After what has been rumored for some time due to the nationwide increase in home prices, the Federal Housing Administration (FHA) finally released a statement Thursday, December 1, confirming the rise in FHA loan limits. This includes adjustments for both forward and reverse mortgages.
The new limits affect 2,948 counties which would experience an increase in allowable FHA loan maximums, while 286 counties will sustain the same limits as in 2016. No counties will experience a decrease in said limits.
New HECM Loan Limits
Effective January 1st, eligible seniors will be able to get access to more of their home equity. Federally-insured HECM or Home Equity Conversion Mortgage allows homeowners of the qualifying age 62 and above to take out a portion of their home equity as cash.
Under the new rule, HECM borrowers can tap as much as $636,150 starting 2017. This is an increase from 2016’s limit, which is set at $625,500. This increase is 150 percent of the national conforming limit of $424,100.
The MCA or Maximum Claim Amount is the highest possible limit that the Federal Housing Administration can insure on a single HECM loan. It is necessary for you to have a good understanding of the MCA since it serves as the basis for determining how much reverse mortgage loan proceeds you can owe. This is also more commonly known as the principal limit.
To better understand MCA, let’s say your home has been valued at $850,000 after the appraisal. Now your MCA under the HECM program that the FHA can insure and lend will be at the new limit: $636,150. But if your home has been appraised at only $400,000, then the MCA will only be $400,000 and not the maximum limit.
Keeping up with rising prices
The change in FHA lending limits is a response to the continued rise in home prices that affects housing demand in the whole country.
This is the first time that the HECM loan limit has been adjusted since the ARRA or the American Recovery and Reinvestment Act, signed into law by Pres. Obama in 2009.
The FHA evaluates adjustments in loan limits every year to determine whether current limits are still commensurate with existent fluctuations in home prices that set affordability levels for American borrowers. That means the current FHA limit for reverse mortgages could change again in 2018.
If you think you or your loved one can benefit from a reverse mortgage, talk to us and we’ll make sure you are well-guided throughout the whole process.