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All About FHA Home Loans

Prospective home buyers have many possible options when it comes to loans. It’s essential to understand what loans are available to ensure you get the best one for your financial situation and personal needs. One potential loan option for those who qualify is called a Federal Housing Administration (FHA) loan. FHA loans are an excellent way for people with low-to-medium incomes to purchase a home. FHA loans also have lower down payment requirements than traditional loans. A mortgage broker Las Vegas can provide more information on an FHA loan to help you decide if it’s right for you.

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What is an FHA Loan?

An FHA loan is backed by the federal government. It is a type of mortgage issued by a lender specifically approved by the Federal Housing Administration (FHA). The FHA insures the loan. FHA loans provide a means for homeowners to secure a mortgage that they might not otherwise qualify for. Most home loans require at least a 20% down payment. FHA loans, however, let you borrow as much as 96.5% of the home’s value, which means you have a 3.5% down payment.

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FHA Loans Requirements

As with other types of loans, an FHA loan requires a minimum credit score. However, the credit score required for an FHA loan is less than that of a traditional loan. For an FHA loan, you will need a credit score of at least 580. If your credit score is below that (in the range of 500-579), you can still apply for an FHA loan, but you’ll have to make a higher minimum downpayment of at least 10% rather than 3.5%. If you don’t have sufficient income to pay for a 10% down payment for an FHA loan, you can use other financial sources to meet the requirement, including savings or financial gifts from your family members. You may also be able to apply for a grant that provides financial assistance for a down payment.

How Are FHA Loan Payments Structured?

FHA loan payments are made monthly, which is the case with many types of loans. Because they are offered to home buyers with lower credit scores and income levels than traditional loans, FHA loans Las Vegas also come with mortgage insurance premiums to protect the lender in case homeowners default on their loan. These premiums are called Upfront Mortgage Insurance Premium (UFMIP) and Annual Mortgage Insurance Premium. As the name suggests, a UFMIP can be paid when you first take out the loan. The UFMIP can also be rolled into the loan and paid off gradually. The UFMIP amounts to about 1.75% of the total loan. The Annual MIP is added to the monthly cost of the loan and paid off over the year. The payment required for an Annual MIP varies, but it generally falls between 0.45% and 1.05% of the total loan amount. (Read more on how to avoid these homebuyers mistakes.)

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Types of FHA Loans

There are several FHA loan programs available. In addition to traditional FHA loans, other FHA loans available for homeowners include:

  • Home Equity Conversion Mortgage (HECM)
  • 203(k) Improvement Loan
  • Energy Efficient Mortgage Program
  • Section 245(a) Loan

A Home Equity Conversion Mortgage (HECM) is a reverse mortgage available to homeowners aged 62 and older. A HECM allows homeowners to convert their home’s equity into cash while retaining the title. The FHA 203(k) improvement loan is available for homeowners who want to make repairs to their homes following the initial home purchase. The Energy Efficient Mortgage program provides loans for homeowners who want to lower their energy bills. Renewable energy installations or adding new insulation are both qualifying modifications through this program. The Section 345(a) loan is an FHA program for people who anticipate an increase in income. Loans allocated through Section 245(a) program are structured so that your monthly loan payments increase over time, which ultimately shortens the loan duration and means you pay less in interest and mortgage insurance.

FHA loans can be beneficial for helping qualifying individuals purchase a home that they may not otherwise be able to afford. If you think that you qualify for FHA loans Las Vegas, contact us today for more information on FHA loans and expert loan application assistance.