If you’re a senior homeowner, you may be wondering if a jumbo reverse mortgage is right for you. In this guide, I’ll explain what a jumbo reverse mortgage is, how it works, and who is eligible. We’ll also help you decide if a jumbo reverse mortgage is the right choice for you and your retirement plan. So whether you’re just starting to think about a reverse mortgage or are ready to apply, keep reading to learn everything you need to know about jumbo Reverse Mortgages.
A jumbo reverse mortgage is a type of loan that lets senior homeowners borrow money from the equity in their homes to fund their retirement. The details of the loan depend on the lender and other factors, but lenders typically offer loans up to $6 million.
Key Takeaways
- A jumbo reverse mortgage is a type of loan that enables senior homeowners to use their home’s equity to fund their retirement.
- Jumbos are designed for seniors who own a home worth $1,000,000 or over or a non-FHA-approved condominium worth more than $500,000.
- Since Jumbo reverse mortgage lenders are not FHA guaranteed, lenders don’t necessarily follow FHA guidelines about loan size.
A Jumbo Reverse Mortgage is perfect for
If you own a high-value home and you are planning to get a reverse mortgage, the traditional HUD Home Equity Conversion Mortgage (HECM) may not give you the most value.
This is where Jumbo Reverse Mortgages come into the picture.
opens in a new windowFHA-backed reverse mortgages are not available to homeowners who own houses worth multi-million dollars. Also, with traditional reverse mortgages, the maximum amount you can borrow is limited to $822,375 in 2021. But if your home equity is more than $822,375, you may look into Jumbo Reverse Mortgages.
Jumbos are designed for seniors who own a home worth $1,000,000 or over or a non-FHA-approved condominium worth more than $500,000.
Jumbo reverse mortgages share many similarities to traditional reverse mortgages, with some significant distinctions.
Thus, before you decide on a Jumbo Reverse Mortgage, it is important to educate yourself on the pros and cons of Jumbo programs, and what makes them different from the traditional HECM (Home Equity Conversion Mortgage).
What Is a Jumbo Reverse Mortgage Loan?
With opens in a new windowjumbo reverse mortgages, seniors can borrow a large portion of their home equity to fund their retirement. The exact limits depend on each lender. In the past, some lenders set a loan limit of $6 million, however since Jumbo Reverse Mortgage is not an FHA guarantee lender, they can offer different loan limits.
Other factors that play into the loan limits include the borrower’s age, the value of the house, and how much the borrower owes on the property.
Since opens in a new windowJumbo reverse mortgage lenders are not FHA guaranteed, lenders don’t necessarily follow FHA guidelines about loan size. Instead, they mimic FHA protections and provide their version of the guidelines. This is why jumbo reverse mortgages are also known as proprietary reverse mortgages.
The FHA-guaranteed reverse mortgage involves a large upfront mortgage insurance premium (MIP) of 2% of the loan value. Borrowers also pay an annual MIP charge of 0.05% of the loan balance.
But a jumbo reverse mortgage doesn’t carry these insurance charges, though lenders of jumbos may charge underwriting fees between 1% and 2% of the house’s appraised value. As the fee adds up, the upfront costs of jumbo and traditional reverse mortgages end up being similar.
The Pros of Jumbo Reverse Mortgage
Larger Loan Limits
Many borrowers use jumbo reverse mortgage proceeds to eliminate monthly mortgage payments while allowing seniors to live in a high-cost of areas. While with a traditional reverse mortgage, borrowers can refinance small mortgage balances, jumbo products allow borrowers to refinance much larger mortgage balances.
No Insurance Premiums
Since payments are not FHA-guaranteed products, borrowers don’t need to pay upfront or ongoing mortgage insurance premiums.
Non-Recourse Loan
Most jumbo reverse mortgages are non-recourse loans. If your loan balance adds up to be higher than your home’s value, you don’t pay the difference. The mortgage lender absorbs the loss on their own.
Moreover, the eligible non-borrowing spouse can reside at the property as long as they are physically able. As long as you continue paying property taxes, insurance premiums, and maintenance expenses, you can stay in your home.
However, this protection is not guaranteed. You must ask your lender if their product is a non-resource loan. Also, read the protection policies in the contract carefully.
Fixed-Rate Loans
Currently, jumbo reverse mortgages are fixed loans, which means your loan size will increase at a predictable rate. So, borrowers don’t have to worry about increasing interest rates. In addition, borrowers have the option to pay off their loans early if they wish.
The Cons of Jumbo Reverse Mortgage
No FHA Insurance
Probably the biggest con of a jumbo reverse mortgage is the lack of a federal guarantee. FHA-insured reverse mortgages come with guaranteed loan proceeds and protect defaulters. This is one of the best opens in a new windowpros of FHA reverse mortgages.
On the other hand, lenders of jumbo reverse mortgage lenders provide their own version of insurance and protection policy.
Loan Balance Adds Up Over Time
Like with a traditional reverse mortgage loan, a mortgage balance with a jumbo reverse mortgage also increases over time. So, it’s possible to owe more than your home’s value. If you want to leave the house to your heir, be careful with this type of loan.
Must Pay Taxes, Insurance, and Home Maintenance Costs
Though a reverse mortgage for seniors eliminates the monthly payments, it does not eliminate taxes, insurance, or maintenance costs. Failing to make these payments could be forced out of your home.
No Flexible Payment Options
With FHA-guaranteed reverse mortgages, borrowers can obtain the payment every month or choose a line of credit. These options are not available with jumbo reverse mortgages. Borrowers have to take the entire loan proceeds right away. You have to use those proceeds throughout your retirement carefully.
Higher Interest Rates
The interest rate on the jumbo reverse loan is approximately 2% higher than traditional reverse mortgages. The higher interest rate means your home equity will disappear faster. However, one thing to keep in mind is that Jumbo Reverse Mortgage doesn’t require you to pay mortgage insurance premiums. This helps offset the total cost of the loan.
Jumbo Reverse Mortgage Limits
opens in a new windowThe limit of a jumbo-reversing mortgage depends on the lender. Originally used to provide senior homeowners with an economical solution to fund the cost of living before their retirement. One in three Americans does not have more of their retirement savings in place. Many humans own and store wealth in their homes. Reversed mortgages can be employed to gain access to this wealth without needing to sell the property. As it will be available to any homeowner who experiences difficulty getting alternate financing this can qualify. Let us give you a glimpse of how much we might be able to borrow for a jumbo mortgage calculator.
Requirements for Jumbo Reverse Mortgage
To qualify for a jumbo loan you must meet these requirements.
- You must be 62 or older, your eligible non-borrowing spouse can be under the age of 62.
- You should have a least 50% of the equity in your home.
- The owner of the home must occupy the property as their primary residence to be eligible for a reverse mortgage. Vacation homes and rentals are ineligible for funding through a reverse mortgage.
Additional Jumbo Reverse Mortgage FAQs
Are there restrictions on how to spend your jumbo reverse mortgage?
Once a jumbo reverse mortgage has been funded, you have the option to use some of this cash flow for whatever retirement needs. These include paying for medical expenses, going on vacations, supplementing your cash flow, or making home improvements.
What is the difference between a jumbo reverse mortgage and a traditional reverse mortgage?
Jumbo reverse mortgages are different from other types of HECMs because they are not insured by the Federal Housing Administration (FHA) and are managed by the Department of Housing and Urban Development (HUD).
The maximum loan amount for HECM loans is $822,375 as of Jan. 1, 2021. Jumbo reverse mortgage loans may be taken out at a higher limit than the HECM limit allows and could offer more advantages to borrowers.
Conclusion
If you’re a senior homeowner who wants to access the equity in your home without having to sell it, then a jumbo reverse mortgage may be right for you. These loans have higher interest rates than traditional mortgages but don’t require monthly payments. To qualify for a proprietary reverse mortgage, you must be at least 62 years old and either owns your home outright or have 50% equity in it.
Make sure to do your research so you understand all of the terms and conditions involved before taking out a loan. And if you have any questions, feel free to give me a call or schedule a free consultation, I’ll be glad to help you out!
