Acceptable Down Payment Sources for a House in Washington

Published:
December 20, 2022
Last updated:
December 20, 2022
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First-time home buyers in Washington tend to have a lot of questions about down payment requirements for a mortgage loan. One of the most common questions is, what types of funds can I use toward my down payment?

In this article, we will talk about some of the acceptable sources for down payment funds, when using a mortgage loan in Washington State.

The short version: Acceptable sources can include checking and savings accounts, 401(k) retirement accounts, gift money provided by an authorized third party, and a few other sources mentioned below.

Acceptable Down Payment Sources in Washington

Down payment rules and requirements can be a bit complicated, especially for first-time buyers. There are several reasons for this.

For one thing, there are different types of home loans available for borrowers, and they can all have different requirements and guidelines. Additionally, there are often exceptions to some of the “rules” for mortgage loans.

The types of funds that can be used for a down payment in Washington can vary depending on the type of loan being used.

The requirements for FHA loans are established by the Department of Housing and Urban Development. For a conventional mortgage loan, down payment sources and other requirements are typically established by Freddie Mac or Fannie Mae. And then we have the VA loan program, which is managed by the U.S. Department of Veterans Affairs.

Despite these differences, many of the loan programs available today allow for the same types of down payment funds. Here are some of the most commonly acceptable down payment sources for a Washington mortgage loan, regardless of the type of loan being used:

  • Checking and saving accounts
  • 401(k) account
  • Gift money from a family member or other approved contributor
  • Stocks and bonds
  • Individual retirement accounts (IRAs)
  • Keogh Plans
  • Trust accounts
  • Cash value of a life insurance policy
  • Additional sources might be allowed, depending on loan type

The most common method is to use funds from your checking or savings accounts. This can be money you’ve saved up for years, or fairly recently. But, as you can see from the list above, there are other down payment sources as well.

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Government Programs Have Their Own Unique Rules

As mentioned above, different mortgage programs have different rules regarding acceptable sources for down payment funds. For instance, the Federal Housing Administration (FHA) limits the amount that borrowers can pull from their retirement savings to put toward the down payment.

FHA guidelines state the following:

“Up to 60% of the value of assets such as Individual Retirement Accounts (IRA), thrift savings plans, 401(k) and Keogh accounts may be included in the underwriting analysis, unless the borrower provides conclusive evidence that a higher percentage may be withdrawn…”

Similarly, the VA home loan program for military members and veterans has its own specific requirements for acceptable down payment sources.

But the general rules and requirements are similar across all mortgage programs. Most of the loan programs available today allow borrowers to use the acceptable down payment sources shown in the list above.

Using Gift Money from a Third Party

Most of the major mortgage loan programs (including FHA, VA and conventional) allow borrowers to use gift money for their down payment funds. In this context, the gift refers to money provided by an approved third-party donor, such as a family member.

The caveat here is that the donor must provide a letter stating the money is truly a gift, and that they do not expect to be repaid. But aside from that, gifts are considered an acceptable source for down payment funds in Washington.

Watch Out for Withdrawal Penalties

If you plan to use some of your retirement savings to serve as down payment funds, you’ll want to find out about withdrawal penalties first. This is another important consideration when tapping into retirement funds.

For instance, most 401(k) programs allow borrowers to withdraw a certain amount for a home purchase, penalty free. But if you have purchased a home before, you could encounter a withdrawal penalty.

The rules can vary depending on the type of retirement plan being used. So this is something to look into before making any decisions. The last thing you want is to be caught off guard by an unexpected withdrawal penalty.

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Get Answers to Your Mortgage Questions

Do you have questions about the acceptable sources for a down payment in Washington? If so, we can help.

Based in the Seattle metro area, Sammamish Mortgage serves home buyers and homeowners across the state of Washington. We offer a wide range of mortgage loan options, some of which have flexible down payment requirements. Please contact us if you have mortgage-related questions or would like to apply for a home loan.

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