Summary: It’s possible to buy a home in Washington State will less than 20% down, while avoiding PMI at the same time. This article explains how you might accomplish this goal.
Home buyers and mortgage shoppers in Washington State have a lot of options when it comes to home loan features. In fact, many borrowers don’t even realize how much flexibility there is within the mortgage industry these days. So we’ve been publishing a series of blog posts on some of these lesser-known financing strategies.
Today, we’ll look at how you could potentially put less than 20% down when buying a house in Washington, without paying PMI.
A Big Down Payment Is Not Always Necessary
There are a lot of misconceptions regarding down payments. One of the biggest misconceptions is that all borrowers need a down payment of 20%, or more, to qualify for a mortgage loan.
According to a 2017 analysis by the National Association of Realtors, 39% of aspiring home buyers believed they needed more than 20% for a down payment on a purchase. Another 26% of buyers thought they had to put down 15% to 20% to buy a house.
The truth is, there are a variety of mortgage options available in Washington State that allow borrowers to put less than 20% down — and sometimes without mortgage insurance.
How a Higher LTV Could “Trigger” Mortgage Insurance
Private mortgage insurance, or PMI, is a policy that protects mortgage lenders from financial losses resulting from borrowers who default on their loans. Generally speaking, a PMI policy is required in cases where the loan-to-value (LTV) ratio rises above 80%. For instance, if a home buyer makes a down payment of 5% and borrows the remaining 95%, PMI will likely be required.
But there are ways to put less than 20% down in Washington State, while still avoiding PMI. So let’s talk about those financing strategies next.
Options for Less Than 20 Percent Down Without PMI
In a previous article, we talked about the 80/10/10 mortgage strategy for avoiding private mortgage insurance in Washington. This is when the borrower uses two loans to finance the purchase of a home. The first and second mortgage account for 80% and 10% of the purchase price, and the borrower pays the remaining 10% as a down payment.
You’ll recall from earlier that Washington State PMI is usually required when the loan-to-value ratio exceeds 80%. But in the 80/10/10 scenario described above, the LTV on both loans remains at or below 80%. So this is one way to put down less than 20% without PMI.
There are other ways to accomplish this goal as well. Lender-paid mortgage insurance (LPMI) is another common strategy. This is where the borrower agrees to take on a slightly higher rate, in exchange for the lender paying the private mortgage insurance up front. The end result is the same — the borrower can make a down payment below 20% without having to pay PMI.
Washington State has a sizeable military population. So we have to include the VA loan program in this discussion as well. It’s another way home buyers can avoid private mortgage insurance. As an added benefit, this program offers 100% financing, eliminating the need for a down payment. It’s hard to beat the VA program, if you’re a military member or veteran.
Learn More About Your Financing Options
This article underscores the importance of speaking to a knowledgeable loan officer or broker, before making any mortgage-related decisions.
There are a lot of financing options available these days. The mortgage industry has become more flexible over the last couple of years, with new loan programs coming onto the market. We encourage borrowers to explore all of their options to find the best “fit.”
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.