How to Take Advantage of the New 1% down Mortgages

Unlocking potential through strategic home-buying in a low-cost market.

A new option to become a homeowner has been made available by the recent introduction of 1% down mortgages at both Rocket Mortgage and Zillow. While such a low entry barrier seems enticing, it's essential for potential homeowners to approach this opportunity with a well-thought-out plan. In the US a traditional mortgage can be used to purchase not just a single family home but also a multi-unit property, up to four units total. So, imagine this: you secure a four-plex home, in a budding yet affordable market, live in one unit, and rent out the other three. This not only provides you with a place to live but also potentially opens up multiple streams of rental income. But how exactly can you do this?

The starting point of any home-buying journey is understanding your financial standing. With the tempting 1% down mortgages on offer, it's easy to bite off more than you can chew. But remember, even with a potentially low initial investment, monthly payments could still be substantial given high interest rates, the increased loan amount, and additional associated costs such as Private Mortgage Insurance (PMI). This is where the mantra "Buy only what you can afford" comes into play. Before getting enchanted by the dream of a home, one must assess the affordability of the property purely based on their existing financial situation. By doing this, you're not only securing your financial stability but also ensuring any rental income becomes a bonus rather than a necessity. Find a monthly rate you can afford even if there is no additional income from the extra units.

Dipping your toes into homeownership doesn’t mean jumping into a high-priced market. There's wisdom in starting with an inexpensive market, especially if you’re new to real estate. Low-cost markets might offer the advantage of lower property taxes, reduced competition, and an opportunity for property appreciation if the area sees growth in the future. By combining this with the strategy of living in one unit of a multi-unit property, you can qualify for owner-occupied mortgage rates, which are typically more favorable than those for investment properties. Living on the property also offers the added advantage of close management, ensuring a better tenant experience and potentially fewer vacancies.

Once settled, renting out the other units presents a chance for both short-term and long-term gains. Short-term rentals can sometimes yield higher returns, especially in tourist-friendly areas, but come with the challenges of frequent management, variable occupancy rates, and potential local regulations. On the other hand, long-term rentals can offer consistent income, fewer turnovers, and a chance to foster longer tenant relationships. The choice boils down to your personal preference, local market conditions, and your capacity to manage the property.

As you embark on this journey, remember to maintain an emergency fund. With a low down payment, the margin for unexpected expenses is thin. But with a strategic approach, the dream of owning and benefiting from a multi-unit property in a budget-friendly market is more achievable than ever. Armed with these insights, you're better poised to navigate the world of 1% down mortgages and to unlock the potential of multi-unit properties.

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