Reverse mortgage customers have the choice between four loan programs: a traditional reverse mortgage, a reverse mortgage for purchase, a reverse mortgage refinance, and a jumbo reverse mortgage.
In this article, we will provide you with all the information you need to know about jumbo reverse mortgages so that you can know whether or not it is the right choice for you.
Let’s dive in.
What Is a Jumbo Reverse Mortgage?
Jumbo reverse mortgages are proprietary reverse mortgage loans offered by some reverse mortgage lenders.
It allows homeowners to borrow more than what is allowed with a traditional reverse mortgage. With a jumbo reverse mortgage, homeowners are typically able to borrow up to $4 million.
They are offered by jumbo reverse mortgage lenders to those who have high-value homes.
Jumbo reverse mortgages sometimes go by different names such as jumbo loans, jumbo reverse mortgage loan, jumbo reverse loans, and jumbo loans.
Jumbo reverse mortgages are considered a proprietary product and therefore, given a white labeled name. For example, here are Mutual of Omaha Mortgage, our jumbo reverse mortgage is called the HomeSafe Reverse Mortgage.
What is the Difference Between a Jumbo Reverse Mortgage and a Traditional Reverse Mortgage?
The traditional reverse mortgage is known as the home equity conversion mortgage (HECM). This reverse mortgage is available to homeowners who are at least 62 years old and have specific levels of equity in their home in relation to the age of the youngest borrower.
This reverse mortgage is backed by the federal government, which means that it is regulated by the U.S. Department of Housing and Urban Development (HUD) and insured by the Federal Housing Administration (FHA).
Each year, the FHA sets a lending limit on how much homeowners can borrow with their reverse mortgage. The current maximum loan amount as of 2023 is $1,089,300.
With a jumbo reverse mortgage there are some key differences. For example, in some states it is available to homeowners that are as young as 55 years of age. Jumbo reverse mortgages are not backed by any government agency.
The limit on jumbo reverse mortgages typically tops at $4 million, although the exact amount may vary depending on the lender you decide to work with.
At Mutual of Omaha Mortgage, our HomeSafe Reverse Mortgage allows qualifying homeowners to borrow up to $4 million.
Benefits of a Jumbo Reverse Mortgage
The primary benefit of a jumbo reverse mortgage is that homeowners can borrow more than the FHA lending limit.
Another potential benefit is homeowners may be able to access it before 62 – in some cases as young as 55 years of age. However, this change will vary depending on the lender and the state where you live.
In addition, jumbo reverse mortgages do not require borrowers to pay mortgage insurance premiums, which can be a hefty cost that comes with traditional reverse mortgages. A mortgage insurance premium is typically paid at closing, and then it is also an ongoing annual cost that must be paid throughout the life of the loan.
There are also protections that come with jumbo reverse mortgages that are similar to the protections that traditional reverse mortgages are afforded as FHA-insured loans.
For example, just like a traditional mortgage, jumbo reverse mortgages are also a non-recourse loan, which means that borrowers will never owe more on the loan than the appraised value of your home.
Traditional reverse mortgages limit how much a borrower can receive in the first year to 60 percent of the total loan amount. With a jumbo reverse mortgage, borrowers can receive 100 percent of the total loan amount in the first year.
How a Jumbo Reverse Mortgage Works
A jumbo reverse mortgage works in a similar way to a traditional reverse mortgage. A jumbo reverse mortgage pays off the current conventional mortgage on the home, if there still is one.
For the remaining loan proceeds, borrowers will receive that money as a lump sum.
Homeowners are obligated to pay the property taxes, homeowners insurance, keep up on home maintenance requirements, and keep the home as the primary residence.
The loan is paid back once the homeowners decide to sell the home, it is no longer their primary residence, or they fail to meet the requirements detailed above.
The Jumbo Reverse Mortgage Loan Process
The first step in obtaining a reverse mortgage is to talk to one of our reverse mortgage specialists to find out if you qualify.
Next, applicants will need to complete a counseling session with a third-party counselor approved by the U.S. Department of Housing and Urban Development (HUD).
After receiving a certificate of completion from the counseling session, the homeowners may then file their application which will also include submitting several required documents.
The application will then be processed and sent to underwriting.
Underwriting will finalize and approve the loan. Once this is done, a closing date will be set. Once the closing documents are signed, the borrowers can start receiving their funds in the method they chose during the application process.
Borrowers can cancel the loan at any time, including three days after signing the closing documents.
Please note that the jumbo reverse mortgage application process can take up to 45 days to complete from application to closing.
Jumbo Reverse Mortgage Eligibility Requirements
In order to qualify for a jumbo reverse mortgage, you need to meet the following requirements:
- Age Requirements. You must meet the age requirement, which may vary from 55 years of age to 62, depending on the lender and the state where you live.
- Primary Residence. The home you want to get a reverse mortgage for must be your primary residence, which means you live in it most of the year.
- Property Type. The property must be a single-family home, a qualifying condominium, a townhome, or a multi-family residence with one to four units in which the homeowners live in one of the units.
- Maintenance. The home must be in good, maintained condition.
- Taxes. You must be up to date on the property taxes and be able to continue to pay the property taxes.
- Homeowner’s Insurance. You must also be up to date on your home insurance premiums and be able to continue to pay the premiums.
- Other Fees. You must also be current on other fees such as homeowner’s association (HOA) fees.
When Is the Jumbo Reverse Mortgage Repayable?
A jumbo reverse mortgage is paid back when the homeowner decides to sell the home, the home is no longer the primary residence of the homeowner, or if the homeowners are no longer able to meet the obligations of the loan such as paying the property taxes or the homeowner’s insurance.
Homeowners may also make payments toward the loan balance at any time without facing any penalties.
Pros and Cons of a Jumbo Reverse Mortgage
Just like any major financial decision, it is important to weigh the pros and cons, so you are an informed consumer. Here are the pros and cons of a jumbo reverse mortgage:
- Protections. Jumbo reverse mortgages come with several protections that are like traditional reverse mortgages. These include non-recourse benefits and protections for non-borrowing spouses.
- Loan Amount. Consumers who qualify for a jumbo reverse mortgage are able to borrow more than allowed with a traditional reverse mortgage, which is limited to the current FHA lending limit of $1,089,300.
- Fund Access. With a traditional reverse mortgage, borrowers are not permitted to receive more than 60 percent of the total loan proceeds in the first year. With a jumbo reverse mortgage, borrowers may access 100 percent of the loan proceeds in the first year.
- No Mortgage Insurance Premium. Jumbo reverse mortgage borrowers do not have to pay mortgage insurance premiums as required by traditional reverse mortgages.
- Flexibility. Just like traditional reverse mortgages, the proceeds from a jumbo reverse mortgage can be used however you want.
- Fixed Rates. All jumbo reverse mortgages come with fixed interest rates.
- Not FHA Insured. Since jumbo reverse mortgages are private loans, they are not FHA insured like traditional reverse mortgages. Your reverse mortgage specialist will help you understand the loan terms and the protections we offer here at Mutual of Omaha Mortgage.
- Inheritance. Because a jumbo reverse mortgage is a loan borrowed against the equity of the home, it also means that there will be less to leave to your heirs. You can still leave the home to your heirs, but they will need to pay off the reverse mortgage by either paying for it in cash or taking out a traditional mortgage.
- Fewer Options for Receiving Money. The funds from a jumbo reverse mortgage can only be received as a lump sum. By comparison, a traditional reverse mortgage can also be received as monthly payments or a line of credit.
Who Owns the Home with a Jumbo Reverse Mortgage?
One myth about reverse mortgages and jumbo reverse mortgages is that the bank owns the home or is buying the home from the homeowner. This is not the case.
A home with a jumbo reverse mortgage still belongs to the homeowners, which is why borrowers are still required to pay the property taxes, homeowners insurance, and maintain the home.
Is Money from a Jumbo Reverse Mortgage Taxable?
Because the money received from a jumbo reverse mortgage is a loan, it is not considered income. Therefore, it is not taxable.
Can You Get a Line of Credit with a Jumbo Reverse Mortgage?
Yes, you can get a line of credit with a jumbo reverse mortgage, but not all lenders offer a line of credit option with jumbo loans. If you know you want a line of credit, you will want to shop around until you find a lender that offers one.
What Is the Difference Between a Proprietary Reverse Mortgage and a Jumbo Reverse Mortgage?
A jumbo reverse mortgage is a proprietary reverse mortgage. Jumbo reverse mortgages are considered proprietary because they are private loans offered by private lenders that are not insured by the federal government like traditional reverse mortgages. Rather, they are insured by the individual lenders that offer them, which means they are proprietary to those lenders.
Will a Jumbo Reverse Mortgage Affect My Social Security Benefits?
Reverse mortgage funds have no impact on Social Security benefits. This is because Social Security is not a “needs-based” program. The same goes for Medicare. That being said, it could affect someone’s access to a program like Medicaid or disability benefits.
What Can Jumbo Reverse Mortgage Funds be Used for?
There are no rules about how the funds from a jumbo reverse mortgage can or can’t be used. Common uses include supplementing income, paying off credit card debt, and making major home renovations.
A jumbo reverse mortgage can be a viable option for homeowners who are looking to access more funds than is allowed with a traditional reverse mortgage. With the ability to borrow up to $4 million, homeowners can tap into their home equity and use the funds as they see fit.
Additionally, jumbo reverse mortgages offer certain benefits such as no mortgage insurance premiums and the ability to receive 100 percent of the loan proceeds in the first year.
However, it’s important to carefully consider the pros and cons before making any major financial decision.
If you’re interested in exploring a jumbo reverse mortgage further, reach out to one of our reverse mortgage specialists to discuss your options and eligibility by calling the phone number here or finding a loan officer in your area.
Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.
This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.