Reverse Mortgage Maximum Loan Amounts
Like many other mortgage types, a home equity conversion mortgage (HECM) has a maximum amount that can be borrowed. HECMs, otherwise known as reverse mortgages, allow a borrower to receive money instead of having to pay monthly mortgage payments. The amount of money that can be received is based on the homeowner’s equity and the value of their home.
Currently, the maximum loan limit for reverse mortgage loans is $625,500. On December 6, 2012, the Department of Housing and Urban Development (HUD) announced that the current limit would be extended through December 31, 2013.
According to the HUD’s December 2012 announcement, the limitation will remain the same for special high-cost territories, as well.
“The national FHA maximum claim amount for HECM remain at the statutory limit of $625,500 (150 percent of the national conforming limit of $417,000) through December 31, 2013. In the special exception areas (AK/HI/GU/VI), the maximum claim amount on HECM mortgages are also $625,500.”
-Source: HUD Mortgagee Letter 12-26
So what does this mean for homeowners who are interested in taking out a HECM, otherwise known as a reverse mortgage? For owners who have home values at or below the conforming limit, the increase in unlikely to affect their level of benefit. Those borrowers who own homes valued above $417,000 however, can realize more of that additional value in a reverse mortgage. In other words, the increase has made it more beneficial to borrowers with higher value homes to take out a reverse mortgage loan.
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Are HECMs the same as Jumbo Reverse Mortgages?
Home equity conversion mortgages are backed by the FHA/HUD, and are not the same as a proprietary jumbo reverse mortgage – although they work in similar ways.
Jumbo reverse mortgages virtually disappeared from the market between 2008-2009, which meant that luxury homeowners with high value properties had to rely on the HUD HECM program if they wanted to convert their home’s equity into cash. This was largely due to the tight credit restrictions lenders implemented as a result of the mortgage and economic crises.
Why was the limit increased?
The current $625,500 increase was created as a temporary stimulus through the American Recovery and Reinvestment Act of 2009. Although implemented as temporary, the increase has been extended to December 31, 2013. Unless the increase continues to be extended, the limit could go back down to the conforming limit of $417,000 in 2014.
The benefit of the increase mainly affects borrowers with higher value properties; however, those with home values above $625,500 may find that the benefit isn’t worthwhile. If a homeowner has a $1 million dollar house, for instance, they would receive the same principal limit as an owner whose home is worth $625,500.
Reverse mortgages have certain eligibility requirements that must be met. The basic requirements are as follows:
- The borrower must be 62 or older.
- The home must be used as the borrower’s primary residence.
- The borrower must own his or her home outright, or owe very little on the mortgage. (Talk to a lending professional to find out how much equity you need to qualify).
Unlike other home loans, reverse mortgages generally do not have income or credit requirements; however, different lenders may have more specific criteria that must be met before an applicant can be approved.
For more information on reverse mortgage loan limits, eligibility requirements or reverse mortgage guidelines, contact one of the mortgage experts at Alpha Mortgage’s Reverse Division. You can also learn more about reverse mortgages by researching them on HUD’s site or exploring our FAQ section.