Senior borrowers see higher 2018 HECM loan limits as announced by the FHA this December.
Homeowners aged 62 and above can borrow up to $679,650 next year as the Federal Housing Administration (FHA), which insures reverse mortgages called Home Equity Conversion Mortgages (HECMs), increased their loan limits, according to a December 7, 2017 press statement.
The FHA announced the increase in 2018 HECM loan limits, together with its new mortgage limits on insured forward or traditional housing loans for 2018.
2018 HECM Loan Limits
Effective Jan. 1, 2018, the nationwide loan limits for HECMs or reverse mortgages for seniors will have increased from $636,150 to $679,650.
These 2018 HECM loan limits are applicable to the following FHA-backed reverse mortgage transactions:
- Traditional HECM (read as heck-um) refers to the most basic option of borrowing against equity and receiving proceeds. This serves as the maximum claim amount.
- HECM for purchase is when a borrower buys a home using proceeds from his/her reverse mortgage.
- HECM-to-HECM refinance is for an existing borrower to tap any increase in his/her home value.
Borrowers of FHA-insured HECMs will be able to tap the updated maximum claim amount of $679,650 throughout the calendar year 2018 (Jan. 1 to Dec. 31).
The 2018 maximum claim amount is 150% of $453,100 ‒ the national conforming limit of loans eligible for Freddie Mac/Fannie Mae purchase for 208, as adjusted by the Federal Housing Finance Agency (FHFA).
All throughout the U.S., regardless of location including those traditionally deemed as special exceptions like Alaska, Hawaii, Guam, and the Virgin Islands, will have the same 2018 HECM loan limits.
Maximum Claim Amount for HECMs
In reverse mortgages, the borrower gets the maximum claim amount through a line of credit, lump sum, periodic/term payments, or a combination of two options.
This maximum claim amount is a combination of many factors, beginning with the age of the youngest borrower or that of an eligible non-borrowing spouse. If one or more borrowers are on the mortgage and no eligible non-borrowing spouse exists, the youngest borrower’s age will be taken into account to calculate the maximum claim amount.
Moreover, the current interest rate of the HECM affects how much the borrower can get. This interest rate is calculated on a monthly basis just like any loan but it is paid until such time as the reverse mortgage becomes due and payable.
Lastly, the maximum amount that can be borrowed by the senior homeowner is whichever is lower of three factors:
- the appraised value of the home, or
- the sales price of the home, or
- the prevailing HECM loan limit.
The FHA has rolled out changes to how HECMs work to make it financially viable and enduring for the next generation of senior borrowers.
As of fiscal year 2017, 55,291 new HECM endorsements were made, a 13.1% increase from the preceding fiscal year.
For more information on the 2018 HECM loan limits, please refer to this mortgagee letter 2017-17.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.