What Is A Jumbo Reverse Mortgage?
Jumbo Reverse Mortgages are loans designed for seniors with high-value homes to access a greater amount of their home equity than is typically available from government-insured HECM Reverse Mortgages.
The regular government-insured HECM program has a "maximum claim limit," which is currently $625,500. This is the maximum home value that the program will recognize. For example, if your home's value is $1,000,000 and you owe $625,500, you cannot qualify for the regular HECM program because HUD will only see a maximum of $625,500 for your home's value. Although you actually have 37.5% equity in your home, for the purposes of the regular HECM program you have no equity at all.
This means there are many seniors with higher end homes with plenty of equity but sizable mortgages who are excluded from the standard HECM program. However, the marketplace has had difficulty keeping a jumbo reverse mortgage available as an option. Because it doesn't have government insurance backing it, it hasn't been easy for lenders to put together packages that appeal to investors in the secondary market.
There is currently only one Jumbo Reverse program available, with the following guidelines:
- For home values from $500,000 to $6,000,000
- As with regular HECM program, no monthly mortgage payments are required, most closing costs can be paid with loan proceeds, you need to be at least 62 years old, and it can be used for either refinance or purchase.
- You must have a much greater equity position than with a regular HECM program. Depending on your age, you need to have about 70% equity to qualify.
- You need to have a minimum 700 middle credit score, with no bankruptcy in the last 5 years.
- Closing costs will be less than the standard HECM program because there's no up front mortgage insurance.
- There is only one way to receive funds, and that's with a fixed rate lump sum, the rate currently being around 8.875%.
- It is not available for condominiums, 2-4 unit residences, manufactured homes, or non-owner-occupied homes, and is not available in every state.
- Like the standard HECM, this is a "non-recourse" product, meaning creditors cannot hold the borrower or borrower's estate liable for any default, or difference between the value of the property and loan balance, if they are upside down at the end of the loan term. Because there is no government-backed insurance, however, the borrower or the estate may face a significant tax liability if the future home value is not sufficient to cover the accrued loan balance.