Higher FHA Loan Limits Allow

April 01, 1999

Early this year, the caps on mortgages insured by the U.S. Department of Housing and Urban Development's (HUD) FHA program were raised. The FHA program may insure residential mortgages as large as $208,800 in high-cost areas and $115,200 in the least-expensive housing markets. The previous limits were $170,362 and $86,317, respectively.

With the increase in FHA caps, larger HUD-insured reverse mortgages are now available to senior citizens. Reverse mortgages make it possible for homeowners age 62 and older to borrow thousands of dollars against the value of their homes without selling the homes. The highest amount of a home's value that can be converted to cash with a HUD-insured reverse mortgage ranges from $115,200 to $208,800, depending on housing prices in the metropolitan area where a person lives. In addition, the reverse mortgage program was converted from temporary to permanent status, which also may encourage more lenders to issue HUD-insured reverse mortgages.

Homeowners can collect a lump-sum payment, monthly payments or tap into a line of credit to get cash when needed. No repayment is necessary as long as a homeowner lives in a home with a reverse mortgage. The reverse mortgage is repaid, with interest, when a homeowner sells the home or dies.

By law, HUD cannot consider any amount over a home's value—above the local FHA loan limit—when calculating the amount of cash that may be received from a reverse mortgage. All counties within a metropolitan area now have the same loan limit thanks to the new caps, so the vast majority of these counties have higher limits. The rest of the counties, located in rural areas, saw their FHA loan limits increase to $115,200. In the Eighth District, counties with higher maximum loan amounts are those in the following MSAs:

Columbia, MO $121,647
St. Louis, MO-IL $142,050
Louisville, KY-IN $152,000
Memphis, TN-AR-MS $151,905

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Bridges is a regular review of regional community and economic development issues. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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