According to a recent housing industry report, it would take a typical home buyer in Seattle nearly 12 years to save up for a 20% down payment on a median-price home.
But with private mortgage insurance, Seattle-area buyers can often purchase a property with a lot less money down. That means they can do it sooner, and without having to save so much.
Eleven Years to Save for a 20% Down Payment in Seattle?
A recent report by the housing research group at Zillow claimed: “For someone making the median income and putting away 10 percent each month, it would take just over seven years to save for a 20 percent down payment on the typical U.S. home.”
That’s for the nation as a whole. They also provided an estimated time to save for a 20% down payment in major cities across the country. San Jose, California topped the list by having the longest estimated time (21.8 years).
Seattle, Washington fell somewhere in the middle of the rankings. Based on this hypothetical analysis for Q2 2018, it would take a median-income household in Seattle about 11 years to save up for a 20% down payment on a median-priced home.
But this scenario assumes a couple of factors that might not always apply:
- It assumes the buyer is saving up for a 20% down payment, which isn’t always necessary. Some loan programs only require 3% to 3.5% down, and military folks can usually qualify for VA loans that offer 100% financing.
- It further assumes that the buyer has median income for the area and is purchasing a median-priced home.
In reality, it probably would take a long time for a person with a median household income for the Seattle area to come up with a 20% down payment on a median-priced home.
House values in the area have risen sharply over the last few years. A middle-price property in the city would cost you around $740,000, as of October 2018. A 20% down payment on that amount would come to around $148,000. And that’s beyond the reach of a typical household with a median level of income.
Fortunately, there are ways to reduce the down-payment burden when buying a house in or around Seattle, Washington.
Private Mortgage Insurance to the Rescue
Because of the private mortgage insurance (PMI) industry, borrowers don’t necessarily have to put 20% down on a purchase. In fact, the minimum required investment for a conventional home loan can be as low as 3% these days, for qualified borrowers. And the FHA allows eligible borrowers to put down as little as 3.5%.
Private mortgage insurance basically lowers the upfront investment requirement for home buyers, thereby shortening the time it takes to save up for a down payment.
Home Prices Are Slowing Down in Seattle
In related news, home-price appreciation in Seattle finally appears to be slowing to a more normal pace. This follows several years of above-average gains, during which house values in the area rose faster than almost every other city in the country.
Despite this cooling trend, home-value appreciation has still outpaced income growth for the past few years. That’s one reason why some would-be buyers in the Seattle area — and in many other parts of the country — are struggling to come up with the funds needed to purchase a home.
In a lot of cases, borrowers can overcome these hurdles by (A) choosing a mortgage program with a low down-payment requirement, and (B) using gift money from a family member or other donor. When combined, these two strategies can greatly reduce the burden of making a down payment on a Seattle home purchase.
It’s also worth noting that house prices can be a lot lower, on average, in some of the surrounding cities. This is something we’ve been covering in an ongoing blog series. For instance, check out these reports about buying a home in Federal Way and Lynwood (both of which fall within the Seattle metropolitan area).
Have questions? Sammamish Mortgage is a local, family-owned company based in Bellevue, Washington. We serve the entire state, as well as the broader Pacific Northwest region. Please contact us if you have mortgage-related questions.