Summary: The excitement of a new home purchase can sometimes override wisdom and prudence when…
Do you have questions about conventional home loans in Washington State? You’re in the right place. This guide explains the definition, requirements, and size limits associated with conventional mortgage loans in Washington. If you have questions that are not answered below, please let us know.
Definition of a Conventional Home Loan
By definition, a conventional home loan is one that is not insured or guaranteed by the government. It is originated, and sometimes insured, within the private sector. This distinguishes it from mortgage loans that do receive some form of government backing, such as FHA and VA. (We’ll talk more about mortgage insurance in a moment.)
Washington State conventional home loans are the most common type of mortgage financing. According to the latest “Origination Insight Report” from the mortgage software company Ellie Mae, conventional loans accounted for 63% of total volume. FHA-insured home loans took 23% of market share, while the VA mortgage program accounted for 10%. The remaining 4% went to the “other” category.
Recap: A conventional home loan in Washington State is one that is not insured or guaranteed by the federal government. This sets it apart from FHA and VA mortgage loans, which are backed by the government. Conventional is the most popular mortgage type among borrowers, when measured by market share.
Washington State Loan Limits
Washington State conventional home loans have size limits. These limits are established by the Federal Housing Finance Agency (FHFA), and they vary by county. Mortgage loans that fall within these size restrictions can be sold to Fannie Mae and Freddie Mac, the two government-controlled corporations that operate within the secondary mortgage market.
When a conventional loan meets or conforms to these limits, it is aptly referred to as a “conforming” loan. If it exceeds these caps, it’s called a “jumbo” mortgage.
In Washington, conforming loan limits range from $510,400 in most counties, up to $741,750 in the more expensive counties in the Seattle metro area. These are for single-family homes.
Here are the loan limits for all WA counties.
To be clear, residents of the state can borrow more than these amounts, as long as their income supports the desired loan size. It would just be considered a jumbo / non-conforming home loan. Borrower eligibility and down-payment requirements can be higher for jumbo mortgage products, due to the higher level of risk.
Recap: Washington State conventional home loans can either be conforming or jumbo. These labels describe the amount being borrowed, in relation to the conforming limits for the county in which the home is located.
Benefits of Using a Conventional Mortgage
All mortgage products have certain pros and cons, and that goes for conventional home loans as well. One of the biggest advantages has to do with mortgage insurance, or MI.
Washington home buyers who use FHA loans to finance their purchases typically have to pay for mortgage insurance. This insurance protects the lender from losses that could result from borrower default. There’s an upfront insurance premium, which equals 1.75% of the base loan amount. There’s also an annual premium, which comes to 0.85% for most borrowers who use this program.
Conventional home loans in Washington State sometimes require private mortgage insurance, while other times they do not. It depends on the size of the loan in relation to the home’s value (i.e., the LTV ratio).
Borrowers who use a conventional loan with a down payment of 20% or more can avoid mortgage insurance entirely. That’s because MI is usually required when the loan-to-value ratio rises above 80%. A down payment of 20% or more keeps the LTV at or below 80% — so no mortgage insurance.
This feature is partly what accounts for the higher usage of conventional home loans in Washington, when compared to FHA. The conventional option is popular with borrowers who want to avoid the extra cost of mortgage insurance.
Note: There are other ways to avoid MI as well. Check out this article for more on this subject.
Let’s Explore Your Options
This article underscores the importance of talking to a knowledgeable loan officer or mortgage broker to explore your financing options. The mortgage industry has become more diversified over the years, as new products and programs come onto the market. So you have a lot of options regarding the type of home loan you use.
Have Questions About Mortgages?
If you are curious about home loans or are ready to apply for a mortgage, Sammamish Mortgage can help. We are a local, family-owned company based in Bellevue, Washington and have been offering borrowers in the state, as well as in Oregon, Colorado, and Idaho, with several mortgage programs with flexible criteria since 1992. Please contact us if you have mortgage-related questions.