Home buyers in Washington State tends to have a lot of questions about the mortgage loan process. Below, we have rounded up some of the most frequently asked questions relating to mortgage financing, and what it takes to qualify for a home loan in Washington State.
Q: How much can I afford when buying a house in Washington?
For cash buyers, affordability is limited only by the amount of money in the bank. But for home buyers who plan to use a mortgage loan, there is another variable that determines the amount of house you can buy — and that’s the mortgage approval amount.
This is why it makes sense to get pre-approved for a home loan before shopping for a house. It will help you establish a specific price range for a more efficient house-hunting process.
When determining how much you can borrow for a home loan, banks and lenders review your current income and debts. This is one of the primary factors that will determine how much you can borrow. The industry term for this is debt-to-income ratio, or DTI.
The maximum debt-to-income ratio can vary depending on the type of loan you are using and other factors. With that being said, the bar is usually set at 45% to 50%. This means that if your combined debts (including the mortgage loan) use up more than 50% of your income, you might have trouble qualifying for a loan.
On the other hand, having a lower DTI ratio will improve your chances of qualifying for mortgage loan.
Q: How much of a down payment will I need?
This is another common question among home buyers and mortgage shoppers in Washington State. The answer depends largely on the type of home loan you are using. Different mortgage programs have different requirements, when it comes to the minimum down payment that is needed.
Here’s an overview of investment requirements for popular mortgage programs:
- FHA loans are popular because they allow for a relatively low down payment of 3.5%. Generally speaking, borrowers need to have a credit score of 580 or higher to qualify for this down payment option.
- Conventional home loans differ from FHA because they are not insured by the government. The minimum down payment for a conventional mortgage loan in Washington State typically ranges between 3% and 5%, but it can be higher than that in some cases.
- VA loans are a great option for military members and veterans, because they offer 100% financing. This means a person can buy a house in Washington with no down payment whatsoever. That’s a major benefit of this program.
The main point here is that you don’t necessarily need a down payment of 20% to buy a house in Washington State. That is a common misconception. Some people choose to make a down payment of 20% in order to avoid paying mortgage insurance. But it’s not an across-the-board requirement. There are lower down payment options available, as shown above.
Q: How much are closing costs in Washington?
There are a lot of variables that can affect a home buyer’s closing costs. So it can vary widely from one borrower to the next.
With that being said, most buyers in Washington State pay somewhere between 1% and 3% of the home’s purchase price in closing costs. This is a collective term that actually includes a lot of individual fees and charges.
Q: Will mortgage rates rise in 2017 or 2018?
This is another common question among home buyers and mortgage shoppers in Washington. The general consensus among housing analysts and economists is that mortgage rates will rise gradually between now and the end of 2017, and continue creeping upward in 2018.
Over the last few years, mortgage rates were “held” at historically low levels largely due to policies and actions of the Federal Reserve. But the Fed’s stimulus efforts have been winding down, so mortgage rates are once more driven primarily by market forces.
In its latest finance forecast, the Mortgage Bankers Association predicted that the average rate for a 30-year fixed home loan would rise to 4.4% by the fourth quarter of 2017. Looking further, they expect 30-year mortgage rates to continue creeping upward in 2018, perhaps reaching 5.1% by the end of next year.
When this article was published in mid July 2017, the average rate for a 30-year loan was hovering around 4.0%.