It’s no secret that homes in Washington state and the greater Seattle-Tacoma area have skyrocketed in price over the last decade. In July the median sale price for a home in the Seattle metro area averaged at $795k, according to Redfin data.
Historically, a down payment on a home has been 20% of the home price. Well, for many buyers, especially first-time home buyers, breaking into the Seattle market is extremely difficult between these high costs and our local market’s extreme competition. With homes receiving on average 5 offers, it often feels impossible for those with less cash to present the winning offer.
Combine that with rising prices each year and add in inflation, the down payment many homebuyers are setting aside year over year until they save enough to purchase, can lose buying power.
Enter down payment assistance (DPA) programs. There are many factors as to why a down payment assistance program could be a good fit for you. The first step is to do a little bit more research and talk to a trusted loan officer to see if DPA is a good option for you and your financial health. Below, we’re diving into more details about down payment assistance for those wanting to dip their toes and learn more.
What is down payment assistance?
Down payment assistance programs can be administered by a local or state housing authority, a nonprofit organization or directly through a lender. They provide a set amount of money to qualified homebuyers. Homebuyers can use the money to cover their down payment or closing costs.
DPA programs are designed to help first-time home buyers and lower income buyers purchase a home and remain competitive in their housing markets.
Who is qualified?
Not everyone will qualify for down payment assistance and each program and state has its own rules for determining eligibility.
Generally, eligibility is based on your income, how much home you’re buying, and if it’s your first time or not. Many DPA programs are limited to first-time buyers. If you’ve owned a home previously, you might not qualify.
Often homebuyers must also attend special training to learn about the mortgage process and the financial responsibilities that go along with owning a home. In Washington, this is called a home-buyer class which you can currently take online.
The Washington State Housing Finance Commission website outlines the following baseline eligibility:
“Our down payment assistance is only for homebuyers who use our home loan programs, either Home Advantage or Opportunity. If your household income is under the program limits (up to $160,000), your credit score is at least 620, and you’re otherwise qualified for a home loan, you are probably eligible.”
Sounds too good to be true…what’s the fine print?
Not all down payment assistance programs are the same and their benefits vary based on location and who the buyer is. It’s important to shop around, do the math, know what is best for you in both the short and long term, and consult a trusted loan officer when considering using down payment assistance.
Important things to note are:
1. The type of money you receive. Is the money you receive through the program considered a grant, an interest-free loan or a debt you pay off in the future.
2. Investment property vs. primary residence. What are the programs rules around living in the home and renting it out? Typically, homebuyers with DPA agree to live in the home and use it as a principal residence for a certain period depending on the rules of the program.
3. When do your payments start? Many DPA programs that are treated as loans defer payments for a set period in which you focus on paying your other loan—the home mortgage. It’s important to factor in how this impacts any plans you may have to move in the future or how your monthly payments will increase when you begin repaying your DPA.
4. Employment conditions. If your DPA program is a benefit you receive from your employer or because of your employment in a certain industry—do you have to remain in that job throughout the life cycle of paying back your DPA? (This assumes your DPA program is a loan.)
5. Credit. Most down payment assistance programs require a certain level of credit. Have a good idea of what your credit is before you start to learn more about DPA programs so that you are prepared for what is expected of your credit numbers. Higher is always best.
Recorded webinar on down payment assistance
The Whole U hosted HomeStreet Bank loan officer Jeff Wood for a virtual workshop on down payment assistance programs. Press play to watch.
Beginning the home-buying process is exciting and can be overwhelming. That’s why the University of Washington partners with HomeStreet Bank to offer UW employees home-buying benefits. Click here to learn more about the HomeStreet Hometown Home Loan program, and how you can consult a HomeStreet loan officer to learn more about your DPA options.