If you’ve been browsing for mortgage options, you’ve likely come across 1% down conventional loans. These programs promise homeownership with just 1% out of pocket, making them sound like a dream deal for first-time buyers. But is it really that simple? Let’s break it down and uncover the hidden truths lenders don’t always tell you.
How the 1% Down Program Works
At first glance, the concept is appealing:
The borrower contributes 1% of the home’s purchase price.
The lender “gifts” 2%, essentially giving you a 3% down payment.
You secure a conventional loan with 97% financing.
Sounds like free money, right? Well, not so fast.
The Catch: What Lenders Don’t Tell You
While the 1% down loan technically lowers your upfront costs, it comes with trade-offs that could cost you more in the long run. Here’s what you need to know:
1. Higher Interest Rates
Lenders aren’t just giving away money for free. To offset the 2% they contribute, they often charge higher interest rates, which means you’ll pay thousands more over time.
2. More Expensive Mortgage Insurance
With less money down, private mortgage insurance (PMI) is required. Because your initial equity is so low, your PMI payments may be higher than other loan options like FHA or USDA loans.
3. Income Restrictions & Limited Availability
Many 1% down programs have income limits, meaning if you earn above a certain threshold, you don’t qualify. They’re also only available through specific lenders, reducing your loan shopping flexibility.
Better Alternatives to Consider
If you’re looking to buy a home with a low down payment, you may have better options:
USDA Loans – 0% down, lower mortgage insurance, and great for homes in eligible rural areas.
FHA Loans – 3.5% down with flexible credit requirements and lower interest rates.
Down Payment Assistance Programs – Many states offer grants or second mortgages to help with upfront costs.
Final Thoughts: Is 1% Down Right for You?
While the 1% down loan program might work for some buyers, it’s important to understand the trade-offs before jumping in. Don’t let the promise of “free money” blind you to higher costs over time.
Before committing, run the numbers, compare loan options, and work with a trusted mortgage broker (like me!) to find the best financing solution for your situation.
If you're interested in exploring further, check out our YouTube video: https://youtu.be/-3SklgukHN0
👉 Thinking about buying a home? Let’s chat and explore your best options!

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