Home prices in Washington State have risen steadily over the last couple of years, outpacing nearly every state in the country. As a result, some younger buyers need a little help when buying their first home. And family members are a great place to turn.
There are several ways that parents can help their children buy a home in Washington. Today, we’ll take a look at two of the more common strategies — cosigning the loan and pitching in on the down payment.
It costs more to buy a home in Washington today than it has in the past. Home prices in most parts of the state are higher now than they’ve ever been before. So for younger and first-time buyers, the idea of qualifying for a mortgage and buying a house can seem like one big hurdle.
That’s one of the reasons why parents often seek ways to help their children buy a first home in Washington. It’s a common practice all across the country, in fact.
A recent report published by the National Association of REALTORS® (NAR) found that 26% of Younger Millennials received down-payment help in the form of a gift or a loan from a friend or relative. Parents, in particular, were listed as a common source of financial help.
“Overall, the median down payment ranged from 7 percent for millennial buyers to 21 percent for older boomers and the Silent Generation. Nearly a quarter (23 percent) of millennials cited a gift from a relative or friend – typically their parents – as a source of their down payment.”
So, what can a parent do to help a son or daughter buy their first home in Washington? Down payment gifts and cosigning are two of the most common strategies. Here’s how they work.
We’ve written about down payment gifts in the past. As you might have guessed, this is when a close friend or family member provides funds to help the home buyer purchase a house. The gift money is typically put toward the down-payment expense, and sometimes the closing costs. This is one of the more common ways parents can help their children buy a home.
Most of the mortgage loan programs available to borrowers in Washington allow for down payment gifts. The rules and requirements can vary, depending on what type of loan is being used. One of the standard requirements is that the money being provided must truly be a gift. The donor must state this in a letter, which will go into the loan file.
Some parents choose to serve as a cosigner on the mortgage loan, to help their children qualify for financing. In some cases, having a cosigner can make it easier for the primary borrower to get approved for a mortgage loan. This is especially true when the person cosigning has a good credit history and stable income.
There are two main types of mortgage cosigners: occupant and non-occupant. An occupant cosigner is one who will actually live in the home that is being purchased. A non-occupant will cosign on the loan, but will not actually live in the home.
The main thing to remember here is that the cosigner becomes partly responsible for the repayment of the debt, should the homeowner be unable to make the payments for some reason.
Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been offering multiple mortgage programs with flexible qualification criteria to borrowers across the Pacific Northwest, including our Diamond Homebuyer Program, Cash Buyer Program, and Bridge Loans. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, contact us if you’re ready to get pre-approved for a mortgage.
Parents often help by giving money for the down payment or closing costs, or by cosigning the mortgage loan to strengthen the application.
A down payment gift is money given by a family member or other approved donor to help a home buyer cover some or all of the down payment and sometimes closing costs.
Yes. Many mortgage programs used in Washington allow down payment gifts from parents, as long as lender and loan program requirements are met.
No. For most mortgage programs, the funds must be a true gift and not a loan that requires repayment.
A gift letter is a document signed by the donor stating that the money provided is a gift and not expected to be repaid.
Yes. In many cases, gift funds can be used for both the down payment and certain closing costs, depending on the loan program.
Cosigning means the parent signs the mortgage with the primary borrower and shares legal responsibility for repaying the debt if the borrower does not make the payments.
Yes. A parent with strong credit and stable income may help the borrower qualify more easily, depending on the lender’s underwriting guidelines.
An occupant cosigner lives in the home being purchased, while a non-occupant cosigner helps support the loan without living in the property.
Parents should consider whether they are comfortable giving funds or taking on loan responsibility, and they should review the lender’s rules for gifts, cosigning, and documentation before moving forward.
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