There is no greater feeling than becoming a homeowner for the first time. You have your own roof over your head. You’re on the property ladder!
First-time homeownership can be difficult to attain, particularly in a pricey market like Seattle. It can feel like an impossible challenge to save for a home while paying monthly bills – rent, utilities, car payment, insurance – leaving little left for the future.
The numbers bear out the challenge many people face. National home-price increases have run ahead of wage growth (today at an annual 3.1% rate) for five consecutive years. At the same time, Seattle homes (single-family houses and condos) are fetching a median price of about $725,000, a jump of close to 60% in only five years, according to the Northwest MLS.
How does someone afford a home in a hot real estate market when facing other financial challenges and commitments? You get help with programs that put ownership within reach.
The state of Washington – in partnership with a network of approved mortgage companies – offers several loan programs through the Housing Finance Commission to support a prospective buyer with the mortgage, down payment and/or closing costs. More than 80,000 home buyers have benefited from state assistance programs since 1983.
“Year to year, our programs keep growing,” says Dietrich Schmitz, who helps to oversee the assistance programs for the state’s Housing Commission. “We have been consistently growing for many years and we’re getting more lenders working with us.”
Prospective home buyers wishing to participate are required to attend a free seminar that describes the assistance programs and home-buying process as well as educates people on being fiscally responsible. Registration can be completed by referring to the seminar schedule.
In parallel, buyers should meet with two or three mortgage lenders to better understand their home-buying power – what they can afford without causing difficulties meeting other routine financial obligations. A robust list of lenders that participate in state housing programs can be found on this page. (Among them is Priority Home Lending*, which has a presence where I work in the South Lake Union office of John L. Scott Real Estate.)
The state has certain requirements for program participants – typically debt-to-income ratio below 51%, minimum credit score of 620 and income ceilings based on household size. (The income limit for a King County three- [or more] person household is $88,250, subject to change.) Your loan officer should follow these guidelines to help you seek state assistance.
“As long as you can meet Fannie Mae or FHA guidelines in general, you probably are going to be able to work with us,” says Schmitz, “and we’re bringing down payment assistance to the table.”
The most common state program is Home Advantage Down Payment Assistance. It’s a secondary loan to help cover closing costs or with the down payment. Typically with aide from your lender, buyers can apply for the secondary loan through the state’s Home Advantage program. The loan – or second mortgage – can be as much as 5% of the first mortgage amount.
“All of our down payment assistance loans are deferred payments,” adds Schmitz, “and they don’t have to be paid back until the homeowner either moves out of the house, pays off the first mortgage, 30 years goes by or through a refinance.”
Each state program has different qualification rules; in many cases, you don’t have to be a first-time buyer.
What’s nice about these programs is that low- and middle-income Washington residents can get the help to put them in their own home. Once they qualify for a primary mortgage and meet the other requirements, buyers can search for homes in a price range they can afford without worrying about whether they can get a mortgage, make a down payment or cover the closing costs.
There are also down payment assistance programs geared toward veterans and people with a disability. There’s even a program exclusive to Seattle first-time buyers that allows people to borrow up to $55,000 towards a down payment, deferred for 30 years at simple interest of 3.0%. There are similar buyer assistance programs around the state, including East King County, Tacoma and Bellingham.
Interest rates** on state-backed loans are often competitive to traditional open-market mortgage rates. In fact, rates can be below market on programs such as House Key because they are funded through tax-exempt bonds.
This is not an exhaustive list of available state programs. Ask your lender for help; he/she should be knowledgeable about all programs and offer advice. To see if you qualify (after completing the free seminar), complete this form with information about your location, household size and income, and a qualified representative will contact you to discuss your situation.
Beyond state support, there are federal and local assistance programs for municipal workers – such as emergency service employees – school administrators and teachers to help buy a home in or near the city or town in which they work. They often involve grants from local governments and philanthropists seeking to keep local employees living in the same area – a growing issue for communities where buying is out of reach for many.
For more information and counseling, contact the Washington State Department of Financial Institutions online or via a helpline at 877-894-4663. And check out the state’s Housing Finance Commission resources page for additional information.
This is not an endorsement of any financial institution, lender or state program. It is merely an attempt to provide information that may be of help in a person’s home-buying journey.
(* Full disclosure: John L. Scott Inc. owns 49% of Priority Home Lending LLC and has its representatives available in many of John L. Scott’s offices around Washington and Oregon.)
(** This is not an advertisement for credit as defined in Regulation Z; contact a commission participating lender for interest rates.)