Reverse Florida Home Mortgage Loan Limit Set

A reverse Florida home mortgage is a great resource. One of the chief knocks against such a loan, however, is that the most popular program does not go far enough in extending seniors the funds they need.

The Home Equity Conversion Mortgage (HECM) is insured by the Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development, and makes up more than 80 percent of all the reverse mortgages written in the country. The maximum loan limit is pinned to the homeowner’s age, home value and home location. The location dictates the maximum claim amount, which varies by county. These amounts can range from $200,160 in rural areas to $335,800 in urban areas.

Last month, the U.S. House of Representatives took a giant step towards eliminating the geographical barrier by passing the Expanding American Homeownership Act of 2006 (H.R. 5121), which would create a single national loan limit for the HECM program, equal to the conforming Freddie Mac loan limit of $417,000 for 2006.

Inside the reverse Florida mortgage loan world

A reverse Florida mortgage loan does not have to be repaid until the borrower moves out of the home permanently - and the repayment amount cannot exceed the value of the home. After the loan is repaid, any remaining equity is distributed to the borrower or the borrower’s estate. A senior’s home does not have to be owned free and clear to qualify for a reverse mortgage. As a result, reverse mortgages are often used to retire existing debt on a home.

There used to be a problem, however: early reverse-mortgage programs got a poor reputation because some were flawed and contained huge appreciation shares for the lender, coupled with big-time upfront fees. Now, with the federal government insuring a majority of the reverse mortgages with no lender equity shares, the concept has become more acceptable and recognized by consumers.

Raising the local loan ceilings for senior borrowers is a great idea; especially in the case of Florida home loans of this nature because the Sunshine State is home to many retirees. Two privately funded national studies showed participants were frustrated with the inability to fully tap their large and growing equity. Respondents noted their increasing property values and living expenses, as well as their difficulty in making ends meet with the current HECM loan limits.

The Expanding American Homeownership Act, which passed 415-7, would make other substantial improvements to the FHA/HECM program. The new legislation calls for a “home purchase” option that would allow people to use a reverse mortgage to purchase newer housing that better suits their needs; along with removing the volume cap on the number of HECM loans that FHA can insure.

Rep. Jay Inslee, D-Wash., who co-sponsored the elimination of the loan cap, said a single national limit would put more cash in the hands of more seniors who need it.

“We’ve found that our country’s seniors really need help with health care and assisted living,” Inslee said. “They are equity-rich but cash-poor in a lot of circumstances. By freeing up more potential cash from their home, many more of our seniors can live more comfortably.”

Another part of the bill would require HUD to study the Florida home mortgage insurance premiums charged on a HECM loan. This bill gives the FHA the authority to charge fees based on the borrower’s risk of default. Currently, the FHA charges all borrowers the same 1.5 percent upfront fee and 0.5 percent annual fee for mortgage insurance, regardless of the borrower’s risk of default.

The aim is to help the older generation. As more Baby Boomers retire and look into Florida mortgage loans, this is even more pressing of an issue.