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FHA or Conventional: What’s Best for First-Time Buyers in Washington?

This entry is part of an ongoing series in which we answer frequently asked questions among Washington home buyers. Today’s question is, what type of mortgage loan is better for a first-time buyer in Washington State, FHA or conventional?

Short answer: Both FHA and conventional mortgage loans offer certain advantages and disadvantages. That being said, many first-time buyers in Washington choose to use the FHA loan program because of the flexible qualification criteria it offers. But it’s not a “one-size-fits-all” situation. It’s important to choose the right type of loan for your particular scenario.

FHA vs. Conventional Home Loans

To determine which type of home loan might be best for your situation, you must first understand their key differences. Here’s a quick overview of FHA and conventional loans, and how they might benefit a first-time home buyer in Washington.

  • A conventional loan is one that is not guaranteed or insured by the government. Conventional loans sometimes receive mortgage insurance coverage, but the policy is provided by a company in the private sector. This sets it apart from the FHA financing option explained below. The minimum down payment for a conventional loan in Washington State ranges from 3% to 5%, depending on the particular details of the loan.
  • An FHA loan is insured by the Federal Housing Administration, an agency that falls under the Department of Housing and Urban Development. Lenders who offer these loans receive some degree of federal insurance protection, and this in turn can make it easier for borrowers to qualify for program. The minimum down payment is 3.5% of the purchase price or appraised value.

Which Is Best for a First-Time Buyer in Washington?

While FHA loans are not limited to first-time buyers, they are a popular financing option among this group. In fact, the vast majority of FHA loans go to first-time buyers.

So why is this the case? It’s a combination of a low down payment and flexible qualification criteria. These loans receive government backing, which allows lenders to be a bit more flexible with their qualification criteria. As a result, FHA loans are one of the easiest mortgage products to qualify for, with the possible exception of VA mortgages.

Conventional home loans offer advantages as well, especially if you can afford to make a larger down payment. First-time home buyers in Washington who use conventional loans with a down payment of 20% or more can avoid mortgage insurance entirely.

The bottom line is that a low down payment can result in mortgage insurance, regardless of whether you are using FHA or a conventional. The upside to this insurance is that it allows you to buy a home sooner and with less money down. The downside is that it can increase your monthly housing costs. But again, this is true for both conventional and FHA loans with low down payments.

Related: Do I need 20% down for a house?

We Can Help You Choose the Best Option

We encourage first-time home buyers in Washington to explore all of their financing options, and we are happy to help you do so.

We can review your financial situation and help you determine the best type of mortgage loan based on your particular needs. Please contact our staff with any questions you have about getting an FHA or a conventional home loan in Washington.

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