Myths and Misconceptions About Mortgage Down Payments in WA State

Published:
January 5, 2024
Last updated:
January 5, 2024
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For a typical home buyer, the mortgage down payment in WA State represents the most significant obstacle along the path to homeownership. So, home buyers need to understand the strategies and options available to them when making a down payment on a house.

It’s equally important to tune out the common myths and misconceptions about down payments in Washington. And that’s precisely what we will focus on here today.

Common Misconceptions About Mortgage Down Payments in Washington

Surveys have shown that many home buyers believe they have to save up 20% for the down payment. But most buyers put down much less than 20% when purchasing a house.

That’s one of several potentially damaging myths and misconceptions about down payments when buying a home in Washington. So, let’s work through some of these common misconceptions to find the actual truth.

Misconception #1: All home buyers have to put 20% down.

One of the most persistent (and most unfortunate) misconceptions concerns the minimum down payment requirement for a home purchase in Washington.

The reason why many buyers believe they need a 20% down payment is because that is the minimum amount required to avoid Private Mortgage Insurance (PMI). This type of insurance is paid for by the buyer but covers the lender. That’s because mortgages are riskier when the loan amount relative to the property’s value is very high.

However, while a 20% down payment may be needed to avoid PMI, it’s not required to get approved for a mortgage.

According to survey data published by the National Association of REALTORS in 2022: “Thirty-five percent of consumers believe they need a down payment of 16% to 20% of the purchase price.” Ten percent of respondents thought they would need an even bigger investment.

But that same report explained that the typical mortgage down payment in Washington and elsewhere across the country is much lower than 20%. Over the past few years, for example, first-time buyers made an average down payment that ranged between 6% and 7% of the purchase price.

And some loan programs allow you to go even lower:

  • Conventional loans purchased by Freddie Mac or Fannie Mae can sometimes have a down payment as low as 3%.
  • The Federal Housing Administration (FHA) loan program, popular among first-time buyers in particular, allows for a down payment as low as 3.5%.
  • VA loans for Washington military members and veterans allow home buyers to finance up to 100% of the purchase price, eliminating the need for a down payment in WA State.

So, we’ve debunked one of the most damaging down payment myths among home buyers in Washington. You don’t necessarily need to save a considerable sum of money to qualify for a mortgage loan and buy a house.

Misconception #2: The down payment is the only upfront cost.

When buying a home, the mortgage down payment in WA State will likely be your most significant upfront expense. But it’s not the only one. Home buyers in Washington typically incur other out-of-pocket costs, and most must be paid on or before the closing date.

When you take out a mortgage loan to buy a house, you’ll incur several different fees and charges. Collectively, these are referred to as closing costs. And they don’t all come from your mortgage lender.

Common closing costs include the following:

  • Title searches
  • Escrow services
  • Land transfer taxes
  • Survey fees
  • Recording fees
  • Appraisal fees
  • Home inspection fees
  • Home insurance fees
  • Lawyer fees

In the state of Washington, a home buyer’s closing costs might range from 2% – 5% of the sale price on average. This is another reason why it’s so important to start saving money as soon as possible if you plan to buy a home in the near future.

Misconception #3: It has to come from your savings account.

Another common misconception about down payments in Washington concerns the source of funds. Some people believe that money used for the down payment can only come from a savings account. But that’s only a small part of the bigger picture.

Most mortgage programs allow savings from several sources and gift funds provided by a family member or other approved donor.

The specific down payment requirements will vary depending on the type of loan you use and other factors. For example, the Federal Housing Administration (FHA) has rules for down payment funds that differ from those of Freddie Mac and Fannie Mae.

If you receive a monetary gift to be used to put toward your mortgage down payment in WA State, you may need a letter to provide to your lender. This letter should specify that the money has been given to you as a gift and that you’re under no obligation to return the funds (and any interest) to the person who gave them to you.

Regardless of the loan type, the most commonly accepted sources for down payment funds include checking and savings accounts, 401k, stocks and bonds, IRAs, Keogh Plans, trust accounts, and the cash value of your life insurance policy.

Misconception #4: It will take you many years to save enough money.

If you buy a relatively expensive home and choose to put down 20%, saving up enough money for the down payment expense might take years.

On the other hand, if you buy a moderately priced home with a down payment in the 3% to 5% range, you could reach your savings goal much more quickly. Depending on your income, savings contributions, and financial discipline, you might be able to come up with the funds in just a year or two.

At the start of 2024, the median home value in the state of Washington was around $560,000. At that price point, a 20% down payment would come to around $112,000. It’s a pretty hefty sum.

However, a 3% down payment at the same price level would reduce the down payment to around $16,800. That would make a significant difference in the time it takes for the home buyer to save up enough money.

This comparison uses the median home value for the state of Washington. If you were to purchase a more moderately priced house, it would take even less time to save for the down payment investment.

There’s an underlying theme that runs throughout these misconceptions. Buying a home in the state of Washington might be a much more attainable goal than you realize!

The key is to work with a seasoned real estate agent and mortgage specialist in WA State to ensure that you make a sound purchasing decision and take out a mortgage that fits your budget. Speak to a professional to learn all you need about a mortgage down payment in WA State.

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