Fannie Mae has raised its lending limits for 2020 and HUD has followed suit with the Home Equity Conversion Mortgage (AKA Reverse Mortgage or HECM). As of January 1st, 2020, the new Lending Limit is $765,600. This is great news for many potential borrowers who were unable to qualify when the Principal Limits were lowered in October of 2017.
It is important to understand that the Principal Limit is the maximum loan amount and the Lending Limit is one of 3 factors used to calculate the maximum loan amount, which are:
The age of the youngest borrower,
The interest rate offered by the lender, and
The lesser of the Lending Limit or the appraised value of your home.
Thus, the Lending Limit only applies if the appraised value of your home is greater than $765,600. Here’s an example of how that works:
Age: 72
Interest Rate: 3.5%
Factor Used: 0.555
If the appraised value of your home is $2,000,000 then the maximum loan amount would be calculated using the Lending Limit of $765,600 times the factor of 0.555 which would limit the maximum loan amount to $424,908.00.
Despite this ceiling on access to equity, falling interest rates have begun to compensate for the sharp cuts imposed in October of 2017. So, if you were previously denied a reverse mortgage because your existing mortgage balance was too high, and you own a higher-value home, you may now be able to qualify for a HECM without having to bring cash to the table.
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