First-Time Homebuyer Programs in Washington

Rising real estate prices and mortgage rates make it difficult for most people to buy a house, especially first-time homebuyers. Luckily, there are federal and state financial assistance programs that can help you buy a home. MoneyGeek analyzed various options, so you can pick the best first-time homebuyer program in Washington for your needs.

Generally, you will have to take out a mortgage so you can buy a house. Most mortgages require that you have a down payment, which is traditionally set at 20% of the loan amount.

Before buying a property, you must understand how much money you can afford for a down payment. Your down payment amount determines the types of mortgages you can get and the amount of money you can borrow from a lender.

Saving money for a down payment can be difficult, especially if you’re paying for rent or other expenses. Fortunately, first-time homebuyer programs can help you find packages with low or zero-down-payment options.

FHA, USDA and VA loans are federal homebuyer programs that are available to all U.S. citizens. Although each one has its requirements, they make buying a home more affordable through government-backed loans.

In addition, you can also take advantage of Washington’s first-time homebuyer programs, which are meant exclusively for the state’s residents.

The USDA and VA offer zero-down-payment loan programs to qualified borrowers. They allow people to get a mortgage without making a down payment.

If you’re a low-income individual living in a rural area, you might be qualified for a USDA home loan. Issued by the U.S. Department of Agriculture, this loan is great for first-time homebuyers as it features favorable terms and no down payment requirement.

You must meet certain financial, legal and property requirements to qualify for a USDA loan in Washington. Primarily, your income must be equal to or below your area’s low-income threshold. Additionally, the area of the property you’re buying shouldn’t exceed 2,000 square feet.

The amount you can borrow depends on where you are in Washington. In King County, you can borrow as much as $713,000, but you can only get up to $336,500 in Garfield County.

USDA's property eligibility tool can help you identify if your location is eligible for a USDA loan.

VA home loans cater to active military service members, veterans and eligible spouses. Compared to other mortgage products, they feature more favorable terms and lower rates.

These mortgages are issued by private lenders but backed by the U.S. Department of Veterans Affairs.

If you're qualified for a VA home loan, you get the following benefits:

• No down payment
• Cheaper interest rates
• More affordable closing expenses
• No private mortgage insurance required
• Multiple loan uses

An individual’s qualification is based on their length of service, duty status and character of service. Notably, applicants must secure a Certificate of Eligibility (COE) to qualify for a VA home loan. As with any other loan, they must also pass certain credit and income requirements.

Keep in mind that if you have any sort of discharge from the military aside from honorable, you won’t qualify for a VA loan.

A low-down-payment loan lets you get a mortgage with less than the usual 20% down payment requirement. You can get a low-down-payment loan through conventional and FHA loans.

The most popular type of mortgage is a conventional home loan. These are privately issued mortgages that are widely available and flexible to various borrowers' needs.

Conventional home loans are great alternatives if you're looking for a low-down-payment loan. They feature down payment amounts that are significantly less than the usual 20% requirement.

There are two types of conventional home loans:

• Conforming: These are loans that stick to guidelines set by Fannie Mae and Freddie Mac regarding loan size, debt-to-income ratio, credit scores and property standards.
• Non-conforming: These are loans that go beyond the above guidelines.

The government does not back conventional loans. As such, they have stricter requirements compared to USDA and VA home loans.

To qualify, you'll need to have a debt-to-income ratio of 45% and a FICO score of at least 620. You must also get private mortgage insurance to secure your loan.

FHA loans are mortgages that are insured by the Federal Housing Administration (FHA) but originate from private lenders. These loans have fewer restrictions and may accept folks who can’t access USDA, VA or conventional loans.

To qualify for an FHA loan, you need a credit score of 580 or above and at least a 3.5% down payment. Alternately, a 10% down payment requires a score of 500 or above.

FHA loans feature fixed interest rates and a 15- or 30-year repayment period.

Your location and preferred house model determine the amount you can get from an FHA loan. FHA's mortgage limit tool lets you know the maximum loan you can get in your area.

Despite the benefits that come with an FHA loan, these loans also have some disadvantages. Notably, FHA loans come with expensive mortgage insurance costs and extensive paperwork.

An FHA 203(k) loan is perfect for people who are buying an older home to renovate. This is because an FHA 203(k) loan is a combination of a standard mortgage and a construction loan. With it, you can fund both the purchase and the rehabilitation of the property.

There are two types of FHA 203(k) loans:

• Standard: This works best if you’re buying a home that needs comprehensive repairs and structural work. This applies to houses that require new roofing, plumbing systems or rooms.
• Streamlined: If you’re buying a house that only has cosmetic damages and requires small repairs, a streamlined FHA 203(k) is a great option.

To qualify, your credit score must be within 500–580 and your debt-to-income ratio must be 31% or less. You’ll also have to put up at least a 3.5% down payment for this loan.

In addition, your property must meet the FHA's mortgage limit in your area and the cost of repair must be at least $5,000. This rule applies even for streamlined FHA 203(k) loans.

If you don’t qualify for federal loans, there are first-time homebuyer programs in Washington that can help you pay for your mortgage’s down payment.

You can receive 3% to 4% of your loan amount from the Home Advantage Downpayment Assistance program if your income does not exceed $180,000 per year.

You can also get down payment assistance of up to $10,000 that's payable in 30 years with a 1% interest rate through the Home Advantage Downpayment Assistance - Needs Based Program.

The HomeChoice Downpayment Assistance Loan Program lets Washingtonians who have a disability or have a family member with a disability living with them get up to $15,000 for their home down payment.

Borrowers must not exceed these income limits:

• King/Snohomish Counties: $134,600
• All Other Counties: $105,300

MoneyGeek answered some frequently asked questions about first-time homebuyer programs in Washington to help you get closer to achieving your dream of owning a house.