What happens when you are selling and looking to purchase a home simultaneously? The answer: is a little more complicated than you think.
Summary: The down payment is one of the most important factors when purchasing a home in the Seattle area. How much of a down payment will you be expected to bring to the table? Sometimes all of the different terms and programs can be confusing. Here’s a free guide to help you understand what a down payment is and how much you can expect to pay.
Are you thinking about buying a home in the Seattle area soon? Do you plan to use a mortgage loan to finance part of your purchase? If so, you will probably have to make a down payment of some kind.
The size of the down payment will vary, based on several factors. In our latest mortgage tutorial, we explain how down payments work, and how much you may expect to pay when buying a home in the Seattle metro area.
What Is a Down Payment?
From a home-buying context, the down payment is the amount of money you pay upfront, at closing. It’s usually expressed as a percentage of the purchase price. For instance, a 10% down payment on a home sold for $300,000 would come to $30,000. Down payments are required with most mortgage loans; there are a few exceptions.
In most real estate transactions, the down payment, combined with the home loan amounts to the full purchase price. As a buyer, it’s important to understand the dollar amount that may be required as an upfront investment with different loan programs. Let’s talk about that next.
Minimum Down Payments for Seattle Home Buyers
The size of your down payment has more to do with the type of loan you use than your geographic location. Different mortgage products, or programs offer different minimum investment requirements.
Here’s how much you may need for a down payment when buying your home in the Seattle area:
- VA: The U.S. Department of Veteran Affairs (VA) home loan program offers 100% financing to qualified borrowers. The VA Loan Program was created for military service members, veterans, and their families. Through this program, eligible borrowers can buy a home in the Seattle area with no down payment whatsoever. As you can imagine, this type of home loan is very popular among service members.
- FHA: Home loans that are insured by the Federal Housing Administration require a minimum down payment of 3.5%. FHA loans are popular with Seattle home buyers who don’t have a lot of money saved for a down payment. They’re especially popular among first-time buyers in the Seattle area (though they’re not limited to this group).
- Conventional: A conventional loan is one that is not insured or guaranteed by the federal government. This makes it different from the two programs mentioned above. In Seattle, down-payment requirements for conventional home loans typically range from 3% to 20%. Three-percent-down conventional loans have made a comeback in recent years. More and more Seattle mortgage lenders are offering them these days, in order to compete with the FHA program we mentioned above.
As you can see, there is a broad range of down payment options for Seattle home buyers. After choosing your home, choosing the right mortgage product is the biggest and most important decision you’ll have to make during your purchase process.
Loan-to-Value Ratios & Mortgage Insurance
Mortgage insurance is another important consideration relating to down payments. Generally speaking, anytime the loan amount exceeds 80% of the home’s value, mortgage insurance is required. This is an extra cost that must be assumed by the buyer and is usually added to the monthly mortgage payment.
So, a down payment below 20% would result in an LTV (loan-to-value) ratio above 80%. In this situation, your mortgage lender may require you to pay private mortgage insurance premiums as they are taking on more risk. Mortgage insurance is generally required for all FHA loans, and for conventional loans with an LTV above 80%.
VA loans are a different story. With a VA loan in Seattle, it’s possible for the home buyer to finance the entire purchase, with no down payment and no mortgage insurance.
When buying a home in Seattle, consider what a higher or lower down payment will mean for you. Is private mortgage insurance acceptable, as long as you get to enjoy the benefits of homeownership? Or would it be better for you to save for a larger down payment and avoid PMI altogether, even if that means waiting a little longer to buy a home? Taking the time to consider the impact of each choice is the first step to making an informed decision.
Ready to Explore Your Mortgage Options?
Sammamish Mortgage offers a variety of mortgage programs with down payments of different sizes. We’ve been helping borrowers across Washington, Oregon, Idaho, and Colorado since 1992, and we’d love to help you too. Regardless of your situation, we can help you find the right type of loan. If you have questions about the subject, or would like to receive a rate quote, please contact our friendly staff. We look forward to helping you.