Reverse Mortgages: How Much Money Do You Get (and When Do You Get It)?
How much money can you get from a reverse mortgage?
The amount of money you get from a reverse mortgage is dependent on the type of loan and the method you choose to receive your payments. There are three types of reverse mortgages: Single Purpose, Proprietary, and the government-backed Home Equity Conversion Mortgage (HECM).
Single Purpose reverse mortgages, as implied in the name, can be used for a single purpose. An example would be to make energy-efficient improvements on your home. Eligibility criteria and the amount that can be borrowed depend and vary by lender.
Proprietary reverse mortgages are private and the lenders also set their own rules which are more flexible than the other types of reverse mortgages. However, they tend to be more expensive. The maximum that can be borrowed varies by lender.
Home Equity Conversion Mortgages (HECM) are government-backed. The amount that can be borrowed is calculated by the ‘principal limit factor’ or PLF. The value of the home (not to exceed $625,000 and whichever is less) is multiplied by the principal limit factor. Let’s say your home is appraised at $400,000 and your PLF is .60, your maximum loan amount is $240,000.
The principal limit factor is calculated based on the age of the youngest borrower or co-borrower. PLF is a value typically expressed as a percentage, which includes the aforementioned age data multiplied by the maximum claim amount (MCA) or appraised value. This will determine the amount of proceeds a reverse mortgage borrower is eligible to receive. For a more in depth look, here’s a factor table provided by HUD. The PLF has a positive correlation with age, that is, it increases if the age of the borrower is higher. PLF decreases in conjunction with interest rates during the origination process.
When Do You Get the Funds from a Reverse Mortgage?
The application process for a reverse mortgage moves as fast as the borrower can present the correct documentation as needed and complete any tasks requested by the lender. Once the application is complete, processing for a reverse mortgage is typically 30-60 days. If the borrower has been approved, there is a three day period in which the borrower can select the method of payment or change their minds and cancel the new loan. After three days, the money should be available to be disbursed.