Just as it did with forward mortgages, the Federal Housing Administration is increasing its maximum claim amount for reverse mortgages for 2020.
According to the FHA, the HECM limit will increase in 2020 to $765,600 from 2019’s level of $726,525.
This marks the fourth straight year that the FHA has increased the HECM limit. Just two years ago, the loan limit was $675,650, meaning the HECM limit has increased by almost $100,000 since 2018.
The HECM limit is based on 150% of the Federal Housing Finance Agency’s conforming loan limits for Fannie Mae and Freddie Mac, which were recently raised to more than $510,000.
But unlike Fannie and Freddie’s loan limits and FHA’s forward mortgage limit, there is no geographic variation for the HECM loan limit.
The reverse mortgage limit is $765,600 for all parts of the U.S., including the high-cost areas and the special areas of Alaska, Hawaii, Guam, and the U.S. Virgin Islands, where forward mortgage limits far exceed the rest of the country.
By definition, a reverse mortgage – also known as a Home Equity Conversion Mortgage, or HECM – is a financial product for homeowners 62 and older that allows borrowers to convert a portion of the home’s equity into cash without incurring monthly payments.
While the loans are made by private mortgage lenders, they are insured by the federal government, which guarantees that borrowers will never owe more than the house is worth.
And, for as long as the borrower lives, he or she can remain in the home so long as they make property tax and insurance payments, keep the home in good repair, and retain it as their primary residence.
The increase of nearly $40,000 over last year’s HECM limit means that borrowers will soon be able to extract more equity from their homes using a government-insured reverse mortgage.
It also might mean that more consumers could qualify for the loan.
Because the HECM requires borrowers to pay off an existing mortgage before obtaining the loan, some borrowers with high mortgage balances may not have been able to secure enough proceeds to qualify. Now, with a higher claim amount, there may just be enough money in the HECM loan to make it work.
According to the FHA, the new HECM limits are effective for case numbers assigned on or after Jan. 1, 2020, through Dec. 31, 2020.