Coming up with a down payment for a mortgage can be a real challenge for many borrowers, especially when considering the high prices of homes in many centers across the state of Washington. But borrowers may be able to get assistance from family when it comes to down payments, and this article will outline how this may work.
The down payment is often the biggest financial hurdle for home buyers in Washington State. This is especially true for first-time buyers, since they don’t have any funds from a previous sale.
The good news is that Washington home buyers can get down payment assistance from family members, close friends, employers, and other sources. Here’s what you need to know about this gifting strategy.
Getting Down Payment Assistance from Family
The down payment required for a mortgage can vary quite a bit, based on the type of loan you are using and other factors. For instance:
- A conventional mortgage might require anywhere from 3% to 20% down, depending on the amount being borrowed and the borrower’s qualifications.
- FHA loans generally require 3.5% down, at a minimum.
- The VA program for military members offers 100% financing.
So there are quite a few options out there.
But what if you can’t afford the down payment required for your chosen mortgage option? There’s still a way to move forward. Most of the home loan programs available in Washington State today allow for down payment assistance from family members, employers and other approved donors. This is a little-known but empowering mortgage strategy that could help you overcome some financing hurdles.
The industry term for this is a “gift.” But it’s essentially a type of down payment assistance from an approved provider.
It works like this:
- The borrower checks with his or her mortgage lender to see which programs allow for down payment assistance (many of today’s loan products allow it).
- The borrower obtains funds from an approved source, such as a family member, employer, charitable organization, or a close friend. Allowable sources can vary based on the type of loan.
- The gift money is deposited into the home buyer / borrower’s bank account, where it can be verified through bank statements.
- The person or group providing the down payment assistance writes a letter that states they do not expect any kind of repayment. It must truly be a gift — not a loan.
- The mortgage underwriter verifies that the borrower has the necessary funds for the down payment and other expenses, and that a gift letter has been provided by the third-party who donated funds.
So this strategy is a way for Washington State home buyers to get down payment assistance from family members, or from some other allowable source. It can be particularly useful in the Seattle area, where prices have risen sharply in recent years.
Washington Mortgage Options With Low Down Payments
Borrowers should also know there are low-down-payment mortgage options available in Washington State. In this context, “low” means less than 20%. While a 20% down payment used to be the benchmark for the mortgage industry, that is no longer the case. Today, there are several home loan options that allow for lower down payments — as little as 3%. We’ve covered some of them here.
Additionally, military members and veterans can often qualify for a VA-guaranteed mortgage loan that allows 100% financing. With this option, the borrower can avoid having to make a down payment altogether.
Better still, these low-investment mortgage options can be used with the down payment assistance strategy mentioned earlier. For example, a home buyer in Washington could use an FHA loan with a down payment of 3.5%, while obtaining financial assistance from a family member in the form of a gift.
The point is, today’s mortgage industry is more flexible than many people realize. There are a variety of loan options and financing strategies geared toward borrowers with limited funds for a down payment. Please contact us if you would like to learn more about these options.
Your Ability to Repay Is What Matters
While it’s possible to buy a home in Washington with down payment assistance from someone else, you’ll still need to have sufficient income to repay the debt. Your ability to repay the loan is an essential component of the mortgage underwriting and approval process, and for obvious reasons.
Related: How much can I afford to buy?
Lenders want to ensure that you have the financial ability to keep up with your monthly mortgage payments, along with your other recurring debts. That’s why banks and mortgage companies usually request bank statements, tax returns, and related documents. They do it to verify your ability to repay.
Need Answers to Your Questions About Down Payments?
Do you have questions about getting down payment assistance from family, in the form of a gift? Contact Sammamish Mortgage today. We can help you explore your options and choose a mortgage program that works best for you. We serve all of Washington, Oregon, Colorado, and Idaho, and we’d love to help. Get in touch with us today!