FHA Loans: Second Most Popular in WA State

A recent mortgage industry report showed that FHA loans are the second most popular mortgage financing option among home buyers in the state of Washington and across the U.S.

The authors also reported an increase in FHA loan usage among home buyers purchasing new construction, amid an ongoing shortage of existing homes.

The FHA mortgage insurance program allows home buyers in Washington to purchase a home with as little as 3.5% down, often with more flexible criteria compared to conventional financing.

FHA Loans in WA State: Increasingly Popular in 2024

On June 13, the Mortgage Bankers Association (MBA) published their latest loan application survey, which contained data relating to mortgage financing trends nationwide.

According to that report, FHA loans remain the second most popular type of home loan among buyers in Washington and nationwide. Some key points from this latest survey in terms of FHA vs conventional loans include the following:

• Conventional loans accounted for 63.4% of total mortgage activity
• FHA-insured home loans followed with 26.5% of market share

The June 2024 MBA report also pointed to a shift in home buyer preferences. Apparently, a lot of buyers in Washington and elsewhere across the U.S. are turning their attention toward new construction versus existing homes.

According to Joel Kan, MBA’s Vice President and Deputy Chief Economist:

“With existing-home inventory still lagging in many markets, many homebuyers have turned their interest toward newly built homes, particularly FHA borrowers. The FHA share of applications was 26.5%, the highest share since the survey high of 27.1% in November 2023.”

The FHA Loan Program at a Glance

The Federal Housing Administration (FHA) loan program has insured more than 40 million home loans since it was first established in 1934. In 2023 alone, more than 700,000 Americans used an FHA loan to either purchase or refinance a home. Most of those were purchases.

Other facts about America’s longest-running government mortgage program:

• The Federal Housing Administration was established in 1934, during the depths of the Great Depression, to make housing more affordable and accessible.
• The FHA falls under the U.S. Department of Housing and Urban Development (HUD).
• FHA loans can be used to buy single-family homes, multi-family properties with up to four units, condominiums, and manufactured homes.
• Home buyers have to make a down payment of at least 3.5% of the purchase price or appraised home value.
• This program is basically one big insurance fund. Borrowers pay into the fund, the FHA manages it, and lenders receive coverage from it.
• FHA loans have maximum size limits that vary by county. These limits are based on median home prices and tend to go up from one year to the next.
• Contrary to popular belief, this program is not limited to first-time buyers. Borrowers who have owned homes in the past can also qualify.

How FHA Loans Differs From Conventional Financing

FHA mortgage loans are backed by the government. This insurance gives banks and lenders additional protection against borrower default. As a result, lenders can be more flexible when qualifying FHA loan applicants.

A conventional loan, on the other hand, does not receive any kind of government backing.

In addition to offering a low down payment of 3.5%, FHA loans tend to be more forgiving of past credit issues and high debt levels. Some conventional mortgages require a larger upfront investment, often ranging from 5% to 20%, along with stricter criteria.

FHA Loan Popularity and Appeal Among Washington Home Buyers

FHA loans appeal to different types of home buyers in Washington, including:

Borrowers with limited savings: With its relatively low down-payment requirement of 3.5%, the FHA mortgage program appeals to buyers who have limited funds in the bank.

First-time buyers: While this program is not limited to first-time buyers, it can make homeownership more attainable for this group by clearing obstacles.

Lower credit scores: FHA loans typically have more flexible credit requirements than conventional mortgages. Home buyers with a credit score of 580 or higher could qualify for the low down payment mentioned above.

Past credit issues: FHA loans can provide a path to homeownership for buyers who’ve had past credit issues like a bankruptcy or foreclosure.

Not the Best Choice for Every Borrower

FHA loans are one of the most popular Washington mortgage options among Washington home buyers, and for good reason. There are plenty of FHA loan benefits to consider. FHA loan requirements are typically more lax than conventional mortgage criteria, making them easier to qualify for, particularly for home buyers with limited savings and/or previous credit issues.

But it might not be the right mortgage choice for all borrowers.

For one thing, FHA loans require homeowners to pay for mortgage insurance, sometimes for as long as they keep the loan. This insurance allows home buyers to make a smaller down payment, but it also increases the size of the monthly payments.

Home buyers in Washington who can afford to make a larger down payment might be better off with conventional financing, rather than FHA. If you put down 20% or more on a conventional loan, you could avoid paying mortgage insurance entirely.

Similarly, military members and veterans can often qualify for the VA loan program. VA-guaranteed mortgage loans can bring additional benefits into the picture, such as the ability to finance 100% of the purchase price.

FHA Loans: Second Most Popular in WA State, Though Many Other Options Available

The bottom line is that home buyers in Washington have a lot of choices when it comes to home buyer mortgage options. It’s not a one-size-fits-all situation. Think about your short-term priorities as well as your long-term goals, and find a home loan that suits your situation.

If you need financing to buy a home in WA State, we can help. Call Sammamish Mortgage today to get an instant rate quote and get pre-approved for a mortgage!