If Your Home is Above The FHA Reverse Mortgage Limits, a Jumbo Reverse Mortgage May Help
Right now, the home value limit for reverse mortgages insured by the FHA, also known as Home Equity Conversion Mortgages (HECMs), is $679,650. So, if you have a home that’s worth significantly more than that, and you want to tap into your equity, an HECM may not really serve your purposes. Fortunately, there are proprietary reverse mortgage products, known as jumbo reverse mortgages, that can definitely satisfy your needs. In most cases, jumbo reverse mortgages are reserved for those who own homes valued at more than $1 million, but recent changes have made these products available to homeowners with homes valued at as little as $850,000.
The Similarities Between Traditional and Jumbo Reverse Mortgages
While they’re different in some ways, traditional reverse mortgages and jumbo reverse mortgages do have a few similarities. First, both loans have very similar eligibility requirements: borrowers must be at least 62 years old, continue to live in their home, and must either have their home completely paid off, or have a significant amount of home equity (usually at least 80%). Plus, if the borrower leaves their home for an extended period, typically 12 months, they would be obligated to pay back their reverse mortgage loan, regardless of whether it’s a traditional HECM or a jumbo loan. Much like HECMs, most jumbo reverse mortgages are non-recourse. However, this is not guaranteed, so it’s important for a potential borrower to check on this before signing on the dotted line.
The Differences Between Traditional and Jumbo Reverse Mortgages
The main difference between traditional (HECM) and jumbo reverse mortgages is the fact that jumbo reverse mortgages typically do not require any form of mortgage insurance to be paid on a monthly basis. While many lenders offer FHA-insured reverse mortgage loans, only two lenders currently offer reverse mortgages: American Advisors Group and Finance of America Reverse. Before the 2008-2009 financial crisis, a larger group of lenders offered these products, but after the crash, they were seen as too risky for most lenders to continue to offer.
In addition, right now, all jumbo reverse mortgage products on the market are fixed-rate, which is different than HECMs, since these are offered as both fixed-rate and variable-rate products. Unlike HECMs, jumbo reverse mortgage borrowers must also take all of their funds right away, instead of having the option of getting a monthly payment or a line of credit, both of which are available to most HECM borrowers. Finally, you should know that jumbo reverse mortgages have significantly higher interest rates than HECMs, averaging about 2% higher.
Loan Limits for Reverse Mortgages
As we stated earlier, the lending limit for HECMs is currently $679,650, which doesn’t really help potential borrowers who own homes valued at $1 million or more. Right now, homes valued at up to $6 million may be eligible for reverse mortgages, with reverse mortgage proceeds topping out at $3 million in most cases. However, these numbers can vary by lender, as well as due to a borrower’s individual circumstances, so it’s always a good idea to check with a lender to get the real scoop.