Expect 2020 FHA HECM Lending Limits to Fully Cover Homes up to $765,600.
The maximum home value on which FHA will calculate HECM or reverse mortgage qualification figures is called the “Maximum Claim Amount.” It is a calculation ceiling on home values that the U.S. Department of Housing and Urban Development releases each year. A senior can, of course, establish what is known as a home equity conversion mortgage (reverse mortgage) on a home that is worth more than this ceiling. The homeowner just won’t get extra qualification dollars for the equity above this amount.
The maximum claim amount used for Federal Housing Administration backing in 2019 has been $736,525. This is calculated at 150% fo the conforming loan limits for traditional loans purchased by Fannie Mae and Freddie Mac. In 2019, the conforming loan limit was $484,350 x 150% = $726,525 to come up with the FHA’s lending limit. Per mortgage letter 2018-12, “The Federal Housing Administration’s (FHA) HECM maximum claim amount limits for Traditional HECM, HECM for Purchase, and HECM-to-HECM refinances are governed by the maximum claim account limitation in sections 255(g) and 255(m) of the National Housing Act, which contains cross-references to section 305(a)(2) of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1454)(a)(2). FHA publishes updated limits effective for each calendar year.
So, Here’s the Big News
We expect FHA to announce a higher reverse mortgage home value limit of $765,600 effective January 1st, 2020. How do we come up with this assumption? Just today, November 26th, 2019, the Federal Housing Finance Agency (FHFA) announced a 5.38% increase to $510,400 for Fannie Mae and Freddie Mac loans. These conforming loan limits are calculated according to the terms of the Housing and Economic Privacy Act (HERA). Based on the previously mentioned rules for the National Housing Act in calculating the maximum claim amount limitation, $510,400 x 150% = $765,600. We believe one can expect a mortgage letter from HUD in the next 30 days to make this change official.
What Does FHA HECM Lending Limits Mean for Senior Homeowners?
As of today’s interest rate market, a 75-year old senior who applies for home equity conversion mortgage with Geneva Financial and owns an $800,000 home in CA would qualify for an estimated $413,500 in initial reverse mortgage proceeds, after set-up costs. This is called the Net Principal Limit. The formula for calculating this amount is based on the age of the homeowner, current interest rates and home value, up to the ceiling. Assuming interest rates stayed the same, that same 75-year old senior would now qualify for approximately $436,000 in net starting proceeds. That’s a nice little raise of $22,500 in eligibility!
Contact A Certified Reverse Mortgage Professional
Please contact Chris Handy, CRMP® at 888.589.1642 or email email@example.com to get your exact qualification figures or if you need further clarification on what a Home Equity Conversion Mortgage is.