Advice - Thinking about buying a home (Seattle, Bellevue: real estate, insurance)

[rachprice]

My husband and I are thinking about buying a home in the Seattle area. We're looking at a fixer-upper around $300,000. The monthly payment is definitely manageable, and we have a little saved, but we're currently working on saving more for a down payment.

A couple of questions: How much of a down payment is necessary for a home loan in this area? I've read 5%, 10%, etc. We're not first-time home buyers, have excellent credit and steady jobs. More importantly, how much of a down payment (+ earnest check?) is necessary to be competitive in this market? I've heard people walking in with cash offers. Is it even worth our time if we're not sitting on a bunch of money?

Thanks!

[MayouInSeattle]

It depends on your loan type. I would work with a realtor to see if your offer can be competitive at that price point in that area.

If it is a total fixer, sometimes it is hard to qualify for a mortgage because they require that a home be "livable" before they will give you money to purchase it. You can get a conventional loan with 10% (maybe you can even try 5%) but you will be paying PMI. You can also get an FHA loan which only requires 3.5%, but the MIP (FHA version of PMI) is quite high and they have restrictions as to what kind of property you can buy, what condition it is in, and how much it has to appraise for. It will also make your offer less competitive if you use FHA vs conventional.

Regarding your earnest money deposit, I think anywhere between 1-3% is fine. Just enough to show the sellers that you are serious and have some skin in the game.

[rachprice]

This is very helpful. Thank you!

[Hemlock140]

It also depends a lot on where it is, some local markets are hotter than others.
The cash buyers offering more than asking tend to be in the more affluent areas where prices start at $600k, but even a rough fixer goes fast if near a topnotch school.

[Ira500]

Originally Posted by rachprice

My husband and I are thinking about buying a home in the Seattle area. We're looking at a fixer-upper around $300,000. The monthly payment is definitely manageable, and we have a little saved, but we're currently working on saving more for a down payment.

A couple of questions: How much of a down payment is necessary for a home loan in this area? I've read 5%, 10%, etc. We're not first-time home buyers, have excellent credit and steady jobs. More importantly, how much of a down payment (+ earnest check?) is necessary to be competitive in this market? I've heard people walking in with cash offers. Is it even worth our time if we're not sitting on a bunch of money?

Thanks!

People buy homes with 3.5% down in the Seattle area, but if you can avoid getting an FHA loan, the mortgage insurance premium will be lower. The Washington State Housing Finance Commission has downpayment assistance programs that also lower the mortgage insurance premiums, so you might want to look into them. Like Hemlock140 stated, the places around here where you can buy a 300,000 dollar fixer are a little less competitive that the eastside or Seattle proper, so it's a much smaller percentage of people walking in with all cash offers.
So, if your intention is to find a house in Bellevue or Sammamish or Kirkland or Greenlake, then yes: Even if you could find a 300,000 dollar fixer in those areas( which is extremely unlikely), you will be outbid by cash buyers. But in the suburbs south of Seattle, 3.5% down loans are not at all uncommon.

[west seattle gal]

A 300K fixer would not be just a cosmetic fixer upper -- people are paying full price for ugly dumps. A cheap fixer upper would truly need a major overhaul and be in an undesirable location.

[mkarch]

Originally Posted by west seattle gal

A 300K fixer would not be just a cosmetic fixer upper -- people are paying full price for ugly dumps. A cheap fixer upper would truly need a major overhaul and be in an undesirable location.

Unless you really stretch the definition of "seattle area". Most $300K houses need major system replacements in addition to cosmetics.

[homesinseattle]

Hi Rach! $300K and Seattle don't match up well. Try Burien to the south of Seattle, or Snohomish County-Everett to the north.
At that price range in those areas, you can succeed, I just did for a buyer yesterday. To explain a bit more. If a seller has the ability to accept a cash offer, that will be their first choice. Beyond that, they will almost always accept a conventional offer over FHA, due in no small part to the reality that the "conventional" appraisers tend to be more gentle when evaluating a home, specifically known for not calling out "work orders" that have to be completed before closing, things that an FHA appraiser might very well call. The perception and reality of this causes sellers to prefer conventional offers, so they don't have to be forced to do work before closing. This really comes into play when you are approaching homes that need some repair.

In fact, if you can pull the funds together to go 5% conventional, that would certainly be your best bet. If not, those areas I discussed give you a better chance of having an FHA (3.5% down) offer accepted, as there aren't many cash offers and FHA financing in more common in the buyer pool. Does that make sense? Do you have a good lender?

[Legacy Bear]

Is this whole 'cash offer' vibe real? It seems to me investors and rich individuals are locking in their money in real estate.

[homesinseattle]

Legacy, I see it every day. Real? Hmmm, that's a subjective word. An increased preponderance of cash buyers is indeed a reality, though.