Conventional Loans More Popular Than FHA, in Washington and Nationwide

September 10, 2018
Last updated:
November 30, 2022
Post cover image
In This Article

We’ve written in the past how policy changes at Freddie Mac and Fannie Mae have made conventional home loans more competitive with FHA loans, especially when it comes to down payments. In this article, we’ll explain why conventional loans may be a more popular option among homebuyers in Washington and across the nation.

Loan origination data suggests that conventional loans in Washington State and nationwide are more popular than FHA loans. Both loan types offer their perks, as well as drawbacks, which is why buyers are encouraged to weight their options to choose which loan product is best.

That said, conventional loans tend to be more commonplace in residential mortgages.

Conventional Vs FHA Loan Share

According to recent data from the Urban Institute, conventional loans are more prevalent in Washington State and across the country for residential homebuyers. Here is a breakdown of mortgage originations from the past year:

  • GSE loan originations (conventional) 42.9%
  • FHA/VA loans 19.3%
  • Portfolio originations 35.9%

Portfolio originations involve lenders who loan out funds to a borrower and keep the debt on their own portfolio Conventional loans are issued by a lender and then sold to another lender who will then service the loan to the borrower.

More home buyers in Washington and elsewhere in the country are turning to conventional loans when buying a home. And that’s not surprising when you consider how the minimum down payment for conventional mortgages has dropped in recent years.

We’ll get back to the down payment trends in a moment. But first, a quick “lingo” lesson:

  1. FHA loans are simply mortgage loans that get insured by the Federal Housing Administration, which is part of HUD. This government insurance protects the lenders that originate these loans from financial losses that might result from borrower default.
  2. Conventional loans, on the other hand, are not insured or guaranteed by the government. They are originated (and sometimes insured) within the private sector with no federal backing.

Most home buyers in Washington State and nationwide use conventional loans to finance their purchases. Same goes for homeowners who are refinancing. This has long been the case. But the gap between conventional and FHA loan share seems to have widened even more over the last year or so, as shown in the report mentioned earlier.

Check out our mortgage loan limit tool for conventional, FHA, and VA loan, as well as the 2023 conventional loan limits for Washington State.

View Washington State Mortgage

Minimum Down Payments Are More Closely Aligned

There was a time when most conventional loans required a down payment of 5% or more. FHA, on the other hand, has long offered a down payment as low as 3.5% of the purchase price or appraised value. So in the past, a lot of home buyers in Washington flocked to the FHA program to enjoy a lower upfront investment.

But that has changed over the last couple of years. Fannie Mae and Freddie Mac, the two corporations that buy loans from lenders, have both increased their maximum allowable loan-to-value (LTV) ratios to 97%. That means eligible borrowers who use a conventional loan can now make down payments as low as 3%. In other words, Freddie and Fannie have put themselves in direct competition with FHA.

This is probably a big reason why FHA’s loan share in Washington State and nationwide has dropped over the last couple of years.

Mortgage Insurance and Other Considerations

It’s also worth noting that the mortgage insurance applied to FHA loans stays with the borrower for as long as they keep the loan (at least in most cases). In contrast, private mortgage insurance for a conventional loan can usually can be cancelled once the homeowner has reached a certain equity level. And those borrowers who put down 20% or more on a conventional loan can typically avoid mortgage insurance altogether. So there’s a lot to consider.

This is just one way that the mortgage market has changed over the last few years. Home buyers in Washington have a lot of factors to consider when choosing a financing path. That’s why it’s so important to speak to a knowledgeable loan officer (like ours) about your options.

Get an Instant Mortgage Rate Quote Today

Need a Loan in Washington?

Will you need mortgage financing to buy a home in Washington State? We can help. At Sammamish Mortgage, we offer a wide variety of mortgage programs and tools with flexible qualification criteria, including our Diamond Homebuyer ProgramCash Buyer Program, and Bridge Loans. We have been serving the entire state since 1992, as well as the broader Pacific Northwest region that includes Washington, Oregon, Colorado, and Idaho. Please contact us today with any financing-related questions you have.

Other Blogs You May Like
FHA, VA or Conventional: The ‘Big 3’ Loan Options for Military Home Buyers in Washington
February 7, 2024
5 min read
FHA, VA or Conventional: The ‘Big 3’ Loan Options for Military Home Buyers in Washington
Military borrowers have three major loan programs to choose from when they want to secure a home...
The Washington FHA Loan: A Fact Sheet for Home Buyers
January 29, 2024
6 min read
The Washington FHA Loan: A Fact Sheet for Home Buyers
As a Seattle-area mortgage company, we do our best to educate local home buyers about their...
Show 36 more posts
from this category

Connect with a Mortgage Advisor Today!

Whether you’re buying a home or ready to refinance, our professionals can help.

Compare Mortgage Rates in Your Area Instantly

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.

Subscribe to our newsletter