There are two great myths among the many when buying a home: You need a down payment of at least 20% and funds to cover closing costs must be your own. False and false!
In truth, down payments on a home can be as little as 3% in some cases, and state and local programs are available to help qualified buyers find both a mortgage and funds to cover closing costs.
The Washington State Housing Finance Commission provides a road to that potential new home. Even in these unusual times of health and economic challenges, the commission has pushed through to provide close to 9,000 loans over the last 12 months (through June 2020), funded through tax-exempt bonds and loans to help mostly renters in search of their own home.
“Through our efforts, families see the dream of homeownership grow from an idea into reality,” says Commission Chair Karen Miller. “Empty windows come back to life. Opportunities bloom for children.”
Mark and Melissa Beagley was one family with an eye on their own home but found saving for that life-changing moment to be an uphill battle.
“We basically were paying the amount of a mortgage each month just in medical expenses,” says Mark, whose daughter has autism, which comes with huge health-care costs. “We didn’t think we would be able to buy a home.”
The Beagleys learned from a friend about the state’s down-payment-assistance programs and found a home they could afford in Olympia. Not only could they buy a place, but the young family of four had enough savings to help modify the home to fit their needs.
In their new home, daughter Brynn makes use of a therapy space in the basement and she enjoys playing with brother Pace in their fully fenced backyard.
Says Mark: “Now we have a safe place for our kids that is truly ours.”
The housing commission’s Home Advantage program is at the core of this opportunity to ownership. Working with a commission-trained lender, prospective buyers can obtain a mortgage at interest rates* competitive with traditional banks as well as up to 4% of the mortgage in a down-payment-assistance loan, which can be used to cover the down payment itself and/or costs associated with the closing (services, fees, taxes).
With any assistance program, the aim is to qualify those individuals who would not otherwise have an opportunity for a home. People with lower credit scores or challenges saving for a down payment are potential customers.
To get started, applicants must attend an online training seminar to learn about the different programs and complex buying process. Once completed, the applicant can contact a certified lender to review their mortgage qualifications.
The state’s Home Advantage Conventional first-mortgage program asks that buyers earn at or below $145,000, as well as have a generally strong credit history with a score of at least 660 and a debt-to-income ratio below 50%.
There is a similar program called Home Advantage Government that offers mortgages to people with scores of 620 or higher but, as higher-risk buyers, are saddled with mortgage insurance premiums for the life of the loan. (Homeowners with conventional Home Advantage loans from the state will typically stop paying those premiums when 20% of the original loan is paid.)
Typical mortgages are for homes between $300,000 and $400,000 (sometimes less, sometimes more), which severely limits the number of program recipients in King County. On the other hand, Pierce is the most-active county in the state for Home Advantage recipients.
Most applicants pursue down-payment assistance, with the average recipient getting $11,000 interest free. Both the mortgage and down-payment programs are open to first-time buyers and to some who previously owned a home.
“Applicants have the incomes but they don’t have all the funds needed to really pull it off,” says Dietrich Schmitz, who helps guide the state programs for the commission. “It can mean that someone gets into a home sometimes earlier than they could otherwise. We help bridge the gap of the down payment and make homeownership possible for a lot of people.”
There are other assistance programs across the state. They include: HomeChoice, for people who are disabled or have a disabled household member, House Key, in partnership with other assistance programs in cities/communities, and Energy Spark, which provides low-interest financing to support house buyers seeking to make their new home more sustainable. Programs are available in different areas as well as for teachers, emergency services personnel and health-care workers; check them out here.
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. Or, complete this online form to get a personal response.
* This is not an advertisement for credit as defined in Regulation Z; contact a commission participating lender for interest rates.