The Federal Housing Administration (FHA) mortgage loan program has been helping home buyers become homeowners for decades. FHA loans are particularly popular among first-time buyers in Washington because the program allows for a relatively low down payment of 3.5%.
One advantage of using an FHA-backed mortgage loan is the fact that sellers can pay some or all of the buyer’s closing costs. Here’s what you should know about Washington State FHA loans, closing costs, and contributions from “interested parties.”
Seller Can Pay Buyer’s Closing Costs With FHA Loans
In Washington, and nationwide, sellers are allowed to pay a portion of the buyer’s closing costs when an FHA loan is used. We’ll get back to the rules and requirements for these “seller concessions” in a moment. But first, a couple of definitions.
An FHA loan is one that is insured through the Federal Housing Administration, part of HUD. This insurance protects lenders from losses that might result from borrower default. For borrowers, the program offers relatively low down payment and flexible qualification criteria.
When borrowers take out a mortgage loan to buy a house, they encounter a variety of charges. Some of these come from the lender, while others come third parties like home appraisers, government entities, title companies, etc. Collectively, these fees and charges are referred to as closing costs. Most mortgages come with closing costs, and that applies to FHA loans as well.
The FHA loan program allows for Washington home buyers to have some of their closing costs paid by the person(s) selling the home. This often referred to as a seller “concession” or contribution.
According to HUD Handbook 4000.1, home buyers in Washington who use an FHA loan to buy a house can receive seller concessions toward their closing costs. The person selling the home is allowed to pay up to 6% of the sales price amount toward the buyer’s closing costs.
As the handbook states:
“Standard Interested Parties may contribute up to 6 percent of the sales price toward the Borrower’s origination fees, other closing costs and discount points.”
In this context, the term “interested party” refers to sellers, real estate agents, developers, home builders, or other parties with an interest in the transaction. These people can pay some or all of the buyer’s FHA loan closing costs, generally up to 6% of the sale price.
Overcoming Obstacles to Homeownership
Down payments and closing costs are two of the financial hurdles home buyers in Washington must overcome on their path to homeownership. (At least, for those buyers who use mortgage loans to finance their purchases.) But there are ways to overcome these perceived hurdles.
Home buyers in Washington State who use FHA or conventional loans can often obtain gift money from family and friends, to help cover the down-payment expense. We’ve written about this in the past. And then there are the seller concessions toward closing costs, which are discussed above.
Exploring All of Your Mortgage Options
The point is, the path to ownership is not always as steep as home buyers believe it to be. There’s a lot of flexibility within today’s mortgage industry. There are many different loan programs, and they all have unique features and benefits. That’s why it’s so important to speak with a knowledgeable loan officer about your financing options.
What’s the best loan option for you? What might you do to reduce your upfront expense when buying and financing a home? These are just two of the important questions we can help you answer.
Need a Home Mortgage Loan?
Will you need mortgage financing to buy a home in Washington State? We can help. Sammamish Mortgage has been serving buyers across the Pacific Northwest for more than 25 years. We currently lend in all of Washington, Oregon, Idaho, and Colorado. Sammamish Mortgage offers a wide variety of mortgage programs & products with flexible qualification criteria. Please contact us today with any financing-related questions you have.