Covenant Homeownership Program

Key Takeaways

• The Covenant Homeownership Program is a Washington special purpose credit program that lends first-time buyers money for down payment and closing costs (RCW 43.181.040).
• Since January 1, 2024, county auditors have collected a $100 covenant homeownership assessment on each document recorded, and that assessment funds the program (RCW 36.22.185).
• Eligibility runs through ancestry: the buyer, or an ancestor of the buyer, must have been a Washington resident on or before April 11, 1968 who was or would have been excluded from homeownership by a racially restrictive covenant.
• Household income must be at or below 120 percent of the county area median income, and the assistance is a loan repaid when the home is sold.

What It Means

The Covenant Homeownership Program is Washington's response to a documented harm. Racially restrictive covenants were written into deeds across the state and kept whole families out of homeownership, and the equity those families never built never passed down. The legislature created the program in 2023 as a special purpose credit program, a category federal fair lending law allows so that a lender may aim help at a group that was previously shut out.

What the program delivers is cash at the closing table. An eligible buyer receives a loan covering the Down Payment and closing costs, and that loan can be stacked on top of other assistance rather than replacing it. In the ordinary case it is not a grant, since the borrower repays when the house sells. Lower income households can have the loan forgiven.

For a licensee the practical role is narrow. You do not qualify anyone and you do not quote program numbers from memory. You know that a 1950s Covenant is why the program exists, you know roughly who it serves, and you refer the buyer to a participating lender before they decide a purchase is out of reach.

How It Works in Washington

Two statutes carry this program. RCW 36.22.185 is the funding: beginning January 1, 2024, the county auditor collects a covenant homeownership program assessment of $100 for each document recorded, in addition to every other charge allowed by law, and remits it to the state treasurer for the covenant homeownership account created in RCW 43.181.020. Several document types are exempt, including assignments or substitutions of previously recorded deeds of trust, records of birth, marriage, divorce, or death, name change orders, and government or wage liens. The assessment shows up on settlement statements inside the Recording charges.

RCW 43.181.040 is the program itself, administered by the Washington State Housing Finance Commission (RCW 43.181.010 defines the commission as that agency). A buyer must be a first-time homebuyer with household income at or below 120 percent of the area median income for the county, and must be, or be a descendant of, a Washington state resident on or before April 11, 1968 who was or would have been excluded from homeownership by a racially restrictive real estate covenant. The assistance is repaid when the house is sold, though the commission may fully forgive a loan held by a household at or below 80 percent of area median income once the loan has been outstanding at least five years.

Example

Marcus and Dana are buying a $465,000 townhouse in Tacoma. Their household income of $118,000 is under 120 percent of the Pierce County area median. Dana's grandmother rented in Seattle in 1965 and was turned away from a house in a neighborhood whose deeds carried a whites-only covenant, so Dana can document the descendant test. Their loan officer, a Commission-trained participating lender, layers a Covenant Homeownership Program loan on top of their first mortgage to cover the 5 percent down payment of $23,250 and about $9,400 in closing costs.

At recording, the auditor collects the $100 covenant homeownership assessment on the deed and another $100 on the deed of trust, so the settlement statement shows $200 in covenant assessments next to the ordinary recording fees. Marcus and Dana bring far less cash to closing than they had planned. When they sell in 2033, the assistance loan is repaid out of the sale proceeds.

Common Mistakes and Exam Traps

• The $100 assessment is charged per recorded document, not per transaction, so a closing that records both a deed and a deed of trust pays it twice.
• The program works because it is a special purpose credit program under fair lending law. It is not an exception to the Fair Housing Act, and it never authorizes a licensee to steer buyers by race.
• Eligibility turns on a Washington ancestor's exclusion by a racially restrictive covenant on or before April 11, 1968, not on the buyer's own race and not on first-time buyer status alone.
• The assistance is a loan repaid at sale. Full forgiveness is limited to households at or below 80 percent of area median income once the loan has been outstanding at least five years.