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The Down Payment PMI Connection: A Washington Mortgage Tutorial

If you’re planning to buy a home in Washington State, but you can’t afford a 20% down payment, you still have options. But you might have to pay for private mortgage insurance, or PMI. This mortgage tutorial explains the connection between down payments and PMI in Washington, while dispelling some common myths and misconceptions.

You Don’t Have to Put 20% Down to Buy a Home

A survey conducted earlier this year by Realtor.com found that quite a few home buyers think they have to put at least 20% down to buy a house. But that’s not true.

In reality, there are several mortgage programs that allow for a smaller down payment. This includes FHA, VA and conventional home loans. In fact, conventional mortgage products with a down payment as low as 3% have become more common over the last year or so.

These days, more and more home buyers are choosing to put down less than 20% when buying a house. According to Freddie Mac, the average down payment among first-time buyers in 2016 was 6% — and 14% among repeat buyers who had owned homes in the past. Both Freddie Mac and Fannie Mae offer mortgage programs that allow for down payments as low as 3%.

Just know that if you choose to invest less than 20% when buying a home in Washington, you will likely encounter private mortgage insurance (as explained below).

Putting More Money Down Reduces Your Mortgage Payments

Mortgage financing comes down to basic math. For example, home buyers in Washington who put more money down on a purchase can reduce the size of their monthly payments.

This is the primary advantage of making a larger down payment. By paying more money up front, you are financing a smaller amount and thereby reducing the size of your monthly payments.

This is partly why some people choose to make down payments of 20% or more when buying a house in Washington. They often do it to reduce the size of their payments. (But if you can’t afford a 20% investment on a home, you still have options.)

It Doesn’t Have to Come Out of Your Own Pocket

Your down payment funds can come from a variety of different sources. This can even include gift money from a family member or some other approved third-party donor.

Of course, you can pay for your entire down payment out of your own pocket, if you choose. But that’s not always necessary. The money can be gifted from another individual or organization. Learn more about down payment gifts here.

Paying Private Mortgage Insurance (PMI) in Washington State

Washington home buyers who choose to put down less than 20% on a house usually have to pay private mortgage insurance. Commonly referred to as PMI, this insurance policy protects the mortgage lender who originates the loan in cases where the borrower is unable to repay the debt for some reason.

This is why some borrowers choose to make down payments of at least 20%. They do it to avoid paying PMI, which reduces the overall cost of the loan as well as the monthly payments.

On the upside, these insurance policies allow home buyers in Washington to purchase a home sooner and with less money down. For many borrowers, this benefit offsets the nominal increase in monthly payments that is associated with PMI.

The point is you have options for down payments when buying a home in Washington. While some buyers choose to make an upfront investment of 20%, the average falls somewhere between 6% and 14%. The FHA loan program allows borrowers to make a down payment as low as 3.5%, and some conventional loans go as low as 3%.

Let’s explore your options. Sammamish Mortgage has been serving borrowers across the Pacific Northwest for more than 20 years. We offer competitive rates on a variety of loan products, including those mentioned above. Please contact us if you’d like to learn more about your down payment options when buying a home in Washington.

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