The reverse mortgage lending limit for Home Equity Conversion Mortgages will surpass $1 million for the first time ever in 2023, under program adjustments set by the Department of Housing and Urban Development (HUD) that are updated annually. The lending limit for 2023 HECM loans insured by the Federal Housing Administration will be $1,089,300, an increase of more than $118,000 over the 2022 lending limit of $970,800.
The HUD lending limit changes year over year to reflect the current housing market and average home price changes that take place in the market. Due to home price increases nationally, the lending limit will expand in 2023 to offer more borrowing potential for reverse mortgage borrowers.
Typically, the HUD lending limit is in line with the conforming lending limits set by the Federal Housing Finance Agency (FHFA) for loans that are acquired by Fannie Mae and Freddie Mac. While FHFA?s lending limits for forward mortgages are set depending upon geographic location and vary depending on local market home price averages, in contrast, the HECM lending limit is the same across the nation and typically mirrors FHFA?s lending limit for higher-than-average markets. This means the loan limit for HECM reverse mortgages is the same no matter where the borrower lives in the U.S.
In recent years, home prices have risen consistently. According to the Federal Reserve Bank of St. Louis, median home price of home sold in the U.S. was $313,000 in 2019. In 2020, that figure rose to $329,000. In 2021, during the pandemic, that median reached $369,800. And by the first quarter of 2022, the median had increased to $433,100. Historic lending limits set by the FHFA and by HUD have followed along in this pattern.
Historical Lending Limits on Reverse Mortgages
Decades ago, the lending limit for reverse mortgages did vary by geography to reflect average regional home values. That changed in 2008, when the HECM lending limit was first set nationally at $417,000. The limit ticked up significantly the following year to $625,500 because of the Housing and Economic Recovery Act (HERA).
The limit remained unchanged at $625,500 for several years, before finally increasing to $636,150 in 2017. For each consecutive year that followed, the lending limit rose again ? to $726,525 in 2019; to $756,600 in 2020; to $822,375 in 2021 and finally to $970,800 in 2022. The increase to more than $1 million in 2023 is a historic occurrence that provides even more borrowing power for senior homeowners with high valued homes.
HECM Reverse Mortgage Limits History (2008-2023)
|Year||HECM Lending Limit|
What purpose do lending limits serve?
Lending limits are set by governing bodies and by private lenders to set a maximum amount that can be loaned on a single loan. This is primarily to protect the lender or the loan insurer from making loans that are above a predetermined amount.
In the case of HUD?s lending limits for reverse mortgages, the lending limit is essentially the cap on how much a borrower can borrow against his or her home. As always in the case of reverse mortgages, the loan amount depends on several factors:
- The home value
- The interest rate
- The age of the youngest borrower
The amount which borrowers can qualify to borrow using a reverse mortgage depends greatly on the age of the borrower and home value. The loan limit places an additional parameter on how much can be borrowed. If a borrower?s home is valued well above the lending limit, there will be equity ?left on the table? that essentially can?t be accessed through the HECM loan.
In those cases, there are many private reverse mortgages in the market with loan limits that surpass the HUD lending limit. These products can present additional borrowing power ? in some cases allowing loan limits surpassing $2 million or more. Their terms may vary from HECM loans, however, with different considerations for upfront and ongoing costs, interest rates and borrower requirements, and the percentage of home equity that can be borrowed.
Expanded borrowing potential in 2023
The new lending limit set by HUD will allow some borrowers additional borrowing potential for loans in 2023. For borrowers who may be exploring reverse mortgage options, the new loan limit may help borrowers access more of their home equity in the new year.
The increase in the HECM lending limit and its ability to offer more borrowing potential to HECM borrowers also may make some private reverse mortgages less competitive. It?s important to speak with an experienced loan originator about the different products available and which offers the greatest fit for each individual situation.
In some cases, HUD has changed the lending limit due to legislation, while in most cases, the lending limit is adjusted purely due to changes in average home prices. Because many markets saw unprecedented home price appreciation during the pandemic, the loan limit saw a significant increase ? 18% ? in 2022. However, the loan limit also can go down based on average home prices. If the loan limit falls, the borrowing potential for HECM loans decreases. While no one knows how home prices will change in the years ahead, there may be advantages to taking a reverse mortgage under the 2023 lending limit.