How to Make a Low Down Payment on a Seattle Home Purchase

April 6, 2023
Last updated:
April 6, 2023
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Some home buyers in the Seattle area choose to put down 20%, in order to avoid paying mortgage insurance. But not everyone can afford that kind of investment, especially when you consider the significant home price gains of the past three years.

Fortunately, there are some low down payment options available to Seattle-area home buyers. And that’s the subject of today’s article.

Making a Low Down Payment in Seattle

Can’t afford to put down 20% for a Seattle home purchase? You might not have to.

In fact, there are several financing options available that allow for a much lower investment. Below, we will cover all of those options and how they might affect you when buying a house in the Seattle area.

Step 1. Understand the truth about down payments.

One thing we’ve learned over the years is that many home buyers don’t fully understand their down payment options. For example, a lot of them believe that they have to put down 20% on a purchase. So let’s start by dispelling this particular myth.

There are several home loan options available that allow you to put down as little as 3%. Consider the following evidence:

  • According to the National Association of Realtors, the average down payment among home buyers nationwide is actually closer to 6%.
  • For a conventional mortgage loan (i.e., one that is not insured by the government), the minimum down payment can be as low as 3%.
  • The FHA program allows for a minimum investment of 3.5%, as long as you have a credit score of 580 or higher.
  • And then we have VA loans, which are available to a lot of military members in Washington state. These government-backed mortgages allow buyers to finance up to 100% of the purchase price, while avoiding a down payment altogether.

If you’re planning to buy a home in the Seattle area, and you want to make a small down payment, we encourage you to contact our team. Our loan experts can explain all of your financing options, including those that allow for a lower down payment.

Step 2. Choose a program that allows for a smaller investment.

As we’ve just explained, most home buyers don’t have to put down 20% when buying a house in Seattle. Granted, there are cases where that kind of investment might be needed. For example, jumbo loans for high-end home purchases sometimes require a bigger down payment. But for a typical home buyer in the Seattle area, that kind of investment is rarely necessary.

So, which mortgage option is right for you? When it comes to making a small down payment, you have a couple of options.

First-time home buyers often lean toward the FHA loan program. It allows you to put down just 3.5% and offers other benefits as well. Borrowers who have had credit issues in the past can often qualify for the FHA program, even if a regular mortgage loan is out of reach.

But FHA is not the only option for making a small down payment on a Seattle home purchase. You could also use one of the special conventional loan programs that offer up to 97% financing. This means a buyer could put down as little as 3% of the house value.

If you’re a military member in good standing, or a veteran with an honorable discharge, we have even better news for you. In this case, there’s a good chance you can qualify for the VA loan program. This option allows you to put zero money down, while also avoiding mortgage insurance. It’s a powerful combination of benefits you won’t find with other loan options. So military folks should seriously consider this program.

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Step 3. Understand how mortgage insurance ties into this.

Seattle home buyers who make a relatively low down payment typically have to pay for mortgage insurance. This specialized insurance is generally required whenever a home loan accounts for more than 80% of the property value.

But there’s an upside to mortgage insurance as well, and it’s something that a lot of people don’t consider.

Yes, it could cost you anywhere from 0.5% to 2% of the loan amount per year. But it also allows you to buy a home sooner rather than later, since you don’t have to save as much for the down payment. Without mortgage insurance, most home buyers in the Seattle area would probably have to put down 20% or more on a purchase.

The most important thing is that you understand how mortgage insurance works, and specifically how it relates to a low down payment. You want to go into the process with as much knowledge as possible, so you can make an informed decision. And that’s the point of this article.

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Step 4. Use gift money to reduce your out-of-pocket expense.

Last, but certainly not least, we have to talk about gift money. You might not realize this, but many of the mortgage programs available today allow you to use gift money from an approved source. The money can be applied to your down payment and closing costs.

This is true for government-backed mortgages, like the FHA loan program mention earlier, as well as conventional financing. It’s a great way to minimize the financial hurdles associated with a down payment.

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