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What’s the average down payment on a house in Washington State? That partly depends on the type of home loan you’re using. This article will outline current lending trends, including down payments, in Washington.
A down payment is needed if you plan to finance a home purchase. Your down payment will go towards the purchase price of your home and is required by your lender, unless you qualify for a VA loan which does not require a down payment for those who are eligible.
The amount of your down payment will depend on a few things, including the price of your home, the type of mortgage you’re applying for, your credit score, and your financial profile.
Generally speaking, a higher down payment is better because it will improve your chances of getting approved for a mortgage and can help qualify you for a lower interest rate. In turn, this can help you save a lot of money in the long run.
Your down payment will be required when you first take out your mortgage, so you’ll need to make sure that you’ve saved enough before you start your search for a home in Washington State.
The question is, what is the average down payment for a home purchase in Washington State?
According to a recent report from a mortgage software company, the average down payment for a home purchase in Washington State ranges from 3.5% (for FHA loans) to less than 20% (for conventional). Borrowers using the VA mortgage program put even less money down, on average.
Ellie Mae is a leading provider of mortgage origination software for the lending industry. Their software is used to process many thousands of home loans every month. Each month, the company publishes an “Origination Insight Report” (OIR) based on a “robust sampling of closed loan applications.” The OIR gives us some good insight into various lending trends, including down payments.
Among other things, the OIR lists average loan-to-value (LTV) ratios for closed loans. The LTV is essentially the inverse of the down payment.
For instance, if a borrower obtains a loan for 80% of the home purchase price, they’ll have to make a down payment of 20%. The LTV is 80% — the down payment is 20%.
Your LTV tells the lender how much of a risk you will be as a borrower. Generally, high LTV ratios are considered higher-risk mortgages. As such, if you are approved for a home loan with a high LTV, you may likely be given a higher interest rate to offset this risk. In contrast, a lower LTV will ensure a lower interest rate.
In addition, a loan with a high LTV may require you to buy mortgage insurance to offset the lender’s risk, which will make your home loan more expensive. This insurance is called Private Mortgage Insurance (PMI).
More specifically, PMI will be required if you make a down payment of less than 20% of the purchase price of the house. If you can muster up at least 20%, you can avoid paying PMI.
A recent Origination Insight Report gives us some insight into the average down payment on a house within Washington State and elsewhere across the country.
It appears that the average down payment for a home purchase in Washington State is 5% to 20% when a conventional home loan is being used. “Conventional” means the loan is not backed by the government, which distinguishes it from FHA and VA.
It’s important to note, however, that a 20% down payment is not required for conventional loans. Home buyers in Washington State can qualify for conventional financing with a down payment as low as 3% of the purchase price. The LTV numbers above are just averages — not minimums.
However, just remember that PMI will be required for conventional loans with down payments less than 20%.
According to the latest OIR, the average down payment among home buyers using the FHA loan program was 5%. That’s not surprising since borrowers are required to put down at least 3.5% when using FHA loans to buy a house.
These loans are attractive to borrowers who may be unable to put together a large down payment or who have a credit score that’s on the lower end, as FHA loans have less stringent requirements for approval.
The Veterans Administration (VA) home loan program offers 100% financing for eligible borrowers in Washington State. This allows borrowers to buy a home with no down payment whatsoever and often without mortgage insurance.
Despite the 100% financing that’s available through this program, some borrowers choose to make down payments to reduce their mortgage amounts. The average amount put down on a VA home loan is around 2%, based on the Ellie Mae LTV data.
When a mortgage loan accounts for more than 80% of the home value, the borrower is usually required to pay mortgage insurance.
Almost all borrowers who use the FHA loan program end up paying mortgage insurance premiums, which can increase the monthly payment. Additionally, most conventional home loans with an LTV above 80% require Private Mortgage Insurance (PMI).
The VA program is unique in this regard. Home buyers who use a VA loan to buy a house could qualify for 100% financing without having to pay mortgage insurance.
The point is, if you make a down payment of less than 20% on a home in Washington State, there’s a good chance you’ll have to pay mortgage insurance. The upside is that this insurance allows you to qualify for a loan with a smaller down payment, which might not be possible otherwise.
Are you planning to buy a house in Washington State sometime soon? Have questions about down payments, mortgage insurance, or mortgage programs? Give us a call. Sammamish Mortgage has been helping borrowers across the Pacific Northwest since 1992. Get in touch with us today if you’re ready to get the home loan process started!
If you’re thinking of buying a home in Colorado but aren’t sure about how much to put down, this blog post will help you make that decision.
Are you buying a home in the near future and require a mortgage to help finance it? If so, you’ll likely require a down payment in order to secure a home loan. The question is, what’s the average down payment for a house?