How Long Do I Have to Pay Mortgage Insurance in Washington?

May 24, 2024
Last updated:
May 24, 2024
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Statistics show that most home buyers in the state of Washington use some form of mortgage insurance, either through the FHA or private insurance companies.

Which brings up a very important question: How long are homeowners required to pay for mortgage insurance in Washington? And does it ever go away?

The answer partly depends on the type of home loan you have.

Home buyers with FHA loans often have to pay mortgage insurance for the entire life of the loan, until they either sell or refinance. But conventional financing works differently, allowing homeowners to cancel PMI when they reach an equity level of 20% or higher.

In this article, we’ll answer a common question you may be asking yourself: “How long do I have to pay mortgage insurance in Washington?”

What Is Mortgage Insurance?

Mortgage insurance is a type of insurance policy that protects the lender in case the borrower defaults on (stops paying) their loan payments. In the state of Washington, mortgage insurance is usually required when a borrower makes a low down payment.

Mortgage insurance in WA reduces the level of risk for lenders, allowing them to offer loans with smaller down payments. But home buyers can benefit from it as well.

Without mortgage insurance, borrowers would have to make bigger down payments, which can require years to save up for. So it basically shortens the path to homeownership by reducing the required investment.

There are two main types of mortgage insurance: FHA and PMI.

1. FHA Mortgage Insurance

In Washington, home buyers who use an FHA loan to buy a house have to pay mortgage insurance provided through the Federal Housing Administration. This is mandatory for all FHA purchase loans.

FHA requires an upfront premium of 1.75% of the loan amount, and a recurring annual premium that comes to 0.55% for most borrowers. Both can be rolled into the loan.

2. Private Mortgage Insurance (PMI)

Conventional home loans (that are not insured by the government) can also require mortgage insurance, but only in certain cases. And it works differently from the FHA insurance coverage mentioned above.

In short, if a conventional loan accounts for more than 80% of the home’s current value, private mortgage insurance (PMI) will probably be required. It’s referred to as “private” insurance because it comes from an insurer in the private sector, rather than the government.

In the state of Washington, the cost of PMI usually ranges from 0.3% to about 1.5% of the original loan amount, per year. So it could increase a homeowner’s monthly mortgage payments by several hundred dollars.

How Long Do You Have to Pay It?

The rules for cancelling mortgage insurance can vary depending on whether you have FHA mortgage insurance, or PMI with a conventional loan.

With private mortgage insurance, homeowners can usually request to have their PMI policy canceled when the loan balance drops to 80% of the original home value.

Over time, as you make regular monthly payments, your loan-to-value (LTV) ratio declines. When the LTV drops down to 80% or below, you will no longer need to pay for private mortgage insurance.

Here’s another way to think of it: Homeowners in Washington can typically cancel their PMI policies when they reach the 20% equity level. And you could avoid it entirely by putting down 20% or more when buying a home.

The rules for FHA loans are different. If you use an FHA loan to buy a home in Washington, you might have to pay mortgage insurance longer than you would with a conventional loan.

Most home buyers who use the FHA program make a down payment below 5%. In that scenario, the FHA requires the borrower to pay annual mortgage insurance for the life of the loan. So it could stay with you until you sell, refinance, or otherwise pay off the loan.

So, the length of time you have to pay WA mortgage insurance can vary based on the loan type and the rate at which you build equity.

There’s a Major Upside as Well

Some homeowners in Washington end up paying mortgage insurance premiums for years. At first glance, that might seem like a long-term financial burden without any direct value for the homeowner.

But there are two big benefits to keep in mind:

  1. Buying sooner rather than later. It can take years for a typical home buyer in Washington to save up for a standard 20% down payment. Mortgage insurance gives you a shortcut by allowing you to make a down payment in the 3% to 3.5% range.
  2. Expanded housing options. Mortgage insurance also helps home buyers purchase properties that would otherwise be out of their reach. This can benefit all home buyers in Washington, but especially those in pricier real estate markets like the Seattle area.

5 Points to Remember From This Article

As you can see, Washington mortgage insurance is a complex subject with a lot of different variables and considerations. It can be confusing, especially for first-time home buyers.

But it’s also an important topic, because it could affect you well into the future. So let’s wrap up by summarizing the five most important points from this article:

  1. Most home buyers in Washington end up using mortgage insurance.
  2. It allows you to buy a home sooner by reducing the upfront investment.
  3. There are two primary types of mortgage insurance: FHA and PMI.
  4. PMI can be canceled later on, but in many cases FHA insurance cannot.
  5. You could avoid mortgage insurance by making a down payment of 20%.

The downside to mortgage insurance in Washington is that it could add a few hundred dollars to your monthly mortgage payments. The upside is that it opens the door to homeownership for a lot of people who otherwise would not be able to purchase a home in Washington.

Mortgage Insurance In Washington: Do You Need It?

To answer your question, “How long do I have to pay mortgage insurance in Washington?” the answer ultimately depends on the type of mortgage you have (FHA or conventional), and how quickly you can reach the 20% mark in home equity.

Need Financing?

If you’re ready to buy a home in Washington, your first step is to reach out to a mortgage company, like Sammamish Mortgage. We can provide you with a quick rate quote and help you get pre-approved for a mortgage. From there, you can start the house hunting process with a clear understanding of what you can afford in a home purchase. Reach out to Sammamish Mortgage today!

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