Two of the most popular low down payment options today are the 1% Down Payment Loan and the FHA loan. Both let you buy a home without saving 20%, but they work very differently. Understanding these differences can save you thousands of dollars over the life of your loan.
The Quick Comparison
| Feature | 1% Down Loan | FHA Loan |
|---|---|---|
| Minimum Down Payment | 1% (+ 2% grant = 3% total) | 3.5% |
| Credit Score Minimum | 620 | 580 |
| Maximum Loan Amount | $350,000 | Varies by county |
| Income Limits | 80% AMI | None |
| Mortgage Insurance | Reduced, cancellable at 20% | Required for life of loan |
| First-Time Buyer Only? | No | No |
| Closing Timeline | 21 days | 14-21 days |
How the 1% Down Payment Loan Works
You bring 1% of the purchase price. The lender provides a 2% forgivable grant. Combined, you have the 3% minimum required for a conventional loan.
Example on a $300,000 home: – Your contribution: $3,000 (1%) – Lender grant: $6,000 (2%) – Total down payment: $9,000 (3%)
That $6,000 grant is forgivable, meaning you never pay it back. It is not a second loan or deferred payment. It is free money toward your down payment.
How FHA Loans Work
FHA loans are insured by the Federal Housing Administration. This insurance allows lenders to accept lower credit scores and down payments while managing risk.
Example on a $300,000 home: – Your contribution: $10,500 (3.5%) – Upfront Mortgage Insurance: $5,250 (1.75%, typically financed into loan) – Monthly Mortgage Insurance: 0.55% annually ($137.50/month on a $300,000 loan)
The monthly mortgage insurance continues for the life of the loan unless you refinance into a conventional loan.
The Mortgage Insurance Difference
This is where these loans diverge significantly.
1% Down Payment Loan: – Mortgage insurance required (because down payment is under 20%) – Premiums are reduced below standard conventional loan MI – MI cancels automatically when you reach 20% equity – No upfront premium
FHA Loan: – Upfront Mortgage Insurance Premium (UFMIP): 1.75% of loan amount – Monthly MIP: 0.15% to 0.75% annually, depending on loan term and amount – MIP is required for the LIFE of the loan – The only way to remove it is to refinance
Long-term cost example on $300,000 loan:
FHA over 10 years: – Upfront MIP: $5,250 (financed) – Monthly MIP: ~$137.50 x 120 months = $16,500 – Total MI cost: $21,750+
1% Down over 10 years (assuming you reach 20% equity in year 7): – No upfront premium – Reduced monthly MI for 7 years – MI cancels automatically – Total MI cost: Approximately $8,000-$12,000
The difference can easily exceed $10,000 over a decade.
View mortgage rates for
February 15, 2026
When the 1% Down Loan Wins
You have a 620+ credit score The 1% Down program requires 620 minimum. If you meet this threshold, you get access to conventional loan benefits with an incredibly low down payment.
You want to buy a condo FHA requires condominium complexes to be pre-approved, which many are not. Conventional financing (which includes the 1% Down program) avoids this issue entirely.
You plan to keep the home long-term Cancellable mortgage insurance means your monthly payment decreases once you reach 20% equity. FHA mortgage insurance never goes away without refinancing.
Your loan amount is under $350,000 This is the maximum for the 1% Down program. If your purchase fits within this limit, you can access significant savings.
You want to minimize out-of-pocket costs Only $3,000 down on a $300,000 home (the lender covers the other $6,000). With FHA, you would need $10,500.
When FHA Wins
Your credit score is between 580-619 FHA allows scores as low as 580. The 1% Down program is not available below 620.
Your loan amount exceeds $350,000 FHA loan limits vary by county and can go much higher than $350,000 in many areas. Some high-cost counties have FHA limits exceeding $1 million.
Your income exceeds 80% of Area Median Income The 1% Down program has income restrictions. FHA has none. High earners who want low down payment options may only qualify for FHA.
You need more flexible debt-to-income ratios FHA allows DTI ratios up to 56% in some cases. Conventional loans (including 1% Down) typically cap at 45-50%.
You are buying a multi-family property FHA allows 3.5% down on 2-4 unit properties. The 1% Down program is for single-family only.
Real Buyer Scenarios
Scenario 1: Software developer earning $120,000, buying $340,000 starter home Income likely exceeds 80% AMI, so 1% Down may not work. Best choice: FHA or explore HomeReady (also has income limits but may be higher in this area)
Scenario 2: Nurse earning $65,000, buying $280,000 townhouse, 640 credit score Qualifies for both programs. Income within limits. Best choice: 1% Down Savings: Lower out-of-pocket ($2,800 vs $9,800), cancellable MI saves thousands long-term
Scenario 3: Recent college grad, 600 credit score, buying $250,000 condo Credit score too low for 1% Down. Best choice: FHA (but verify condo is FHA-approved)
Scenario 4: Repeat buyer with 660 credit, $320,000 purchase price Both programs allow repeat buyers. Best choice: 1% Down Why: Lower down payment, grant offsets costs, conventional financing for condo flexibility
The Numbers on a $300,000 Purchase
1% Down Payment Loan: – Down payment from buyer: $3,000 – Lender grant: $6,000 – Total at closing: ~$3,000 + closing costs – Estimated MI: ~$150/month (cancels at 20% equity) – No upfront MI premium
FHA Loan: – Down payment: $10,500 – Upfront MIP (financed): $5,118 – Total loan amount: $294,618 (including UFMIP) – Total at closing: ~$10,500 + closing costs – Monthly MIP: ~$137/month (permanent)
Monthly payment difference (principal, interest, MI only at 7% rate): – 1% Down: ~$1,900 (MI cancels eventually) – FHA: ~$2,030 (MI permanent)
The FHA loan costs $7,500 more at closing AND has a higher monthly payment that never improves.
Making Your Decision
Start with these questions:
- Is your credit score above or below 620?
- Is your target purchase price under $350,000?
- Is your income below 80% of your area’s median income?
- Are you buying a single-family home or condo?
If you answered “above 620,” “yes,” “yes,” and “either,” the 1% Down program is likely your best option.
The only way to know for certain is to run the numbers with a lender who offers both programs. JVM Lending can compare your specific situation across multiple loan options in minutes.
At JVM Lending, we help buyers, homeowners, and investors make confident decisions in the evolving housing market. Whether you are purchasing, refinancing, or planning ahead, our team is here to guide you every step of the way.
