The FHA home loan program is a popular financing option among borrowers in Washington and Oregon, our primary area of operation. This program offers the advantage of a relatively low down payment along with flexible qualification criteria.
Most borrowers who use an FHA loan to buy a house in Washington or Oregon have to pay mortgage insurance. This is a standard requirement put forth by the Department of Housing and Urban Development, or HUD. The insurance costs can vary based on several factors. Most borrowers pay an upfront premium equaling 1.75% of the loan amount, plus an annual premium of 0.85%.
Upfront and Annual Premiums
There are actually two types of mortgage insurance associated with FHA loans in Washington and Oregon. There’s an upfront premium, as well as an annual premium. But don’t be intimidated by the “upfront” language being used here. In most cases, they can be rolled into the loan amount and paid on a monthly basis along with the principal payments.
But these premiums do increase your overall monthly mortgage payments, so it’s important to understand what they are and how they work.
How Much Is FHA Insurance in Washington & Oregon?
FHA mortgage insurance premiums can seem confusing at first glance. That’s because there are a number of variables that can affect the amount you pay in FHA insurance when buying a house in Washington or Oregon.
Let’s start with the upfront premium since it’s the easiest to understand.
- Upfront mortgage insurance premiums for an FHA loan in Washington, Oregon, and the rest of the nation typically equals 1.75% of the base loan amount. As mentioned earlier, this amount can be paid upfront at closing or rolled into the loan (in most cases).
- Annual FHA insurance premiums are a bit more complicated. The amount paid depends on the size of the loan in relation to the property value, the term length, and the size of the down payment. Most borrowers who use the FHA program in Washington and Oregon a make a down payment below 5% with a loan term of 30 years. In this scenario, the annual mortgage insurance premium would come to 0.85% of the loan amount.
Did you know: The FHA home loan program allows borrowers to make a down payment as low as 3.5% of the purchase price or appraised value. This attracts home buyers who have limited cash saved up for the down payment.
This Program Is Built Around Insurance
The Federal Housing Administration home loan program is actually built around insurance and in several ways.
The FHA does not make loans directly to consumers. Instead, the agency ensures home loans that are generated by mortgage lenders within the private sector. This protects lenders from losses that might result from borrower default.
Instead of relying on taxpayers to foot the bill for this program, the FHA requires borrowers (home buyers) to pay a mortgage insurance premium. These premiums fund the program allow the FHA to cover the claims it receives from lenders.
So without the mortgage insurance premiums paid by borrowers, the program would cease to exist and would no longer offer the benefits of a low down payment and flexible guidelines.