What is an FHA loan? A mortgage insured by the Federal Housing Administration: easier credit and a smaller down payment, bought with a premium that protects the lender and not the borrower.
An FHA loan is an ordinary mortgage from an ordinary lender that carries insurance from the Federal Housing Administration, part of the Department of Housing and Urban Development. The next part is worth saying plainly, because it is the commonest misunderstanding about the program: the insurance protects the lender, not the borrower. If the loan defaults and the sale of the house does not cover what is owed, FHA pays the lender's loss. The borrower pays every dollar of the premium and receives none of the protection. What the borrower gets instead is access, because a lender unwilling to carry that risk alone will write the loan once FHA stands behind it. FHA does not lend the money and does not set the interest rate.
That backing buys a wider door. FHA tolerates lower credit scores than conventional underwriting does and allows a smaller down payment, with the exact score tier and the down payment that goes with it set in HUD Handbook 4000.1 and revised from time to time, so look up the current numbers rather than a remembered pair. It also caps the loan by county, on a floor-and-ceiling formula tied to the conforming limit, which means the maximum FHA loan in Clark County is a published figure that changes each year. And it inspects. The appraiser works to minimum property standards as well as to value, and calls out peeling paint, missing handrails, exposed wiring, a roof near the end of its life or cooling that does not work, all of which normally have to be fixed before closing.
The premium is the price of all that. There is an upfront premium at closing, almost always financed into the loan, and an annual premium collected monthly with the payment. How long the annual one lasts is what decides whether an FHA loan is cheap or expensive, and it turns on two things: the date the FHA case number was assigned, and the original loan-to-value. Under the rules in force for most current loans, a borrower who put down less than 10 percent pays it for the term of the loan, and one who put down more pays it for a fixed number of years. Reaching 20 percent equity does not end it, because the cancellation rights in the Homeowners Protection Act reach private mortgage insurance and not FHA's. The usual exit is a refinance into a conventional loan.
A worked example
A $350,000 valley purchase at an illustrative FHA minimum down payment of 3.5 percent: $12,250 down and a base loan of $337,750. An upfront premium at an illustrative 1.75 percent adds about $5,911, financed, making the loan roughly $343,661. An annual premium at an illustrative 0.55 percent of the balance is about $1,890 in the first year, near $158 a month on top of principal, interest, taxes and insurance. At that down payment it does not stop at 20 percent equity, so the first ten years of it come to roughly $17,000 as the balance falls.
How a Nevada mortgage actually gets done
Questions people ask
Does FHA insurance protect the borrower?
No. It protects the lender against loss if the loan defaults. The borrower pays the premium, both the upfront part and the monthly part, and receives none of the coverage. What the borrower gets is a loan a lender would not otherwise have written.
Can you buy a condo with an FHA loan?
Only in a project FHA has approved, or through single-unit approval where the project is not on the list and the unit meets the conditions. That matters here, because a large share of the valley's attached housing sits in associations. Check the project's status before writing an offer rather than after.