Monday, December 07, 2009

New FHA Guidelines for Las Vegas Home Buyers

Buyers of Las Vegas homes need to be aware of several proposed changes to FHA guidelines that may soon be implemented buy the Federal Department of Housing and Urban Development which will impact their purchasing power. It is estimated that more than 71% of FHA’s losses over the next five years will come from existing loans, prompting HUD to re-evaluate criteria for new loans in an effort to minimize further losses.

Proposed changes to the current guidelines could include:

* Reduce the maximum seller contribution towards buyer closing costs from 6% of the purchase price to 3%. The current level exposes the FHA to excess risk by creating incentives to inflate the appraised value to cover costs paid by the seller.

* Raise the minimum FICO score for new FHA borrowers.

* Increase the down payment that a borrower has to bring to the table for an FHA-backed loan to make sure that FHA buyers have more “skin in the game” and a stronger equity position in their loans. Currently FHA minimum down payment is only 3.5% of the purchase price.

* Increase the mortgage insurance premiums currently charged. This could be in the form of an up front payment or an increase to the annual premiums paid as part of the monthly mortgage payment.

* Require lenders to indemnify the FHA fund for their own failures to meet FHA requirements, and holding lenders accountable for any improper activities. This would ensure that lenders assume all responsibility for any losses associated with loans not underwritten to FHA standards.

Greater down payment requirements and higher FICO scores will certainly impact the Las Vegas real estate market, especially for first time homebuyers trying to take advantage of the extended first time homebuyer tax credit and all time low prices. Even under current guidelines they are already in competition with all cash investors for the limited supply of affordably priced Las Vegas foreclosures, and stricter lending requirements could nix the dream of American home ownership for many. Buyers that have even been thinking about purchasing a property with an FHA loan should be aware of these impending changes and act quickly before they are put in place.