Down payment assistance

Key Takeaways

• Washington's main source of down payment assistance is the Washington State Housing Finance Commission, and its programs are payment-deferred second mortgages rather than cash grants.
• Commission down payment assistance has to be paired with a Commission first mortgage, either Home Advantage or House Key Opportunity.
• A payment-deferred assistance loan carries no monthly payment, and the balance comes due when the buyer sells, refinances, or transfers the home, stops living in it as a principal residence, or pays the first mortgage off.
• The Covenant Homeownership Program is a special purpose credit program created by RCW 43.181.040 for first-time buyers who were excluded from Washington homeownership by racially restrictive covenants on or before April 11, 1968, and for their descendants.

What It Means

Down payment assistance, usually shortened to DPA, is money that covers the cash a purchase demands up front: the Down Payment itself and often part of the Closing Costs. In Washington most of it comes from one place, the Washington State Housing Finance Commission, a state financial intermediary created to help make affordable and decent housing available without spending public funds or pledging the state's credit (RCW 43.180.010).

The structure matters more than the label. Commission assistance is not a gift. Every one of its down payment assistance products is a payment-deferred loan, recorded as a second mortgage behind the first loan on the property. The buyer makes no monthly payment on it, which is what lets the household qualify on the first mortgage payment alone, and the deferred balance simply waits. Rates and caps vary by product: the Home Advantage program is offered at zero percent interest for up to 5 percent of the first mortgage amount, while needs-based, veteran, and local partnership products carry low simple interest and flat dollar ceilings. What every program shares is a repayment trigger, not a forgiveness date.

How It Works in Washington

The Commission exists under RCW 43.180, which declares it the public policy of the state to assist in making affordable and decent housing available throughout the state and sets the Commission up to issue nonrecourse revenue bonds and participate in federal, state, and local housing programs (RCW 43.180.010). Its newest layer of assistance is written directly into statute. RCW 43.181.040 directs the Commission to design and implement one or more special purpose credit programs to reduce racial disparities in homeownership, delivering down payment and closing cost assistance to applicants whose household income is at or below 120 percent of area median income, who are first-time homebuyers, and who are Washington residents excluded from homeownership by racially restrictive covenants on or before April 11, 1968, or descendants of such a person. That is the Covenant Homeownership Program. The statute requires repayment when the house is sold, and allows a loan to be fully forgiven after five years outstanding for households at or below 80 percent of area median income. RCW 43.181.020 funds it through the covenant homeownership account in the state treasury.

Your role has a hard edge on it. RCW 19.146.200(1) says a person may not engage in the business of a mortgage broker or loan originator without first obtaining and maintaining a license. Knowing the programs exist and referring an eligible buyer to a Commission-trained lender is brokerage. Quoting rates, income limits, or assistance amounts is loan origination, and our guide to navigating DPA programs and seller concessions walks through where that line sits in practice.

Example

Priya Raman is buying her first home, a $415,000 townhouse in Everett. She uses a Commission Home Advantage first mortgage of $402,550, which is 97 percent of the price, leaving a $12,450 down payment she does not have in cash. Her lender pairs the loan with Home Advantage down payment assistance at zero percent interest, capped at 5 percent of the first mortgage amount, so up to $20,127 is available. Priya takes $12,450 for the down payment and $6,000 toward closing costs, a second mortgage of $18,450.

Her monthly payment covers the first mortgage only. The $18,450 second sits recorded behind it with nothing due each month. The seller also credits her $4,000 as a Seller Concession, which trims her cash to close again. Six years later Priya sells for $498,000. At closing the escrow officer pays off the first mortgage, then pays the assistance loan in full at $18,450, because a sale is one of the events that ends the deferral. Nothing was forgiven and nothing was free. The program moved the cost from the front of the deal to the back.

Common Mistakes and Exam Traps

• Down payment assistance in Washington is a loan, not a grant. Commission programs are payment-deferred second mortgages that get repaid, and calling them free money is the most common wrong answer.
• Commission assistance cannot be bolted onto any first mortgage. It has to be paired with a Commission first mortgage, either Home Advantage or House Key Opportunity.
• Deferred is not the same as forgiven. Outside the limited forgiveness the Covenant Homeownership Program allows, the balance falls due on sale, refinance, transfer, loss of principal residence status, or payoff.
• A broker who quotes assistance amounts, interest rates, or income limits is drifting into unlicensed loan origination under RCW 19.146.200. The safe move is a referral to a Commission-trained lender.