So, you’ve been thinking about buying a home. But perhaps your credit score isn’t as tip-top as you’d like. Maybe you’re paying back school loans. Or you had to short-sell your last home. If you’re looking at challenges like these but feel ready to become a homeowner, an FHA loan might be right up your alley.
FHA (Federal Housing Authority) loans are designed for low to moderate-income buyers. Because they’re guaranteed by the United States government, they come with more lenient credit score requirements. Another big advantage? You only need 3.5% of the sale price for your down payment.
“I recommend them for my clients whose debt-to-income ratio is off a little,” says Jaymie Butler Taylor, Senior Loan Officer with Guild Mortgage in Las Vegas. “And they’re also good for people whose credit scores aren’t quite where they could be, or who don’t have a co-borrower.”
Related: Here’s the Scoop on Credit Scores
Taylor doesn’t just talk the talk about FHA loans, she walked the walk when she used an FHA loan to purchase her own home.
“I used it to buy my first house and it has never made sense to get out of it,” she says.
If you’re all about stretching that dollar (and really, who among us isn’t?) we’ve got more good news. FHA loans work well with the Nevada Housing Division (NHD) Home Is Possible (HIP) down payment assistance programs. Qualified homebuyers can get up to 5% of the home’s loan value in bonus money, which can be used for the down payment or closing costs. That leaves a whole lot more money in your pocket (or the bank, where you most likely keep it) for things like furniture and garden gnomes.
Here are a few more things to know about FHA loans:
- FHA loans can be a good option for people who have had a major credit circumstance like a foreclosure, short sale or bankruptcy. “FHA loans are often the first loan type that are available to people after a credit event has occurred,” Taylor says.
- FHA loans are not limited to first-time buyers and they can be used more than once. “If someone sold a home in another state and is ready to buy in Nevada, they can use FHA,” Taylor explains.
- The FHA has a maximum loan amount it will insure, otherwise known as the FHA lending limit, and these vary by state and county. In Nevada, limits vary from $361,100 for a single family home in Carson City to $460,000 for the same thing in Gardnerville.
The downside?
With all the benefits of an FHA loan, why would you consider anything else? Good question. And, conveniently, we have the answer.
Since FHA loans are guaranteed by the U.S. government, they come with built-in mortgage insurance designed to protect the investor. With a conventional loan, the PMI (Private Mortgage Insurance) automatically drops off once the homeowner has made enough payments for the loan balance to drop to 78% of the value of the home. Not so with FHA, where mortgage insurance is included in the loan payment for the life of the loan.
“With an FHA loan, the only way to get rid of the mortgage insurance is by selling the home or refinancing it,” Taylor explains.
Related: The Dreaded PMI
Another thing to consider is your credit score. If it’s on the higher end, you’ll most likely qualify for a better interest rate by going with a conventional loan.
However, Taylor says that current interest rates make FHA loans a good option even with the built-in mortgage insurance.
If you’re ready to buy a home of your own, start by visiting NHD’s list of HIP-qualified lenders, who can evaluate your situation and let you know how much house you can afford. They can also help you figure out which HIP down payment assistance program works best for you. Then call a HIP-qualified real estate agentto get out there with you to find the home of your dreams!
