Buying a Home in Las Vegas: FHA Basics
First time home buyers may look at the road ahead of them and be overwhelmed. This is understandable. I remember many years ago buying my first home with my wife. We were excited and slightly terrified. Looking back I realize were also ignorant about the entire process, especially financing. It wasn't a matter of asking the right questions, we didn't even know what the right questions were to ask.
The loan process is often an enigma for first time home buyers in Las Vegas and Henderson. One of the most popular and prevalent mortgage options is an FHA loan.
For nearly 80 years the Federal Housing Authority has provided home buyers with government insured loans. The key word here is "insured." FHA does not provide the loans, it only guarantees them. Buyers must apply for one of these loans through a lender that has met the FHA guidelines.
In essence the Federal Housing Authority helps extend loans to those who may not meet conventional lending standards. FHA is especially beneficial to those who would like to purchase a home, but may not have a substantial down payment. FHA insurance also eases the qualifications for individuals or families who previous had financial issues such as bankruptcy or foreclosure.
When compared to a conventional loan, FHA is substantially lower. Right now the down payment for an FHA loan is 3.5% of purchase price. Compare that to a conventional loan that generally requires a 20% down payment. For first time home buyers, newlyweds, younger families or those short on cash, an FHA loan is extremely beneficial.
It should be noted that since the new owner will have less than 20% equity that mortgage insurance will be required. One of the great things about FHA loans is that this premium can be rolled into your new mortgage amount. On the contrary, private mortgage insurance (or PMI) cannot be rolled into the loan and must be paid monthly. FHA requires that borrowers keep this mortgage insurance until your loan-to-value ratio hits 78% or five years, whichever one is longer.
Keep in mind that just because an FHA loan has lower entry qualifications, does not mean your information will not be scrutinized. FHA approved lenders here in Las Vegas will require bank statements, tax returns, recent pay stubs etc. So it's important to have these items ready. Likewise they will look at our debt to income ratio, which currently should not exceed 41% of your gross monthly income.
Despite the low costs associated with obtaining a home with an FHA loan, there are baseline expenses you should be prepared to incur. Borrowers will need to pay for a property appraisal, home inspection and credit report. While FHA does require the home meet certain criteria prior to approving the loan, it does not require a home inspection. Regardless, I strongly advocate all home buyers pay the money for a licensed home inspector to go through the property. A few hundred dollars is cheap insurance when faced with the alternative.
An FHA loan is pretty straight forward to understand and has helped millions of Americans realize the dream of home ownership. If you need help getting started with an FHA application, give me a call and I’ll be glad to get you started.