Many homeowners choose to leverage their equity by seeking a government-backed home equity conversion mortgage (HECM), but some borrowers need or want to borrow more than a HECM allows. Those homeowners may seek another solution, like a jumbo reverse mortgage, a privately funded loan with more flexible lending limits. It’s worth noting that not all proprietary reverse mortgages are “jumbo.” Here, we are using the term to refer to proprietary reverse mortgages, which allow the borrower to take out more equity from their home than HECM limits allow.
How Is a Jumbo Reverse Mortgage Different?
Because the government does not back a jumbo reverse mortgage, it is not subject to the HECM lending limit of $1,149,825 set by the Department of Housing and Urban Development (HUD). These reverse mortgages allow homeowners with high-value homes to borrow up to $4 million. The amount you can borrow with a jumbo reverse mortgage is based on how much equity is in your home.
Who Does a Jumbo Reverse Mortgage Make Sense For?
A jumbo reverse mortgage caters to a fairly niche group—older borrowers with substantial equity in high-value homes.
Here are some of the ways in which these borrowers may benefit from a jumbo reverse mortgage:
- Too young for a HECM. The minimum age requirement for a HECM is 62 years and older. Jumbo reverse mortgage age requirements vary by lender, but in some instances, borrowers as young as 55 can qualify.
- Ineligible property. In a HECM, all property, especially condominiums, must be FHA-approved. In a jumbo reverse mortgage, a borrower isn’t required to have an FHA-approved property, which makes more condominiums eligible to qualify.
- Access to more money. With a HECM, the lending limit is capped at a little over a million dollars. Borrowers who wish to invest the proceeds or have other strategic reasons for taking equity out of their homes can take up to 4 million dollars.
- Access to money without restrictions. Borrowers in a jumbo reverse mortgage who elect to receive their loan proceeds as a lump sum can access 100% of the funds. A HECM allows the borrower only 60% of the loan proceeds in the first year.
- Forgo mortgage insurance. For a HECM, a borrower will have to pay an annual or monthly mortgage insurance payment. In a jumbo reverse mortgage, borrowers aren’t required to pay mortgage insurance.
Eligibility Requirements for a Jumbo Reverse Mortgage
Except for the age requirement, eligibility requirements for a jumbo reverse mortgage are similar to requirements for a HECM. However, since this is a privately backed loan, the qualifications can vary by lender. They are generally as follows:
- Age requirement. To qualify for HECM, borrowers must be 62. Limits for proprietary mortgages vary, but borrowers as young as 55 can be eligible.
- Primary residence. Like a HECM, the jumbo reverse mortgage borrower must live in the home to qualify for the loan.
- Home maintenance and associated fees. The borrower must pay property taxes, home insurance, and dues on the property. The jumbo reverse mortgage borrower must stay current on all payments and maintain the home.
- Third-party counseling. All jumbo reverse mortgage borrowers must attend third-party counseling.
- Equity. Borrowers must have at least 50% equity in the property to qualify for a jumbo reverse mortgage.
Not sure what’s the best reverse mortgage for you? A qualified financial advisor can help you weigh the pros and cons of your situation and assess available mortgage products.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional.
