Want to buy a house in the Seattle area? You’ll need stockpiles of cash in the bank, endless free time and a masochistic streak.
OK, maybe it’s not quite that bad.
Still, the region’s housing market is one of the hottest in the country. Prices are up. Inventory is selling fast. Your dream home could draw dozens of competing offers. It will likely sell for more than the list price, maybe even to an all-cash buyer.
So frenzied is this sellers’ market that some buyers can barely get in to see a home before someone else snags it.
“We’re halfway through our appointment, we’re gushing about how we want to make an offer and the Realtor gets an alert that they accepted an offer earlier today,” recalled recent buyer Alice Cryer. “We were standing in the house.”
Along the way, buyers are expected to make quick decisions with high stakes. Will you have the house inspected? (What about the sewer?) There’s a cash buyer making a better offer — can you pay any more?
“We watched a lot of HGTV,” said James Johnson, who with his wife, Emily, bought a Tacoma town house this year. “It was nothing like you saw on television.”
We talked to real estate brokers, lenders and recent buyers to put together a more realistic picture.
Before you buy
Saving up: Long before you set up your Redfin alerts, your financial status will shape your homebuying experience.
How much do you make? How much have you been able to save for a down payment? Do you already own a home you’ll be selling? Do you have stocks or a 401(k) to tap for extra cash? Can your family help? If a lender takes a deep dive into your finances, what will they find?
Even with assistance programs and today’s low mortgage interest rates, many people will be locked out of homebuying.
By one estimate, a household would need to make nearly $107,000 a year to afford a home in the Seattle-Tacoma-Bellevue area with a 20% down payment. With less money to put down, you need an even higher income. For a buyer putting 10% down, the salary threshold increases to about $125,000. Home-ownership rates show stark racial gaps. In Washington, 67% of white people own a home compared to 31% of Black people.
The pandemic has only underscored those gaps, said Tacoma-based Windermere agent Sharon Chambers-Gordon.
“The essential workers who are the backbone of this country doing the work that is allowing us to live and eat are the ones who have been left behind in being able to purchase a home,” Chambers-Gordon said. “Even when you have payment assistance programs, you still need access to cash.”
As a homebuyer, your finances will factor into where you can buy and whether you’ll have an edge over other eager shoppers.
Generally speaking, the old rule of thumb that you need 20% for a down payment isn’t a hard-and-fast requirement. But in the most competitive areas, that’s common.
The median buyer in King County during the final quarter of last year paid 18.4% for their down payment, or roughly $134,000. In Pierce County, where home prices are climbing but more affordable, buyers paid a much lower 4.6%, or about $19,500, according to ATTOM Data Solutions.
Other costs: The down payment isn’t the only pot of cash you’ll need.
In the most competitive markets, expect to pay for inspections, sometimes on multiple houses, at roughly $500 each or more (plus more to look at the sewer — more important than it sounds!). At the end of the deal, you’ll pay closing costs of roughly 2 to 5% of the price of your home.
You’ll likely need to set aside a deposit in an escrow account, also known as your “earnest money,” to show a seller you’re serious about your offer. This can range from 2 or 3% of the price of the house to 10%, depending on how competitive the area is, brokers say. Depending on the conditions you attach to this money, the seller could keep it if you back out of the deal. If all goes well, you can apply this later to your down payment or closing costs.
Look for assistance programs: If saving tens of thousands of dollars for a down payment feels out of reach, look for assistance programs. In the most expensive neighborhoods, it can be harder to secure a house with less money down, so even with assistance, your offer may be less competitive.
Michael Pokryfke combined a VA loan, $2,200 in savings and $15,000 borrowed from his retirement account to buy a two-bedroom condo in Renton. “I was under the assumption I’d never buy a house,” he said.
To help with a down payment, the Washington State Housing Finance Commission offers no-interest loans of up to 4% of the mortgage for families who make $145,000 a year or less, have a credit score of at least 620 and use the commission’s mortgage programs. The loans are deferred, meaning you don’t have to repay until your mortgage is paid off or you sell or refinance.
Look for a homebuyer education course to learn more, and talk to your agent about what’s possible — and what’s realistic — in today’s market.