In general, the greater your home’s appraised value, the more money you can get with a HECM reverse mortgage. But the loan amount is subject to limits that vary by county, as defined in Section 203b of the National Housing Act. In 2006, these “203b” limits ranged from $200,160 in most non-metro areas to $362,790 in higher cost urban areas. These limits are subject to change every January, and may also change at other times.

On January 3, 2007 HUD/FHA released Mortgagee Letter 2007-01 outlining 2007 Maximum Mortgage Limits. The letter notes that there is no change in the 203b limits for 2007:

“Neither the ceiling nor the floor for 2007 were changed from 2006.

Thus, in areas where 95 percent of the median house price is less than 48 percent of the Freddie Mac limit, the FHA limits are set at the 48 percent amount, i.e., the “floor, as follows:

One-Unit $200,160
Two-Unit $256,248
Three-Unit $309,744
Four-Unit $384,936

Any area where the limits exceed the floor is known as a “high cost” area. In areas where 95 percent of the median house price exceeds the 87 percent figure, the mortgage limits are set at the 87 percent amount, i.e., the “ceiling,” as follows:

One-Unit $362,790
Two-Unit $464,449
Three-Unit $561,411
Four-Unit $697,696

For all other areas, i.e., those where 95 percent of the median home price for the area is in between the floor and the ceiling, the limit shall be at 95 percent of the median housing price for the county.” (emphasis added)

A complete schedule of FHA mortgage limits for all areas is available at HUD’s website. If your home is worth more than the limit for your county, you are still eligible for a HECM loan. But the amount of money you can get is based on your county limit, not on your home’s actual value.

Efforts are underway to establish a single national HECM loan limit. In addition to simplifying matters, this change would benefit seniors with higher-value homes who currently are severely restricted in the amount of equity they can access. An FHA official cited this example at a May, 2006 Senate committee hearing:

Currently, the HECM program is tied to the FHA 203(b) loan limits, which have the effect of limiting the home equity seniors can tap. For example, for an elderly couple living in a $500,000 home located in the Philadelphia suburbs, the calculation of the principal limit for a HECM loan is based on the current FHA loan limit of $237,500. A HECM borrower will not be able to access more than a portion of this amount, regardless of the value of the home.

To date, this goal has not been achieved. However, there is optimism that the new Congress will view the proposal kindly so further changes may yet occur in 2007.

A Few More Related Articles of Interest:

PLP - Principal Limit Factor

203b Loan Limits Remain Largely Unchanged

HECM 203b Single-Family Limits

NEW Reverse Mortgage Limits announced by FHA

Origination Fee