What Is the Maximum Reverse Mortgage Size?
Knowing how much you can expect for your home through a reverse mortgage is important, as it will have a significant impact on your financial situation moving forward. At the time of this writing, the maximum home value that you can borrow against through an HECM reverse mortgage is $679,650. This amount was updated at the beginning of 2018 and will be updated periodically to keep up with inflation and rising home prices.
You’ll notice that this number was not listed as the maximum amount loanable – it is the maximum home value that an HECM reverse mortgage can be used with. If your home is worth more than that amount, the FHA is not willing to guarantee the loan. Instead, you will need to work with a private lender who offers proprietary reverse mortgages (aka jumbo reverse mortgages).
So, how much might you be able to borrow against the value of your home? It really depends on a number of factors and is borrower-specific. The factors that the FHA will take into account include the following:
The current national interest rate
The age of the youngest borrower (or the age of the non-borrowing spouse if one is under 62)
The lesser of your home’s appraised value, the current reverse mortgage maximum value, or the home’s sale price (note that sale price is only applicable if you are applying for an HECM for purchase loan).
Note that the FHA will always use the age of the youngest borrower if there are multiple borrowers and no non-borrowing spouse. It is also important to realize that if you have other significant financial obligations – car loans, etc. – they may lower your total loan amount.
So, how much can you expect to borrow? There is no way to predict that without speaking with a lender, but the average is around 60% of your home’s value. So, if your home is worth $200,000, you may be able to borrow up to $120,000. However, remember that your funds must first go toward paying off any existing mortgage balance, so the actual amount you receive may be less if you haven’t yet paid off the mortgage.
It is also important to remember that these loans are calculated a bit differently from a conventional home loan. The FHA and your lender will first determine what is called your principal limit, which is the maximum amount that you can be loaned, but it may not be made available to you all at the same time. Your choice of disbursement method will play a role here.
You will also find that in most cases, you are limited to receiving a maximum of 60% of your principal limit during the first year of the mortgage unless you need more to pay off an existing home loan. In this case, you can borrow enough to pay off the loan, plus 10% of the principal limit.