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FHA Prepares to Lower Loan Limits

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The FHA is getting ready to lower its loan limits in 2014. The new limit in Clark County, Nevada will be $287,500. The FHA loan was originally created to help the underserved. Recently, FHA loans have attributed for more than 60% of loan originations.

One loan origination office in Las Vegas, FirstCal, reviewed the mortgages it processed this year to analyze what kind of impact the new limits will have. Here is what they discovered. Of the 711 loans that office closed this year, only 22 were FHA with a sales price over the new lower limit. That’s equates to 3%! Of those 22 loans, only 1 had a fico score under 620, which means potentially there was only one loan they would not have been able to close under the new limits. That’s because they can do Conventional loans with a fico score down to 620, which means that the remaining 21 loans would have potentially had financing options with the extra 1.5% down, equating to a 5% down payment.

There are other loan programs available with lenders that could help save a majority of the transactions that fall under these news guidelines. Here are a few of them.

· 5% down Conventional financing utilizing 100% gift funds

· 5% down Conventional financing utilizing a Non Occupying Co-Borrowers income Freddie Mac loan only

· Conventional financing down to a 620 Fico Score

· Delegated Underwriting for Mortgage Insurance (This avoids having the file Underwritten by the Mortgage Insurance company)

While the new guidelines will invariably prevent some potential homebuyers from being able to obtain financing, there are still many financing options available

The FHA says it will affect less than 1% of its loans nationwide. Some lenders think the change will have a much greater impact. The greatest impact may be on those who had a bankruptcy or foreclosures in the past due to the economic down turn who would have gone FHA due to the reduced seasoning requirement for major derogatory credit when compared to conventional.

The new loan limits go into effect January 1, 2014. Meanwhile, State Senator Joe Heck’s office says the Nevada Delegation is working on getting the limit raised back to $400,000.

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