As a federally-insured loan, a Home Equity Conversion Mortgage comes along with certain requirements and stipulations set by the Department of Housing and Urban Development.
One of those requirements is subject to change and a recent move by HUD makes it easier for borrowers to obtain more proceeds from a federally-insured reverse mortgage right now.
The requirement is a federally-mandated lending limit, which for reverse mortgage loans means that borrowers are only allowed to borrow up to $625,500 through a reverse mortgage on their home. This wasn’t always the case, however, and the current limit has been set through a temporary extension announced in late 2012.
Who sets the lending limits?
Federal Housing Administration loan limits are set under government statute, with the HUD being the organization to implement change as deemed by Congress.
Currently, a higher reverse mortgage lending limit has been extended through 2013 at the $625,500 level. This amounts to 150% of the previous loan limit of $417,000.
Prior to a national loan limit, borrowers faced different limits depending on where the home is located within the United States. For areas where home values are traditionally higher, such as Hawaii, for example, the lending limit was higher and vice versa for areas where homes are lower in value on average.
The national limit means the loan ceiling will be the same for all borrowers regardless of location.
What does it mean for borrowers?
The lending limit is the amount up to which a borrower can borrow through a reverse mortgage. In other words, if your home is worth $750,000, you will still only be able to borrow up to $625,500 through an FHA reverse mortgage.
For borrowers whose homes are valued at less than the limit, it will have no bearing on the loan amount.
Loan limit extension
When the lending limit was raised temporarily from $417,000 to $625,500, it meant that for any homeowners whose homes were valued at more than $417,000, they would be able to borrow more through a reverse mortgage.
The extension has been granted several times, with the most recent extension having been announced in late 2012 to be in effect through 2013.
The loan limit is always subject to change, however, so borrowers with high home values may want to consider borrowing under today’s increased loan limits rather than waiting in the event that loan limits fall back to their previous level.
Geographic impact
Any changes to the loan limit are more likely to impact potential reverse mortgage borrowers in certain geographic areas where home values are high, such as coastal areas and major metropolitan areas like New York City, Washington, D.C. and San Francisco.
While home prices plummeted across the board as a result of the housing bubble and subsequent burst, some areas have fared better than others. The sustained home price recovery in these regions and across nearly 20 metro areas as recorded by S&P/Case-Shiller’s monthly home price index in December indicates the average home values may be closer to the lending limit in the months to come than previously.