Downpayment

What exactly do we mean when we say down payment?

The downpayment is a portion of the purchase price that you are able to pay at closing. For example, if you are buying a $100,000 home and you put 5% down, that means that your down payment is $5,000.

A common misconception is that you must put 20% down to buy a home, but that isn’t true, especially for most first-time buyers!

FHA loans only requires 3.5% down and there a conventional options for 3% or 5% down. If you’re a Veteran or Active-duty military, you may qualify for 0% down (See about VA Loans)

Your down payment can come from a variety of sources.

  1. Saving or Checking account
  2. Gift: did you know that your family can gift you your down payment as well? That is a tremendous way that family can help build generation wealth. 
  3. 401k: You also could borrow from your 401k account or use funds from an investment account. You may hear some people say to not borrow against your 401k, obviously everyone’s situation is unique; however in general I was say that borrowing against your 401k to purchase an asset that is going to appreciate overtime is a good investment.
  4. Down payment assistance: through the Washington State Housing Finance Commission

If none of these options are available to you just yet, I would encourage you to sit down and work through your monthly and annual budget. Saving money is an important step in preparing to buy a home. Buying a home is a tremendous accomplishment, it’s okay if it takes a little time!

Lastly, don't forget that the down payment is separate from the closing cost (see what are closing cost). Your total cash to close = down payment + closing cost - any seller credit.

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