New Reverse Mortgage Program Guidelines Implemented by FHA

reverse mortgage provides older homeowners with a practical means of accessing the equity in their home to provide for a more economically stable future.

Also known as a home equity conversion mortgage (HECM), these loans are insured by the FHA. However, borrowers have defaulted on approximately 20 percent of the reverse mortgages issued between 2009 and 2016. Consequently, the FHA recently implemented changes to the program.

reverse mortgage

If you are a Utah homeowner age 62 or above and considering applying for an HECM loan, these changes may affect how much equity you can pull from your home and how much the loan may cost you up front.

How Did the FHA Modify the Reverse Mortgage Program?

As the name suggests, a reverse mortgage allows senior homeowners to pull a portion of the equity out of their home without having to sell the house or move.

Previously, an HECM loan allowed homeowners to pull as much as 64 percent of their equity out. With the newly implemented changes, however, the maximum is reduced to 58 percent.

Another important change is an increase in the mortgage insurance premium you must pay at the time of closing. Previously, the premium was one-half percent of the loan amount, but now it’s 2 percent. However, to help offset this increase, the annual mortgage insurance premium will decrease.

Finally, the approval process now requires a financial assessment of applicants to ensure they have the resources to pay their property taxes and homeowner insurance premiums.

The FHA hopes these changes will help reduce the number of defaults in the future.

How Much Equity Do You Need for a Reverse Mortgage?

An HECM loan will allow you to pull out as much as (approximately) 58 percent of your home’s equity, based on a current appraisal. However, the total mortgage amount is limited based on the FHA loan restrictions.

You must either own your house outright or have paid down your existing loan far enough that you have a significant percentage of equity in the home.

How Much Money Can You Take from a Reverse Mortgage?

In most Utah counties, the FHA maximum allowable loan amount is $424,100. In Tooele and Salt Lake Counties, that limit is $600,300, and in Summit County, the limit is $636,150. So even if your house appraises for more, you will be limited to these dollar amounts.

For example, if your home is in Utah county and it appraises for $1 million, 58 percent of that would be $580,000. But, since the FHA limit for Utah County is $424,100, that is the maximum you can pull out of your home. This example assumes that you do not owe any money on your home. If you do, the loan must be paid out of your proceeds at closing.

In Orem and throughout northern Utah, Intercap Lending helps older homeowners secure their financial future with HECM loans, home equity lines of credit (HELOCs) and cash-out refinance loans. Contact one of our mortgage lending professionals today to determine if a reverse mortgage is right for you.