Is Rocket Mortgage’s ONE+ home loan worth it?

Rocket Mortgage‘s ONE+ home loan allows eligible homebuyers to put as little as 1% down.

We took a look at the features, advantages and potential risks of the ONE+ mortgage and compared it to other low down-payment alternatives.

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ONE+ by Rocket Mortgage allows qualified borrowers with a mortgage of up to $350,000 to put as little as 1% or as much as 3% down toward a home purchase. The lender will cover another 2% of the loan amount.

To get approved for Rocket Mortgage’s ONE+ loan, you must:

• Make less than 80% of the median income in the area where you’re buying.
• Have a FICO® score of 620 or higher.
• Be purchasing a single-unit primary residence, including a condo or manufactured home.
• Have a maximum debt-to-income ratio of 50%

ONE+ mortgages are available nationwide and both first-time and repeat homebuyers are eligible.

“We know that there’s a lack of supply in this country,” said Rocket Mortgage CEO Bob Walters. “This helps this community of potential borrowers or potential homeowners get a leg up in a market that’s already fairly competitive.”

Borrowers who qualify for ONE+ and live in 21 select metros nationwide are also eligible for the Purchase Plus credit. This program provides up to $7,500 for borrowers to put toward closing costs.

The ONE+ program isn’t the only option for homebuyers struggling with their down payment.

Guild Mortgage offers a similar product, 1% Down Payment Advantage, which allows borrowers to put as little as 1% down on their conventional mortgage. Guild will provide an additional 2% of the down payment, up to $5,000.

Government-backed mortgages

Homebuyers who need help funding their down payments can also look into home loans guaranteed by government agencies like the Federal Housing Authority (FHA), the U.S. Department of Agriculture (USDA) and the Department of Veterans Affairs (VA).

• FHA loans: mortgages that require a minimum of 3.5% down for borrowers with a credit score of at least 580.
• USDA loan: mortgages that require a minimum of 0% down for borrowers who make no more than 115% of the area median income and purchase properties in select rural and suburban areas,
• VA loan: mortgages that require a minimum of 0% down for borrowers who are active duty service members, reservists and veterans.
• HomeReady: mortgages backed by Fannie Mae that require a minimum of 3% down for borrowers that make 80% of the area median income and have a credit score of at least 620.
• Home Possible: mortgages backed by Freddie Mac that require a minimum of 3% down for borrowers that make 80% of the area median income and have a credit score of at least 620.

Like any mortgage where you start with little equity, ONE+ comes with certain drawbacks. A lower down payment often sets you up for higher monthly payments, since the amount you owe (and pay interest on) is more when you put 3% down vs. 20% (for example).

A low down payment can also expose you to risks if the broader market (and your personal financial situation) turns sour. “If you’re toward the end of an economic expansion and then you lose your job, there’s always a risk that you eventually become a foreclosure candidate,” said Logan Mohtashami, a housing data analyst at HousingWire. “We call that ‘late-cycle lending risk’.”

In the late cycle, economic activity reaches its peak, which historically precedes a recession. In that scenario, it’s possible to buy a home with a low down payment and, as home prices begin to fall, you end up with negative equity. In other words, your house is now worth less than what you owe on it. And if something jeopardizes your ability to make your monthly payments (say losing your job) and you can’t sell your home for at least what you owe, you’re putting yourself in a vulnerable financial situation.

That risk, however, isn’t unique to the program — it’s something you have to consider anytime you make a small down payment. Even with that in mind, ONE+ can be an excellent choice, especially for qualified first-time homebuyers short on the cash required to buy a house.

Consider the Rocket Visa Signature Card

If you think you’ll apply to the ONE+ in the future, you might also want to consider getting the Rocket Visa Signature Card. It offers 5X points on all purchases, and your rewards are worth 1 cent each when you redeem them towards down payment and closing costs with Rocket Mortgage (up to $8,000 in rewards). Alternatively, you can redeem your rewards towards the Rocket Mortgage loan principal, but then the point value drops to 0.4 cents per point.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every mortgage review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of mortgage products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

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