Have you considered a reverse mortgage and wondered how much you could borrower? Are you concerned that your retirement funds are reduced during this bear market? Having funds available from a reverse mortgage when the market is low can benefit your retirement portfolios. We have borrowers who are thankful they have these funds so they don’t have to pull money from their portfolios while the market is down.
The following outlines how much you could borrow with a Home Equity Reverse Mortgage (HECM) reverse mortgage.
FHA calculates a Mortgage Lending Limit. This is the maximum amount a lender will look at in determining how much will be loaned to a borrower. Initially one cannot borrow 100% of the home value.
There are several factors used to determine the amount of money available to the borrower(s) initially. The amount available to be borrowed is the Principal Limit.
– The Principal Limit depends on:
- Type of reverse mortgage program chosen
- Age of the youngest borrower or in the case of an Eligible Non-Borrowing Spouse, the age of the younger spouse
- Current expected interest rate based on a 10-year SWAP, rates are currently low so more funds are available than when they are higher.
- Appraised value of the home or FHA’s Mortgage Lending Limit; whichever is less
- For the HECM For Purchase, the appraised value, FHA Mortgage Lending Limit or purchase price, whichever is lower
The amount available for a borrower to use is determined by:
– Principal Limit
- Less Service Set-aside (if applicable)
– Equals available Principal Limit
- Less closing costs
– Equals net available to borrower(s) before mandatory obligations. Mandatory obligations are items required to be paid off at closing or during the 1st year. For example, mortgages, liens, judgements, federal debt such as taxes or student loans. It can also include set-asides for repairs and taxes and insurances due in the 1st year.
- Less any mandatory obligations
- Less Life Expectancy Set-Aside (LESA) if required or chosen (A set-aside to pay property taxes and hazard insurance in the future)
– Equals net available to be used as borrower(s) desires
One can obtain a HECM reverse mortgage on higher valued homes. The amount borrowed is based on the FHA Mortgage Lending Limit, currently $765,600
While initially you cannot borrow 100% of the home value. Over time with the small monthly loans of interest and FHA Mortgage Insurance Premiums being added to the loan balance, your loan balance, or amount you borrowed, could be the home value or more than the value at time of origination. As a non-recourse loan, borrowers or their heirs do not owe more than the appraised home value at the time the loan is being repaid.
Would you like to explore a reverse mortgage for your situation? Contact us if you are in Minnesota. As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.
For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.
© 2020 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648
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