No Changes to Reverse Mortage Loan Limits

In a letter dated December 2 2011 the United States Department of Housing and Urban Development (HUD) announced that 2012 will see no change in the loan limits for Home Equity Conversion Mortgages (HECM). The loan limits remain at their previous cap of $625,500. This includes the “exemption areas” of Alaska, Hawaii, Guam and the Virgin Islands.

This is good news for new applicants for the HECM loan, also called a Reverse Mortgage. The Federal Housing Administration (FHA) and HUD have essentially agreed that seniors who apply for a HECM loan will have access to the same loan funds as were available through 2011. While some federal loan limits have been changed, the HECM loan remains stable.

There are various Reverse Mortgage options but the HECM loan is the oldest and most popular reverse mortgage on the market today. Seniors above the age of 62 are eligible for a reverse mortgage which is calculated based on the age of the applicant (or applicants, if a couple applies together), the current interest rates and the home’s appraised value. Older seniors with more valuable homes are eligible for the most funds but circumstances vary, making the reverse mortgage option an attractive one for many senior citizens.

The maximum loan limit available through the HECM loan remains at $625,500. If an applicant’s home is worth less than $625,500, the loan amount will be based on the appraised home value. If the applicant’s home is worth $625,500 or more, the loan amount will be based on an appraisal ceiling of $625,500.

The FHA has also placed limits on the upfront fees that HECM loan recipients must pay. An origination fee will equal two percent of the initial $200,000 (the sum that is lower — county lending limit or the home value) and one percent on the subsequent balance. The amount is capped at $6,000.

In addition, loan recipients are required to pay a mortgage insurance premium (MIP) that equals two percent of the maximum claim amount. The Reverse Mortgage recipients must then pay an annual premium equal to a 0.5 percent of the loan’s balance. Loan recipients pay the MIP directly to FHA in exchange for the FHA’s guarantee of the loan.

This FHA guarantee assures loan recipients that they will never owe more than the value of the house when the time comes to repay the HECM loan. In addition, the MIP guarantees HECM loan recipients that if their loan servicer (the company managing the HECM loan) goes out of business, the government will enable the recipient’s continued access to their loan funds.

Loan recipients should also take into account other payments that the loan obligates them to pay. These payments include attorney fees, title fees, property taxes and home maintenance costs. These payments are part of the mandated responsibilities of the homeowner under the HECM guidelines.