How much can you borrow to buy a home today? Or more importantly, how much house can you buy in Seattle, WA with your current budget?
One of the most common questions Washington State home buyers ask is how much they can borrow. How does this relate to conforming loan limits and jumbo loan limits in Seattle?
House prices in the Emerald City just seem to keep on going up. This, along with a variety of other reasons are putting the pressure on local renters, incoming movers and move up buyers to buy sooner rather than later. Yet, some mistakenly feel held back by their budget, and more specifically, how much they need for a down payment on a home, and in order to get the best mortgage deals.
Keep reading to bust through the most prolific down payment and mortgage myths that financially sabotage the majority of would be home buyers, and to discover what really matters.
Spoiler: The average house down payment is a lot less than you think. Home buyers put down an average of just 12% of the purchase price according to Housing Wire and the National Association Of Realtors. First time home buyers put down an average of just 7%, with repeat buyers putting down an average of 16%.
Seattle Home Prices In 2021
The average price of a home in Seattle, Washington is now over $812,000 according to ZIllow. That’s up 10% from early 2020, and a number projected to grow by another 11.1% through November 2021.
Though what’s killing Seattle home buyers more than high local property prices is waiting to buy. If you would have bought the same home at the end of 2019, you would have paid an average of over $80,000 less. If you would have bought that home in 2012, you would have paid an average of $420,000 less. That’s money you could have gained as equity and used to buy an even bigger home if you desired. Unfortunately, unless you are able to save an additional $80k per year, above and beyond the amount you are currently setting aside each month for a down payment, at this rate your money will buy you less and less home the longer you wait. And this is just one factor working against your finances.
Home Much House Can I Buy?
Loan limits in Seattle may be one factor, but they are also some of the most generous in the country.
First, to clarify one point many get stuck on, these limits are on the loan amount, not the purchase price.
So, if you were buying a slightly above average priced home, of $817,000, with a 5% down payment ($41,000), you would only need a mortgage loan of $776,000. This figure is below the conforming loan limit and so this scenario would not require a jumbo mortgage loan.
The amount of home you can afford to buy and finance is also impacted by your debt to income ratio (DTI). That is how much your housing payments are versus your monthly income, and how much your total monthly expenses on your credit report are versus your monthly income.
Some aspiring home buyers are negatively impacted here by being maxed out on credit cards or big student loans. Others can hack the numbers by choosing homes versus condos which can come with high monthly and annual condo association dues.
Then there are interest rates. Interest rates can make all the difference in how much house payment you can afford and how much you will pay for that home over the life of your loan. If interest rates go just a couple percentage points higher, that can add hundreds of thousands of dollars to how much you will pay for the same home by the time your mortgage is paid off.
Seattle Conforming Loan Limits In 2021
‘Conforming loans’ are your typical vanilla type conventional loans.
As a high cost area, the Washington State counties of Snohomish, Pierce and King County have expanded conforming loan limits which are much higher than the vast majority of the rest of the country.
This conforming loan limit in Seattle is currently at $776,250 for 2021.
This does NOT mean that you cannot buy more home than this. It does NOT mean that you can’t borrow more with different loan programs.
What Is A Jumbo Loan In Washington State?
As a general rule, if you need to borrow more than $776,250 on a mortgage loan this year, that would be considered a ‘jumbo mortgage loan’.
This really just refers to the size of the loan. Over time lenders can change their perspective of whether conforming loan amount borrowers are a better or worse risk than jumbo loan borrowers, and vice versa. So, be wary of any generalizations that one is better than the other.
In some cases jumbo loan borrowers are seen as more affluent and sophisticated high income earners, and lenders can feel they are safer loans to make.
What Is The Jumbo Loan Limit In Seattle?
There is really no maximum jumbo loan limit. Loans of $1M to $2M may not be much different to others. However, once you get into the $5M to $10M range these loans are being secured directly in capital markets on Wall Street. Over that they are definitely in the commercial loan size range.
In some cases jumbo loan amounts may require higher down payments or PMI, but this isn’t always true. They can still be available with just 5% and 10% down payments. Using piggyback loans they can be used in tandem with second mortgages for less money down and no private mortgage insurance too.
The Bottom Line: How Much Down Payment Do I Need To Buy A Home In Seattle?
There are still low and no down payment loan options including FHA, VA and USDA home loans. That is even without accessing local grants and down payment assistance. Those needing bigger loan amounts for even larger homes will still find they need much less than they thought. 10% is great, though 5% will get you into a home in most cases. And given all of the factors at play it is much better to buy sooner rather than trying to save a larger down payment.