8 Mistakes to Avoid When Using an FHA Loan in Washington State

Published:
April 25, 2024
Last updated:
April 25, 2024
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Many home buyers in the state of Washington use FHA loans when purchasing a house. First-time buyers, in particular, are drawn to this program because it offers a down payment as low as 3.5% with flexible qualification criteria.

In this guide, we will help you chart a steady course for success with an FHA loan in Washington State, by pointing out some of the potential mistakes to avoid along the way.

1. Assuming an FHA loan in Washington State is the best choice

Borrowers shouldn’t automatically assume that an FHA loan is the best financing option. FHA-backed mortgage loans are ideal for some home buyers in Washington, but less ideal for others. It’s not a one-size-fits-all situation.

This program tends to attract low- to moderate-income borrowers who have had credit-related issues in the past. And many of these borrowers could benefit from using an FHA loan to buy a house in Washington.

But in some scenarios, it might not be the “tool of choice.”

For example, if you have excellent credit and enough money in the bank for a 20% down payment, you’re probably better off using a conventional mortgage. Borrowers who can put down 20% or more on a conventional loan can avoid paying mortgage insurance.

And speaking of mortgage insurance, let’s move on to FHA loan mistake #2.

2. Not accounting for mortgage insurance

All home buyers who use an FHA loan to buy a house in Washington have to pay mortgage insurance to help fund the program.

In fact, this loan program works like one big insurance pool. Borrowers pay mortgage insurance premiums that go into the Federal Housing Administration’s insurance fund. In turn, the FHA uses those funds to provide insurance to mortgage lenders, protecting them from borrower default.

FHA loans require both an upfront and annual mortgage insurance premium (MIP). The upfront premium typically comes to 1.75% of the base loan amount. The annual premium for most borrowers who use an FHA loan amounts to 0.55%. But the annual premium can vary based on the loan term and the size of the down payment.

If you take on an FHA loan in Washington State but fail to account for mortgage insurance, you might find your monthly payments larger than expected. On the other hand, if you conduct careful research to learn how government mortgage insurance works, you’ll have an easier time planning and budgeting.

3. Underestimating the down payment

While FHA loans offer a lower down payment than some conventional loans, borrowers should still be prepared for significant upfront costs. Failing to budget for these expenses could make it harder to qualify for an FHA loan program.

This program requires home buyers in Washington to put down at least 3.5% of the purchase price or appraised value. When this article was published, the median home value for the state of Washington was around $575,000. A 3.5% down payment on that amount would come to more than $20,000.

Underestimating the required down payment for an FHA loan could lead to financial strain or delay the home buying process.

4. Overlooking closing costs

Closing costs represent another significant expense for Washington home buyers. This is true regardless of what type of loan you use. For an FHA loan, the typical closing costs can range from 3% to 5% of the purchase price, and sometimes more

Closing costs can add up and catch borrowers off guard if they’re not prepared. So be sure to factor this into your budgeting process, and start saving money as soon as possible.

5. Not checking your credit score

FHA loans are known for being accessible to borrowers with lower credit scores. In some cases, home buyers in Washington who get turned down for conventional mortgage financing can still qualify for an FHA-insured mortgage loan.

But that doesn’t mean credit scores don’t matter. If you want to qualify for the low 3.5% down payment option mentioned earlier, you will need a credit score of at least 580.

You’re not required to check your credit score before applying for an FHA loan. Many home buyers into the mortgage process having no idea what their credit situation is like. But by checking your credit score ahead of time, you can find out if it’s too low—and do something about it.

6. Shopping for a ‘fixer-upper’ home

In Washington, all homes purchased with an FHA loan require a home appraisal. The appraisal serves two purposes. First, it helps to determine how much the property is worth based on current market conditions. The appraiser will also check to see if it meets the minimum property requirements for an FHA loan in Washington State.

Contrary to popular belief, FHA home appraisals are not overly strict or nitpicky. For the most part, they’re designed to ensure that the home is safe and habitable for the new occupant.

But this program is not designed to finance “fixer-upper” homes that need serious work. Generally speaking, a house has to be move-in ready to qualify for a standard FHA purchase loan. Shopping for a fixer-upper could lead to unwanted delays.

7. Carrying too much debt

Your debt-to-income (DTI) ratio plays a crucial role in determining your eligibility for an FHA loan. Even if you get pre-approved for a mortgage loan, taking on additional debt afterward could negatively impact your DTI ratio and possibly send your loan off the tracks.

FHA loans typically allow for a slightly higher debt-to-income ratio, when compared to conventional financing. But you still want to keep your debt in check during the mortgage underwriting process, so you can reach the finish line and close the deal.

8. Not understanding FHA loan limits

Loan limits typically coincide with home prices in a particular county. Every year, loan limits are typically adjusted to reflect changes in average home prices. 

One question you should be asking yourself is, “What is the FHA loan limit in Washington State?” It would be a mistake to neglect loan limits and not find out what the current year’s limit is for FHA loans. The FHA will only insure up to a maximum loan amount. If you buy a house that goes over this limit, you’ll have to pay the difference as your down payment.

FHA loan limits for 2024 vary across different counties in Washington State. However, in most counties, it’s $498,257. That said, it can be as high as $977,500 in King County, Pierce County, and Snohomish County.

Need financing?

Are you ready to buy a home and need help starting the application process for an FHA loan in Washington State? If you’re wondering how to apply for FHA loan in Washington, we’d love to help. Reach out to Sammamish Mortgage today to get pre-approved for a mortgage and get on the road to homeownership!

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