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FHA loans are a popular financing option among home buyers in Washington and Oregon, two of the states we serve. In fact, first-time home buyers account for more than 80% of all FHA loan originations in the current mortgage market. That’s just one of the insights offered in a new report by the Urban Institute.
The Urban Institute (an economic think tank based in Washington, D.C.) published a new report about first-time home buyers, mortgage lending, and related topics. One of the key insights related to FHA loans.
A lot of first-time home buyers in Washington and Oregon still favor the Federal Housing Administration’s mortgage insurance program. In those states and elsewhere across the country, first-timers make up 83% of FHA loan originations. That’s up from around 75% during the recession.
Definition: An FHA loan is originated within the private sector, like other types of mortgages. But it’s also insured by the federal government. This insurance protects lenders from losses relating to borrower default. As a result of this backing, the qualification criteria for FHA loans can be more “forgiving” than other mortgage programs.
“The Federal Housing Administration (FHA), which makes low-down payment loans available to borrowers with less than perfect credit, has typically focused on the first-time homebuyer market, with first-timers making up about 80 percent of their total originations. That share fell to around 75 percent during the recession but has slowly crept up to nearly 83 percent today.”
Based on this report, it’s clear that a lot of first-time buyers in Washington and Oregon prefer to use FHA loans. But why? What is it about this program that attracts first-timers.
Over the last few years, conventional loans have started to compete with the FHA program in the low-down-payment department. Thanks to policy changes made by Fannie Mae and Freddie Mac, eligible first-time buyers in Washington and Oregon can now qualify for a conventional loan with a down payment as low as 3%.
FHA and conventional loans might be competitive when it comes to down payments. But there are some key differences when it comes to mortgage insurance.
Borrowers who use a conventional home loan with a low down payment usually have to pay for private mortgage insurance (PMI). But the insurance policy can be canceled later on when the homeowner’s equity rises to a certain level. With the FHA program, on the other hand, most buyers have to pay mortgage insurance for as long as they keep the loan.
Related: How FHA insurance premiums work
If you’d like to learn more about the home buying process, mortgage rates, mortgage programs, or other related topics, don’t hesitate to reach out to the professionals at Sammamish Mortgage today! Sammamish Mortgage is a family-owned mortgage company with experience since 1992 delivering mortgage loans to customers in the Pacific Northwest at competitive interest rates. States include WA, OR, CO & ID. Contact us to learn more, you can also View Rates, get a Rate Quote, or Apply Now using our new online automated mortgage application system!
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.