leaving them with 98.25% LTV.”

So with Fannie and Freddie offering borrowers the opportunity to put down only 3%, with no upfront mortgage insurance premium and no life-of-loan mortgage insurance premium like with the FHA, borrowers have more equity up front and more equity when they’re done with MI, Banfield said.

Given those stipulations, “You would not consider that a subprime loan,” Banfield said, when asked about the potential negative feedback to this program. “The market has changed so much since the crisis. Rules are so much different now. You really can’t roll out a program like this without thinking it through completely.”

Yea… Still scratching my head on how and why this is a good idea…

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