Exclusive: Lower launches mortgage option with minimum 1% down payment

Lower announced on Wednesday the launch of a mortgage program that allows eligible homebuyers to contribute as little as 1% toward a down payment while receiving a lender grant of 2%, up to $4,500.

The program, dubbed ONE by Lower, is designed to reduce the upfront costs of buying a home as elevated home prices, mortgage rates and inflation continue to challenge affordability.

The grant does not have to be repaid and carries no recapture provision or resale restrictions, according to the company.

“I got into this business to help more people achieve the American dream of owning a home, which remains one of the most powerful ways to build wealth in this country,” Lower CEO Dan Snyder said in a statement. “With ONE by Lower, we’re launching an innovative new mortgage product and investing millions of dollars to help our members achieve homeownership and build a strong financial future.”

Under the program, Lower provides a grant equal to 2% of the home’s purchase price, capped at $4,500. The grant does not have to be repaid, carries no recapture provision and does not create a second lien on the property.

Craig Montgomery, president of Lower’s retail division, told HousingWire in an interview that the company developed the program after recognizing that many prospective buyers have sufficient income and credit to qualify for a mortgage but struggle to accrue enough money for a down payment.

“When gas prices are rising, when inflation is increasing, when the cost of groceries is increasing, it becomes very difficult to start saving money,” Montgomery said. “You’re trying to survive. And when you’re in survival mode, you know the last thing you’re thinking about is saving for a down payment of a home.”

He said that Lower views the grant as a financial investment in expanding access to homeownership rather than a cost passed on to borrowers.

“This is a significant financial investment on behalf of Lower, but we also think that it’s something that we want to do [and] should do,” he said.

Borrower requirements

The grant will not affect borrowers’ interest rates or the pricing offered by Lower’s loan originators. Lower has budgeted for the program and modeled its financial impact, although the company may modify the program based on its performance, Montgomery clarified.

Eligible borrowers must have household income at or below 80% of the area median income and a credit score of at least 620. The program is available to first-time and repeat buyers, and is limited to purchase loans for single-unit primary residences.

The maximum loan amount is $375,000. The loans do not carry prepayment penalties, and seller concessions are permitted.

The 2% grant is fully available on homes priced up to $225,000. For more expensive homes, the grant remains capped at $4,500, meaning borrowers may need to contribute more than 1% toward the down payment.

Montgomery said the structure can still reduce the amount of money borrowers need compared with other low down payment options.

For example, on a $300,000 home, Lower would provide the maximum $4,500 grant, while the borrower would contribute the remaining amount needed to meet the program’s down payment requirement. That could still require less borrower-funded money than conventional programs that generally require a 3% down payment, or Federal Housing Administration (FHA) loans that require a 3.5% down payment for borrowers with qualifying credit scores.

“There are other lenders out there that have a 1% down [program], but some of the credit criteria or credit qualification is tighter,” Montgomery said. “We’ve elected to go with the 620-plus, which opens up a much larger pool of potential borrowers.”

Lower plans to promote the program through its loan originators, real estate agents and other referral partners. Montgomery said education will be important because the company expects a sizable pool of prospective buyers to meet the income and credit requirements.

The program is not intended to serve every homebuyer, Montgomery said, but Lower believes reducing the upfront cash requirement could create a more realistic path to ownership for qualified renters.

“If down payment barriers were eliminated, they would become homeowners,” Montgomery said. “With ONE by Lower, we feel like a 1% down payment option really can open the doors to homeownership.”

This article was written by Sarah Wolak and generated with the assistance of HousingWire Automation, then reviewed by a HousingWire editor before publication.