REVERSE MORTGAGE/HECM
Principal Loan Limits

A Reverse Mortgage/HECM loan is a unique type of reverse mortgage designed for homeowners aged 62 and older. It allows borrowers to use the proceeds of the loan to buy a new home and simultaneously take out a reverse mortgage on that property, eliminating the need for monthly mortgage payments. However, there are strict guidelines, especially concerning principal loan limits, which determine how much a borrower can receive.

Principal Loan Limits Overview
The principal loan limit for a Reverse Mortgage/HECM loan is influenced by several factors, which include:

Age of the Youngest Borrower
The older the youngest borrower (or non-borrowing spouse), the higher the loan amount available. This is because older borrowers have a shorter life expectancy, which reduces the risk to the lender.

Current Interest Rates
Lower interest rates typically allow borrowers to access more funds, while higher interest rates reduce the available loan limit. Since the loan balance grows over time, lower rates lessen the growth, which results in the borrower receiving a higher upfront loan amount.

Home Value
The amount a borrower can receive is partially dependent on the appraised value of the home being financed. However, the home value considered in the calculation is capped by the Federal Housing Administration (FHA) lending limit. As of 2025, the FHA lending limit for HECM loans is $1,209,750. Therefore, even if a home is valued above this limit, the loan amount will be based on this cap.

Initial Mortgage Insurance Premium (MIP)
For a Reverse Mortgage/HECM loan, the borrower is required to pay a mortgage insurance premium (MIP) that is typically 2% of the home’s appraised value or the FHA lending limit, whichever is lower. This MIP is factored into the overall loan, which can affect the net loan proceeds available to the borrower.

 Calculation
The total principal loan limit, also called the Principal Limit Factor (PLF), is calculated by multiplying the home’s appraised value (up to the FHA limit) by a percentage derived from the borrower’s age and current interest rates. The PLF increases as the borrower’s age increases and as interest rates decrease.

Here’s a general breakdown:

Younger Borrowers (62-70 years old)
Receive a smaller percentage of their home’s value or the lending limit. For instance, a 62-year-old might receive around 40%-50% of the eligible home value.

Older Borrowers (75+ years old)
Can receive a larger percentage, often ranging from 55%-70% of the home’s appraised value or the FHA lending limit.

Down Payment Requirements
For HECM for Purchase, borrowers must still make a down payment, which can range between 30% to 60% of the home’s purchase price. The required down payment increases as the borrower’s age decreases. This ensures the borrower has sufficient equity in the home from the beginning.

The down payment must come from acceptable sources, including personal savings, cash from the sale of other assets, or a gift from a family member, but it cannot come from another loan or credit card. The loan itself covers the remaining balance of the purchase price.

Example of Principal Loan Limits for a Reverse Mortgage/HECM Loan 
Imagine a 70-year-old borrower purchasing a home valued at $400,000. The current lending environment offers a PLF of approximately 50%. This means the borrower may qualify for a HECM loan for around $200,000, while the remaining amount (purchase price minus loan) would be covered by their down payment. In this scenario, the borrower would need to provide $200,000 upfront from personal savings or the sale of another property.

If the home were valued higher than the FHA lending limit (for example, $1.5 million), the loan would be calculated based on the 2025 cap of $1,209,750.

The principal loan limit for a Reverse Mortgage/HECM loan is a pivotal factor in determining how much a borrower can borrow to buy a new home while leveraging a reverse mortgage. The limit is driven by age, home value (subject to the FHA lending cap), current interest rates, and the initial mortgage insurance premium. While a Reverse Mortgage/HECM provides a way for seniors to age in place without monthly mortgage payments, understanding the loan limits ensures that borrowers are aware of their financial commitments and eligibility.