The U.S. Department of Housing and Urban Development (HUD) recently announced an increase to the Maximum Claim Amount (MCA) for reverse mortgages effective January 1, 2019.1 The MCA will increase by nearly $50,000 from $679,650 to $726,525. This means borrowers with high home values may be eligible to access more home equity than they have in the past, potentially making it a more attractive option than it was in previous years. Additionally, it may also help seniors who were previously unable to qualify for a reverse mortgage due to the MCA preventing them from accessing enough of their equity to pay off their current mortgage.2
What is the definition of the Max Claim Amount?
The MCA is the maximum dollar amount that can be insured by the Federal Housing Administration (FHA) for a reverse mortgage. The MCA is equal to the lesser of the current FHA lending limit, the appraised value of the property or the purchase price (if purchasing a new home). This means that if your home is worth more than the MCA, the MCA will be used as your home value in calculating the amount you may qualify for.
How can the Max Claim Amount affect a homeowner’s eligibility?3
A home worth $800,000 is subject to the current maximum claim amount of $679,650. If the homeowner is eligible to receive 50% of the MCA ($339,835), but has a mortgage of $350,000, the reverse mortgage would not be enough to pay off the existing lien. Unless the homeowner is able to pay the remaining lien balance plus closing costs and the upfront mortgage insurance premium fee (UFMIP) with their own funds at closing, they would be unable to qualify for the reverse mortgage.
With the 2019 MCA increase to $726,525, that same borrower who is eligible to receive 50% may now qualify for the reverse mortgage. They still might need to bring cash to closing, but since the reverse mortgage is now enough to cover the lien payoff the amount needed to cover the balance of closing costs and UFMIP would be less. Moreover, there is no monthly payment on a reverse mortgage and the loan does not need to be repaid as long as the obligations are met.4 This means the money that went to the prior lien’s monthly payment is now available to the homeowner, increasing cash flow month over month.
What if I already have a reverse mortgage?
Another added benefit of the higher MCA is for borrowers with home values over $679,650 who already have a reverse mortgage. They may be able to refinance and access more of their home equity than they can with their current loan.
If you have been looking for a way to access your home equity as an extra source of funds in retirement, this increase in MCA may benefit you. Call 1-800-976-6211 to speak with a licensed loan officer for more information.
1 Applies only to loans with case numbers assigned on or after January 1, 2019.
2 Your current mortgage(s) and any other existing liens against the property must be paid off at or before closing.
3 This is a general example of how the MCA could affect a hypothetical borrower.
4 You must live in the home as your primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.