If you own your home but struggle with day-to-day expenses, a reverse mortgage may be right for you.
While traditional reverse mortgages are helpful for many people, they come with government-mandated restrictions. For some homeowners, these limits make typical reverse mortgages a non-starter.
Jumbo reverse mortgages, however, have fewer restrictions, making them ideal for homeowners who want to access over $600,000 in home equity.
Before you sign up, you need to fully understand jumbo reverse mortgages. They can be complex, but with the right guidance, they can also be the financial solution you need.
Understanding Jumbo Reverse Mortgage
The Two Basic Types of Reverse Mortgages: Traditional and Jumbo
To understand the details of a jumbo reverse mortgage, it helps to first take a quick look at traditional reverse mortgages.
Traditional Reverse Mortgage (HECM)
The most widely-used type of reverse mortgage is a Home Equity Conversion Mortgage, or HECM. (Pronounced “Heckum.”) This program is created, regulated, and insured by the U.S. Department of Housing and Development (HUD), and it can be accessed in lump sums or a monthly payment. It’s also possible to use a HECM as a line of credit.
HECM programs have specific limits set by the federal government. According to a press release by HUD, the maximum amount for HECMs, which are insured by the Federal Housing Administration (FHA), the maximum claim for HECMs is $636,150. This means that you can receive over $636,150 in total payments (minus any fees and expenses) in exchange for equity in your home.
However, there are homeowners with property values of over $1 million who want to access their entire equity. In this case, a traditional reverse mortgage backed by the FHA won’t provide enough funding; they may need to turn to jumbo reverse mortgages.
Jumbo Reverse Mortgage
Jumbo reverse mortgages share many similarities to jumbo loans, particularly two important qualities. First of all, there is no limit to the amount that can be issued with a jumbo reverse mortgage. Just like a jumbo loan, the lender is able to write loans to essentially whatever amount they wish. These reverse mortgages are meant for homes that are valued well over $636,000, although the specifics of the program will depend on numerous factors, including the borrower’s age and the location of the home.
Jumbo reverse mortgages are also not supported and insured by the FHA. This means that the reverse mortgage is structured and backed by private companies, not the government. This non-backing by the government creates challenges for lenders; they don’t have the safety net of government insurance, so they are much more cautious when writing and issuing reverse mortgages.
Why Choose a Jumbo Reverse Mortgage?
So why would someone choose a jumbo reverse mortgage over a traditional government-backed HECM? The main reason is more available money. There are no official limits on the amount of money (outside of lender limitations, of course), so you can access more of your equity and gain larger payments to help pay for a wide range of expenses. If you choose a jumbo reverse mortgage, you can pay for living expenses, travel, vacation homes, and more. Jumbo reverse mortgages can even be used for additional insurance, long-term care, and medical procedures. To be fair, there are no official limits on how you can spend HECM money, but the amount limitations make other purchases unlikely.
Depending on the lender and the programs they offer, there may also be fewer restrictions. Although institutions that offer jumbo reverse mortgages need to be extra diligent, they may be able to get you approved even when a HECM is unavailable.
What Will Be Checked for a Jumbo Reverse Mortgage
If you are interested in a jumbo reverse mortgage, you should be prepared to provide a wide range of information to the lender or bank. Because lending institutions need to be particularly careful about reducing risk (because of no FHA-insurance), they will verify many different points that demonstrate your financial situation.
The process will include (but is certainly not limited to) these verifications:
- Income: Even if you are on a fixed retirement income, you’ll need to verify your income so that lenders have a clear picture of your financial standing.
- Assets: If for any reason the lender that issued the jumbo reverse mortgage needs to recover the money they gave out, they may need to take possession of the borrower’s assets. For this reason, they will want to verify your valuable assets, which can include physical items, such as property, equipment, or expensive jewelry, or intangible items, such as bank accounts and investment holdings.
- Credit Score: The lender will also want to verify your credit score. This is an important tool that helps lenders determine your creditworthiness and general financial acumen. The specific credit requirements can vary, but it’s reasonable to assume that most lenders will want to see a higher-than-average score for jumbo reverse mortgages.
Downside of Jumbo Reverse Mortgages
As you might suspect, there are downsides to jumbo reverse mortgages. Traditional HECMs are regulated by the federal government, so you need to take your time and consider all of the details before agreeing to a specific program. Like all things in real estate, it helps to talk with a trusted and knowledgeable professional who can provide clear, honest advice and guide you to the right decision.
For jumbo reverse mortgages, it’s important to understand all the fees and costs that come with the program. Once again, because they are unregulated, the jumbo reverse mortgages can have varying costs. The fees will also be higher in most cases than HECMs, so be prepared for this additional cost.
Due to the variety, shopping and comparing jumbo reverse mortgages can also be more difficult. Once again, this is due to the unregulated nature of the programs. Not that jumbo reverse mortgages are the wild west of lending, but there will be more variety, making the search more time-consuming.
Taking a Common-Sense Approach to Jumbo Reverse Mortgages
Working with the right team can make jumbo reverse mortgages clear, convenient, and accessible.
Contact San Diego Purchase Loans today and let us help you fully understand jumbo reverse mortgages. If you think this type of program would be right, we’ll guide you through the entire process, allowing you to take full advantage of your home equity!
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