The U.S. Department of Housing and Urban Development (HUD) bases its reverse mortgage lending limits on the appraised value of the borrower's home up to a maximum of $625,000. This means that the amount of borrowable funds differs for each homeowner.
Home Equity Conversion Mortgage (HECM) Basics
HUD's reverse mortgage program, known as the "Home Equity Conversion Mortgage," allows seniors age 62 and older who own their principle residence outright or have a small mortgage balance and no delinquent debt to borrow against the equity in their homes. HUD defines a "home" as a single family residence, HUD-approved condominium, or manufactured home that meets HUD requirements. The program does not consider the owner's income-to-debt ratio and has no employment requirement. Borrowers receive funds as a lump sum, periodic payment, line of credit, or a combination of the three. Repayment obligations do not begin until the owner leaves the home for a year, sells it, or passes away.
The amount of money HUD lends homeowners depends on their age, the current interest rate, and the lesser of the home's appraised value or Federal Housing Authority's (FHA) mortgage limit of $625,000. Owners of homes valued higher than the maximum can only borrow the difference between their equity and $625,000.
The amount of money lent also depends on the premium option the owner selects. To protect itself against a decrease in the home's value, HUD requires borrowers to purchase mortgage insurance. The agency offers two options: standard and saver. The standard option charges two percent interest and the saver option charges .01 percent on the borrowed funds at the time of their receipt. However, borrowers selecting the saver option cannot borrow as much money. Both options require borrowers to pay 1.25 percent annual interest on borrowed funds.
HUD Mortgage Lending Limits
HUD endorses the reverse mortgage calculators provided by the American Association of Retired Persons (AARP) and the National Reverse Mortgage Lenders Association (NRMLA). These calculators provide an estimate of the amount a borrower may receive. The exact amount can only be determined by a HUD representative after a formal appraisal.
The NRMLA calculator requires the home's zip code, value, and the borrower's age. However, the two associations' calculated amounts differ because the NRMLA includes closing costs and other fees normally deducted from borrowed funds while the AARP does not. The sample lending limits calculated below are based on a home located in Cook County, Illinois (zip code: 60010), owned by a 65-year-old individual with values of $625,000, and $312,750, half the maximum.
AARP Calculated Lending Limits
According to the AARP calculator, the lending limit for a home valued at $625,000 under standard insurance is $286,355 in a lump sum or line of credit payment, or $1,887.00 monthly payment. The limit under the saver package is $233,750 as a lump sum or line of credit, or $1,540.00 per month. The lending limit for a home valued at $312,750 as $140,158 as a lump sum or line of credit or $923.00 per month under the standard insurance option and $113,856 as a lump sum or line of credit or $750.00 per month under the saver option.
NRMLA Calculated Lending Limits
The NRMLA's calculations for a home valued at $625,000 with standard insurance are $281,042 as a lump sum or line of credit or $1,852.00 per month. Under the saver package, this same owner receives $228,438 as a lump sum or line of credit or $1,505.00 per month. The limits for a home valued at $312,750 is $134,846 as a lump sum or line of credit payment or $888.00 per month under the standard insurance option and $108,543 as a lump sum or line of credit or $725.00 per month under the saver option.
Determining Your Reverse Mortgage Lending Limits
To determine how much money you can receive in a reverse mortgage, consider the value of your home and the remaining balance on your mortgage, if any. Next, use either the AARP or NRMLA calculators to obtain an estimate. To obtain a more specific lending limit, contact a HUD-approved lender; a list of lenders is available on the HUD's website.
