Buying your first home is an intimidating and expensive process and one that will ultimately have a big impact on your financial plan. That’s why the federal and Washington state governments have created programs to help first-time homebuyers with access to low-interest rates or help with their down payment. There are several programs that are worth exploring if you’re buying a home in Washington state. Before getting a mortgage, you may want to work with a financial advisor who can help put your finances in order and improve your chances at favorable mortgage terms.
Federal First-Time Homebuyer Programs
Before we examine the programs for Washington residents exclusively, we’ll break down a handful of national homebuyer programs anyone in the country can access. It’s a good idea to check out programs at both the federal and state levels when conducting your search to cover all of your bases for what may be available to you. Plus, some state-level programs might work well with a federal program to maximize the benefits you receive when obtaining a mortgage.
FHA Loans
| Pros | – Low down payment – Flexible credit approval |
| Cons | – Larger down payment needed for those with a worse credit score |
| Eligibility | – At least 3.5% of the home’s purchase price for the down payment – Credit score of 500 or above – Debt to income ratio of <43% |
| Best For | – Anyone lacking sufficient down payment savings |
FHA loans are backed by the U.S. Federal Housing Administration and accessed through outside lenders. They’re a great option for anyone shopping for a starter home. While conventional loans typically require a 20% down payment, you’ll only need to put down 3.5% of your home’s value for an FHA loan.
However, to receive the program’s biggest perk, you must have a FICO® credit score of 580 or higher. If yours falls between 500 and 580, you’ll need to make a 10% down payment. It may seem daunting, but that’s still half of a typical mortgage down payment. In fact, even with the credit score requirement, an FHA loan is one of the easiest federal programs to qualify for.
VA Loans
| Pros | – Very low down payment – No private mortgage insurance – Low closing costs |
| Cons | – Lengthy application process – Must pay VA funding fee |
| Eligibility | – For current or former military members, spouses or other beneficiaries – Credit score of 620 or above |
| Best For | – Veterans with little monthly income or savings for a down payment |
The Department of Veterans Affairs insures VA loans to help military families secure a mortgage once they complete their service. Since many veterans don’t have enough monthly income or savings to afford a typical 20% down payment, VA loans do not call for any sort of down payment.
The benefits don’t stop at a down payment. Since the government will back part of your risk, you won’t have to get private mortgage insurance (PMI), which is usually obligatory. Closing costs are also usually lower than they are with conventional and other mortgages.
In most situations, you need a 620 credit score or better to get a VA loan. You’ll also need to pay a VA funding fee, which ranges anywhere from 1.25% to 2.4% of your home’s value depending on whether or not you choose to make a down payment.
USDA Loans
| Pros | – No down payment – Flexible credit approval |
| Cons | – Only available in select areas – Only available to those that don’t qualify for a conventional mortgage |
| Eligibility | – Adjusted household income can’t exceed more than 115% of the area median income in most cases – Home must be in a qualified area |
| Best For | – Any low- to moderate-income individuals willing to live in a rural or semi-rural area |
Legally known as a “Section 502 Single Family Housing Guaranteed Loan Program,” United States Department of Agriculture (USDA) mortgages help attract new homebuyers to rural and semi-rural areas of the country. In most cases, USDA mortgages require no down payment at all. For those with a lower credit score, you may need to pay a down payment of up to 10% of the home’s value.
To qualify for a USDA-guaranteed loan, your household income generally can’t exceed 115% of the median income for the area you want to live in.
Good Neighbor Next Door Program
| Pros | – Flat 50% discount on the home’s value |
| Cons | – Not available for most people or in most areas – Must remain in the home for at least three years after purchase |
| Eligibility | – Must be a police officer, firefighter, emergency medical technician or pre-K through 12th-grade teacher |
| Best For | – Teachers or emergency personnel that lack adequate down payment savings |
The Good Neighbor Next Door Program from the U.S. Department of Housing and Urban Development (HUD) is actually more of a discount than a loan. It provides emergency personnel and teachers with a 50% reduction on the purchase price of a home. To pay for the home, participants could get a conventional, VA or FHA mortgage or pay cash.
In order to save with the 50% discount, it must be located within a HUD-designated “Revitalization Area.” You also must agree to make the home your primary residence for at least the next three years. After three years, buyers can sell the home and retain any profit.
Fannie Mae/Freddie Mac
| Pros | – Low down payment – Flexible credit approval – Multiple loan styles available |
| Cons | – Higher interest rates than other federal programs |
| Eligibility | – In some places, there are no income requirements |
| Best For | – Anyone that can’t afford the upfront costs of homeownership and doesn’t qualify for other federal programs |
Freddie Mac and Fannie Mae are mortgage lenders created by the federal government. Both have a number of first-time homebuyer options that offer very similar benefits.
The HomeReady® loan from Fannie Mae requires down payments as low as 3%. To qualify, borrowers need a credit score of 620 or above. Borrowers also need to earn an income at or near the U.S. median. With a HomeReady® loan, you must have private mortgage insurance at the time of purchase, though you can cancel it once you’ve accrued 20% equity in your new home.
The Home Possible® mortgage from Freddie Mac requires just a 3% down payment, which is why you may see it called a 97% LTV loan. LTV means “loan-to-value,” or what percentage of your new home’s value will be covered by the loan. A Home Possible® mortgage offers a good deal of choice, with 15- to 30-year fixed-rate and 10/1, 7/1, 5/5 and 5/1 terms available.
NADL
| Pros | – No down payment – Flexible credit approval – No private mortgage insurance – Low closing costs |
| Cons | – Only available in select areas for select individuals |
| Eligibility | – Home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts |
| Best For | – Native American veterans without significant savings willing to live in designated areas |
A Native American Direct Loan (NADL) is another mortgage program backed by the Department of Veteran Affairs. It comes with impressive perks, like a 0% down payment and a set interest rate. The interest rate currently sits at 4.5%, though that is subject to change based on market and Prime Rate fluctuations.
You don’t need a strong credit history to qualify for a NADL. You also won’t have to purchase private mortgage insurance, a benefit that extends from normal VA loans. In an effort to cut down on the extra expenses of buying a home, a NADL even comes with significantly lowered closing costs.
Washington First-Time Homebuyer Programs
The Washington State Housing Finance Commission (WSHFC) designed the Home Advantage and House Key Opportunity programs to help Evergreen State homebuyers purchase their first single-family home, condo, townhouse or manufactured home. Home Advantage includes 30-year fixed-rate mortgages, as well as several down payment assistance programs. To qualify, borrowers must complete a homebuyer education seminar and cannot have owned/occupied a primary residence over the past three years. Household income requirements vary by home location and family size, but generally can’t exceed $97,000.
Home Advantage & House Key Opportunity Mortgages
| Pros | – Low-interest rate – Can be combined with WSHFC down payment assistance |
| Cons | – Requires a typical 20% down payment in most cases |
| Eligibility | – Must earn less than $97,000 – Must complete a 5-hour Home buyer Education Seminar |
| Best For | – Low- to moderate-income earners who can’t afford standard interest rates |
The Home Advantage Program offers 30-year, fixed-rate mortgages with reduced interest rates through a network of participating lenders. They can be combined with FHA, VA, USDA or conventional loans.
By participating in Home Advantage, homebuyers can pay lower monthly mortgage payments and save more money in the long term. Perhaps best of all, WSHFC has several down payment assistance offerings that can provide up to 4% of the first mortgage loan amount.
Home Advantage DPA
| Pros | – Up to 5% of the mortgage loan to help cover the upfront costs of homeownership – 30-year deferral period – 0% interest rate |
| Cons | – Must be repaid |
| Eligibility | – Must earn less than $145,000 – Credit score of 620 or above – Must complete a 5-hour Home buyer Education Seminar |
| Best For | – Anyone taking advantage of the WSHFC Home Advantage program |
DPA stands for “down payment assistance.” In the case of the Home Advantage DPA, it offers up to 4% of the mortgage loan amount (or 5% if you’re using a WSHFC conventional HFA Preferred loan) to help cover the down payment and any requisite closing costs.
This second mortgage loan carries no interest. Perhaps most helpful for those saving for a new home, though, is that payment can be deferred for 30 years. The only time you’ll have to pay the loan back sooner is if you sell the home or refinance the mortgage before the 30 years are up.
Home Advantage DPA Needs-Based Option
| Pros | – Up to $10,000 to help cover the upfront costs of homeownership – 30-year deferral period – 1% interest rate |
| Cons | – Must be repaid |
| Eligibility | – Must earn less than $81,100 or $103,400 depending on your home’s location – Credit score of 620 or above – Must complete a 5-hour Home Buyer Education Seminar |
| Best For | – Low- and moderate-income earners taking advantage of the WSHFC Home Advantage program |
The alternative Home Advantage DPA loan provides up to $10,000 to help WSHFC Home Advantage participants cover down payment and closing costs. To qualify, FHA, USDA and conventional loan borrowers must earn within location-specific income limits. Only VA loan borrowers don’t have to meet income requirements.
Unlike the standard Home Advantage DPA, the needs-based option does have a 1% interest rate. The above 30-year deferral does still apply, though.
Opportunity DPA
| Pros | – Up to 10,000 to help cover the upfront costs of homeownership – 30-year deferral period – 1% interest rate |
| Cons | – Strict income limits |
| Eligibility | – Household income limits dependent on property location – Credit score of 620 or above – Must complete a 5-hour Homebuyer Education Seminar |
| Best For | -Low- and moderate-income earners taking advantage of the WSHFC House Key Opportunity Program |
Opportunity DPA is another second loan option offering $10,000 toward upfront homeownership costs with a 1% interest rate and 30-year payment deferral. The big difference here is that participants must qualify for a House Key Opportunity mortgage.
Opportunity loans have stricter income limits, ranging from $46,400 to $64,200 for 1-2 person homes, depending on the property’s location within the state. As with a DPA Needs-Based loan, VA loan borrowers don’t have to meet income requirements.
Veterans DPA
| Pros | – Up to $10,000 to help cover the upfront costs of homeownership – 30-year deferral period |
| Cons | – Higher interest rate than other WSHFC DPA programs |
| Eligibility | – For current or former military members, spouses, or other beneficiaries – Credit score of 620 or above – Must complete a 5-hour Homebuyer Education Seminar |
| Best For | – Veterans participating in the WSHFC program that can’t afford a typical down payment |
Current or former military, National Guard and Reserve members have their own DPA loan with Veterans DPA. When combined with the Home Advantage mortgage, they can save up to $10,000 on their down payment and closing costs. The Veterans DPA also comes with a 30-year deferral period, but there are slightly higher interest rates to be wary of. At 3.00% though, the rate is still a good deal relative to the rest of the mortgage market.
HomeChoice
| Pros | – Up to $15,000 to help cover the upfront costs of homeownership – 1% interest rate |
| Cons | – Must be repaid |
| Eligibility | – Must have a disability or a family member with a disability – Must earn less than $105,300 (or $134,600 in King county) – Credit score of 620 or above – Must complete a 5-hour Homebuyer Education Seminar |
| Best For | – Families participating in WSHFC Home Advantage with at least one disabled member |
HomeChoice provides down payment assistance to borrowers who have a disability. Those who have a family member with a disability living with them can qualify too. The maximum loan amount is $15,000 and the interest rate is just 1%. As with other DPA programs, there are income and credit requirements.
The Bottom Line
Regardless of your situation, there are a lot of first-time homebuyer programs that you should be aware of. It’s important to identify your needs first so that you can match them with a program that helps the most. Whether that is getting access to a lower down payment, assistance with your down payment or just a lower interest rate, there are plenty of programs to explore.
Tips to Prepare for a Mortgage
- No matter where you buy a home, the purchase will impact your budget. Consider enlisting help from a financial advisor to help you transition and make sure your finances are in order to get a mortgage. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Figure out how much house you can afford before you start looking at properties so your wallet and mind stay in sync. Of course, be sure to take into account interest rates in the area.
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