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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.
When you apply for a mortgage to buy a home in Washington State, you’ll need a down payment. But how much can you expect to pay as a down payment, relative to the average amount paid by borrowers 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.
In some cases, your credit score can affect what size of a down payment you need to make. Certain government backed loans may allow a 3.5% down payment with a credit score over 580, but require a 10% down payment with a credit score below that number.
A higher down payment can offset a low credit score, and a high credit score can qualify you for a lower down payment. However, it all depends on what kind of home loan you get.
Generally speaking, putting more money down 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.
A higher down payment amount will mean a lower loan amount that you will need to pay back. This can reduce your monthly mortgage payments and significantly lower the amount you’d have to pay in interest over the life of the loan.
Shelling out for a larger down payment could mean that you may be able to avoid paying Private Mortgage Insurance (PMI), which is required on mortgages with less than 20% down. If you can come up with at least a 20% down payment, you can avoid having to pay PMI, which can further reduce what you owe.
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. In fact, many military members applying for a VA loan may be able to avoid having to make a down payment at all thanks to the zero down payment needed option for active duty service members, military veterans and surviving spouses
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.
You may also be able to qualify for a down payment assistance program in your state or city. Consult with your mortgage lender to see if any of these are an option. Alternatively, you may be able to get down payment assistance in the form of a cash gift from a family member.
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.
Confused yet? Don’t worry. We’ll cover more about LTV, PMI further down.
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%. That said, the minimum down payment that borrowers may put down with a conventional loan is 3%, which is available through the conventional 97 loan program.
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 loan programs 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. However, there are some drawbacks to FHA loans, as you’ll may more in the end.
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. The loan is backed by the United States Department of Veterans Affairs.
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.
Back to LTV and PMI: as noted, when a mortgage loan accounts for more than 80% of the home value, the borrower is usually required to pay private mortgage insurance (PMI).
Almost all borrowers who use the FHA loan program end up paying mortgage insurance premiums, which can increase the monthly payment. The FHA mortgage insurance premium (MIP) is a fee that is added to your monthly mortgage payments. The policy is designed to protect the lender in the event that you default on your FHA mortgage.
In fact, borrowers who take out an FHA loan must pay two mortgage insurance premiums: one that is due in a lump sum at the time of closing, and another every year for as long as you are repaying the mortgage, in the majority of cases.
Most conventional home loans with an LTV above 80% also 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.
As you can see, the average down payment on a house in Washington State can vary depending on the type of mortgage you take out, as well as how much you pay for a home.
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!
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