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How to Get a Jumbo Reverse Mortgage
For almost all reverse mortgages, the loan amount cannot exceed the FHA reverse mortgage limit of $1,089,300. This is also known as the FHA HECM limit (Home Equity Conversion Mortgage).
If you own a more valuable home, the loan limit the amount of money you can take out of your property with a reverse mortgage. A very small number of lenders, however, offer jumbo reverse mortgages, or mortgages where the loan amount is greater than the FHA loan limit. It is important to highlight that jumbo reverse mortgages are relatively uncommon and are not available to borrowers in all states.
Jumbo reverse mortgages work the same way as a regular reverse mortgage -- the borrower is not required to make a monthly payment and instead the principal loan balance grows over time, depending on the interest rate. The mortgage balance is due in full when the borrower vacates the home either by selling the property, moving into an assisted care facility for more than a year or when the borrower passes away. You can also decide to pay off the loan balance at any time over the course of a reverse mortgage.
A jumbo reverse mortgages also offers the same benefits as a regular reverse mortgage including eliminating your monthly mortgage payment, the ability to access significant tax-free cash proceeds from your home and maintaining ownership of your property. Additionally, there are no limits on how borrowers spend the reverse mortgage proceeds after they have paid off any existing loans on the property.
Like regular reverse mortgages, jumbo reverse mortgages only apply to a borrower’s primary residence including single-family homes and eligible condominiums. Additionally, the borrower is required to complete a reverse mortgage counseling class.
Use the
FREEandCLEAR Lender Directory
to find lenders that offer jumbo reverse mortgages.
Although they generally operate the same way, there are also multiple differences between jumbo and regular reverse mortgages that borrowers should understand. We outline the key differences below.
Larger Loan Proceeds
Greater borrower proceeds is the most obvious benefit of a jumbo reverse mortgage. Some lenders offer jumbo reverse mortgages of up to $3,000,000, which is significantly higher than the standard FHA HECM loan limit.
Both Borrowers Must Be 62
Both jumbo reverse mortgage borrowers must be 62 years old and if two people own the home being financed, both individuals must apply for the loan. Non-borrower spouses are usually not permitted for jumbo reverse mortgages.
Lower Loan-to-Value Ratio Limit
Jumbo reverse mortgages typically permit a maximum loan-to-value (LTV) ratio of 50%, which a is lower LTV ratio limit than a regular reverse mortgage, depending on the type of transaction, borrower age and type of loan program. The LTV ratio represents the ratio of the loan amount to the appraised fair market value of the home. In short, you can access less of the equity in your home, on a percentage basis, with a jumbo reverse mortgage but your total loan proceeds are significantly higher.
For Refinancings Only
Jumbo reverse mortgages only apply to refinancing transactions when the borrower refinances any loans on the home they currently own and reside in. You cannot use a jumbo reverse mortgage to buy a home.
Fixed Rate Mortgage Only
Regular reverse mortgages allow borrowers to select an adjustable rate or fixed rate option; however, jumbo reverse mortgages only permit the fixed rate program. This means the borrower’s interest rate remains constant, and cannot increase, over the life of the loan. This rule is designed to limit financial risk for borrowers.
Lump Sum Disbursement Option Only
A regular reverse mortgage provides different disbursement options for how borrowers receive their proceeds including an upfront lump sum payment, monthly disbursements or by drawing down a line of credit. With a jumbo reverse mortgage, borrowers are only allowed to receive a one-time, lump sum disbursement when the loan closes.
Higher Interest Rate
The interest rate on a jumbo reverse mortgage is approximately 2.5% higher than the rate on a regular reverse mortgage. A higher interest rate means the borrower’s loan balance grows faster over the course of the mortgage.
Stricter Borrower Qualification Requirements
Reverse mortgage lenders perform a financial assessment to determine a borrower’s ability to qualify for the loan. Lenders review the borrower’s income, assets and credit score to make sure that the borrower can afford ongoing monthly housing expenses such as property taxes and homeowners insurance, which the borrower is still required to pay after the loan closes. The financial assessment for a jumbo reverse mortgage is usually stricter and requires the borrower to demonstrate a greater financial cushion, or a higher income as compared to ongoing housing expenses after taking into account the borrower’s other monthly debt.
Potentially Requires Two Property Appraisals
Lenders may require two property appraisals for homes valued at more than $1,000,000. The borrower is required to pay for the additional property appraisal if applicable which increases your costs.
Only Available in Selected States
Jumbo reverse mortgages are only available in a very small number of states including California.
Currently, jumbo reverse mortgages are only offered by a small number of lenders. Borrowers may need contact multiple lenders to find one that offers the program.
Related FREEandCLEAR Resources
- Reverse Mortgage Guide
- How a Reverse Mortgage Works
- Reverse Mortgage Pros and Cons
- Reverse Mortgage Terminology
Sources
"FHA Mortgage Limits: HECM." Federal Housing Administration. U.S. Department of Housing and Urban Development, 2020. Web.
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