The two largest U.S. lenders are making homeownership more affordable for lower income Americans with a 1 percent down payment at a time when high home prices and interest rates have locked many would-be homeowners out of the market.

For millennials, the downpayment is the No. 1 hurdle to homeownership, according to a report by the policy research group Urban Institute and the latest Country Financial Security Index.

New mortgage programs introduced by United Wholesale Mortgage and Rocket Mortgage let some homebuyers who earn 80 percent or less than their area’s median income put 1 percent down on a home rather than the 3 percent minimum required for a conventional loan.

When income-qualified borrowers put 1 percent down, United Wholesale Mortgage says it will pay an additional 2 percent toward the down payment, up to $4,000, for a total of 3 percent down. 

“We thought about how we were going to help consumers that are on the fence,” said Alex Elezaj, chief strategy officer at UWM. “A couple thousand dollars is make it or break it for a lot of people that are trying to get into a home.”

Rocket Mortgage said its program is available nationwide for first-time and repeat home buyers without restrictions on where you can live or where you move from.

In addition, Rocket Mortgage said clients won’t pay for mortgage insurance on this product, which will lower the monthly payment.

For example, on a $250,000 purchase price with a 30-year fixed loan and a 6 percent interest rate, if the buyer puts $2,500 down for a down payment, Rocket Mortgage covers 2 percent of the loan amount ($5,000).

The monthly principal and interest payment is $1,453.91 and the buyer could save up to $245 per month by not having to pay for mortgage insurance, according to Rocket. Buyers could potentially save an average of $20,500.

About half of 18-to-34-year-olds said affording a down payment was the biggest financial barrier to homeownership, Urban Institute and Country Financial reported. Most Americans’ believe that you must put 20 percent or more down. However, census data shows that 71 percent of current homeowners made down payments of 20 percent or less, CNBC reported.

The 1 percent down option rolled out by UWM and Rocket is not new, Housing Wire reported. Other lenders have rolled out similar programs over the years to drum up more business.

Rocket reported a $197 million loss in the fourth quarter of 2022 and a $111 million adjusted net income loss in the first quarter of 2023.

“These types of products function like a modification to Fannie Mae‘s HomeReady and Freddie Mac‘s HomePossible programs, which allow a 3 percent down payment — or what lenders refer to as 97 percent loan-to-value (LTV) — on conventional loans.”