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, then you’ll probably have to make a down payment of some kind.
The size of your down payment will vary, based on several factors. Our latest mortgage tutorial explains how down payments work, and how much you might have to pay when buying a home in the Seattle metro area.
What Is a Down Payment?
In 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, with a few exceptions.
In most real estate transactions, the down payment is combined with the home loan to reach the full purchase price. As a buyer, it’s important that you understand the upfront investment that might be required for different types of loans. So 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 are using than your geographical location. Different mortgage products and programs have different minimum investment requirements.
Here’s how much of a down payment you might need when buying a home in the Seattle area:
- VA: The U.S. Department of Veteran Affairs (VA) home loan program offers 100% financing to qualified borrowers. This 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 lenders are offering them these days, in order to compete with the FHA program mentioned above.
As you can see, there’s a pretty broad range of down payment options for Seattle home buyers. This is one of the biggest and most important decisions you’ll have to make, when buying a home.
Loan-to-Value Ratios & Mortgage Insurance
Mortgage insurance is another important consideration that relates to down payments. Generally speaking, anytime a loan accounts for more than 80% of the home’s value, mortgage insurance is required. This extra cost must be paid by the buyer and is usually added to the monthly mortgage payments.
A down payment below 20% results in a loan-to-value (LTV) ratio above 80%. In such cases, your mortgage lender might require you to pay private mortgage insurance since 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, 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 longer to buy a home? Considering the impact of each choice is the first step to making an informed decision.
Ready to Explore Your Options?
Sammamish Mortgage offers a variety of loan programs with down payments of different sizes. We also participate in both the FHA and VA programs. So regardless of your situation, we can help you find the right type of loan. If you have questions about this subject, or would like receive a rate quote, please contact our friendly staff. We look forward to helping you.