Financing a Home in Seattle

According to data from The Washington Post, 15-20% of 2021 homes in the Seattle area were cash buyers. The remaining 80-85% of buyers had to get a loan. If you’re part of the majority, you have three significant decisions when financing a home in Seattle: which type of loan, the down payment amount, and who you will partner with (bank or lender).

Types of Financing

Several types of loans are available to homebuyers, each with its own guidelines and requirements. Here are the most common types of financing available:

1. FHA Loan – An FHA loan is a government-backed loan that the Federal Housing Administration insures. This loan is designed for first-time homebuyers or those with lower credit scores. The minimum down payment for this loan is 3.5% of the purchase price.
2. VA Loan – A VA loan is a government-backed loan designed for veterans and active-duty military personnel. This loan requires no down payment, and no mortgage insurance is required.
3. Conventional Loan – A conventional loan is a loan that the government does not back. This loan requires a minimum down payment of 3% of the purchase price, a higher credit score, and a lower debt-to-income ratio.
4. USDA Loan – A USDA loan is a government-backed loan designed for homebuyers in rural areas. This loan requires no down payment, and no mortgage insurance is required.

Each buyer’s experience will differ, and the appropriate loan is unique to your situation. Your best option may change based on the individual property you decide to buy. Talk to your agent and your lender as you narrow in on your home. The offer strategy and transaction needs may influence your final choice.

Down Payment Amount

The down payment is the upfront payment you make when you purchase a home, and it is typically expressed as a percentage of the total purchase price.

Larger Down

While it can be tempting to make a smaller down payment to preserve your cash reserves, there are several benefits to making a larger down payment. First, a larger down payment can help you secure a lower interest rate. Lower rates save you thousands of dollars over the life of your loan. Additionally, a larger down payment can help you avoid private mortgage insurance (PMI), typically required for loans with a down payment of less than 20%.

Smaller Down

A larger down payment is not always the best choice for everyone. Paying off other high-interest debts may make more sense. If you anticipate a significant expense soon, you may want to preserve your cash reserves and make a smaller down payment.

What's right for you

Ultimately, deciding how much of a down payment to make will depend on your financial situation, loan program requirements, and long-term financial goals. Weight the pros and cons of different down payment amounts with all stakeholders in the home purchase. Talk it over with your lender and Realtor. They will offer other points of view that will help cover all your bases.

A True Lending Partner

Online banks and organizations may offer competitive rates but often lack the personal touch to make all the difference in a real estate transaction. In a hyper-competitive market like Seattle, it is essential to work with a lending partner who is reliable, responsive, and proactive.

Example

You find your dream home on a Sunday afternoon and need to write an offer ASAP. Unfortunately, your lender is only available during regular business hours. It can be challenging to get the answers and necessary paperwork to complete and submit the offer. Additionally, if the lender is difficult to contact, it can be hard to finalize the loan during escrow and provide the necessary documentation to the seller and listing agent. One of the first things the listing agent will do after receiving your offer is call your lender. It could cost you the house if they don't answer or respond quickly.

On the other hand, working with a lending partner who prioritizes communication can help ensure that your loan is closed on time and that the seller and listing agent have a reliable point of contact. Set yourself up for success by vetting your prospective lenders and interviewing multiple brokers.

Decisions made and under contract? It's time to apply for your loan. 

What You Need for the Application

1. Current Address and Previous Address if Less Than Two Years at Current
2. Employment Basics – Employer’s name, job title, and gross monthly income. This includes all jobs that contribute to your overall income. You will likely have to provide W2s and paystubs to verify this information.
3. Other Income Category – If you have any additional income, such as rental or alimony, you must provide documentation.
4. List of All Assets – List all your assets, including bank accounts, investments, retirement accounts, stocks, bonds, etc. You will need to provide the financial institution's name, account number, and current balance or value. This is usually verified with copies of bank statements.
5. Other Assets or Credits – If you have other assets, such as a car or boat, you must provide documentation.
6. Liabilities – You will need to provide a list of all your debts, including the company involved, the account number, the balance, and the monthly payment.
7. Other Liabilities – If you have other liabilities, such as child support or alimony.
8. Property or Properties You Currently Own – You must provide information about any property you own, including its value, status, occupancy, monthly expenses, and mortgage.
9. List of Gifts or Grants – You must provide documentation if you expect to receive a gift or grant for the loan you are applying for.

These are the items required on the uniform residential loan application. (Freddie Mac Form 65 and Fannie Mae Form 1003) Different loan types and lenders may require additional information or documentation. Refer to your lender for specifics.

Financing a home in Seattle requires careful consideration and planning. Understanding the different types of loans available and their requirements is essential to ensure you choose the right loan for your needs. Additionally, working with a lending partner who prioritizes communication and responsiveness can help ensure that your loan is closed on time and that you can quickly move into your new home. Thoughtfully deciding on your down payment amount can put you on stable financial footing down your path of home ownership.

This article is intended to be a general review of financing a home and should not be construed as financial advice. Talk with a licensed lender in your area before deciding how and where to get a loan. If you would like names and contact information for experienced lenders in your area, contact me today for an introduction.