A Buyer’s Guide to FHA Loan Down Payments in Washington

FHA loans are one of the most popular mortgage options among home buyers in the state of Washington, second only to conventional home loans. The FHA mortgage insurance program offers a number of benefits for borrowers, including a down payment as low as 3.5%.

In this FHA loan down payment guide for WA State, we will explore the rules and requirements for borrowers in Washington. This will help you make a more informed decision about which type of loan you want to use.

Here are seven things every home buyer should know about FHA loan down payments in Washington.

1. FHA loans require you to put at least 3.5% down.

The National Housing Act allows the Federal Housing Administration to ensure home loans with a loan-to-value (LTV) ratio up to 96.5%. By extension, this means that home buyers in Washington who use an FHA loan can make a down payment as low as 3.5% of the purchase price.

Specifically, the FHA requires borrowers to “make a Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value.” For a home purchase transaction, the adjusted value is typically the lesser of the purchase price or the appraised home value.

This is what attracts so many borrowers to the FHA loan program in the first place. In addition to offering flexible credit requirements for borrowers, this program allows you to make a relatively low upfront investment.

2. But you’ll need a credit score of at least 580.

According to HUD, which oversees the FHA loan program, borrowers need a credit score of at least 500 to be eligible for this mortgage program. But if you want to qualify for that enticingly low 3.5% down payment, you’ll need a credit score of 580 or higher.

Borrowers with scores between 500 and 580 might still qualify for an FHA loan, but they’ll also have to make a down payment of 10% in most cases.

When you look at the average credit score among FHA loan home buyers in the state of Washington, you’ll see that nearly all of them have scores north of 580. Borrowers with scores in that range can qualify for the 3.5% down payment option, which is the main benefit offered by this program.

3. You can obtain the funds from a wide range of sources.

A lot of home buyers in Washington use their own personal savings to cover FHA loan down payments in Washington. This is the most common source of funds. But it’s not the only one available to you.

The Department of Housing and Urban Development actually allows for a wide range of down payment sources. These can include checking and savings accounts, cash on hand, retirement accounts like IRA and 401(k), stocks and bonds, private savings clubs, the sale of personal property, and gifts from approved donors.

Washington home buyers who use FHA loans often combine multiple down payments sources to meet the minimum requirement. For example, a borrower might use money from their own savings account, a gift from a family member, and the money earned from selling a vehicle or other possession.

And speaking of down payment gifts…

4. You can use gift money from an approved donor.

FHA loans allow borrowers to use gift funds from approved sources to cover part or all of the down payment. The donor could be a family member, employer, close friend, charitable organization, or a government agency.

The one caveat here is that the person providing the funds must sign a letter stating that they do not expect any form of repayment.

Down payment gifts for FHA loans can help Washington home buyers overcome what is usually the biggest obstacle along the path to homeownership. It could also shave years off of the home buying process, allowing you to get into a home sooner rather than later.

5. You’ll have to provide documents for verification purposes.

Borrowers must provide documentation for the source of their down payment funds. This might include bank statements, explanation letters for cash on hand, retirement account statements, and proof of ownership or sale for personal property.

When you apply for an FHA loan in Washington, your mortgage lender will provide you with a list of documents they need. You might also receive a request for additional documents during the underwriting stage. Handling such requests in a timely fashion can help keep the process on track.

6. Sellers cannot contribute directly to your down payment.

While sellers can contribute to the borrower’s closing costs, rules prohibit sellers from contributing to the minimum down payment on an FHA loan.

Sellers are considered to be an interested party, meaning that they have a financial stake in the transaction. And according to official FHA guidelines: “Interested Party Contributions may not be used for the Borrower’s MRI [minimum required investment].”

7. You’ll probably have to submit your payment at closing.

In the state of Washington, the down payment for an FHA loan is typically paid at closing. During the closing process, ownership of the home will officially transfer from the seller to the buyer. So the buyer needs to submit all payments that are due, including the down payment and whatever closing costs they have incurred.

The settlement agent will typically combine the home buyer’s down payment with the lender’s funds, in order to pay the seller the purchase price.

If you’re considering a government-backed loan when buying a home, then you’ll want to know everything there is to know about FHA loan down payments in Washington. The low down payment amount is certainly one of the perks of these home loan programs, and is likely why many buyers choose this route when entering the real estate market.

Need financing?

If you’re on the prowl for a new home, then you’ll want to partner with a team of experts who can guide you through the FHA loan application process in Washington. Reach out to Sammamish Mortgage to get pre-approved for a mortgage in Washington and get one step closer to homeownership!