For homeowners that are 62 or older, they’ve had access to the Home Equity Conversion Mortgage, or HECM. The HECM turns some of the current equity in the home into cash payable directly to the owners of the property. Currently, the maximum loan amount available with this program is $625,500 and has been at that limit for years. However, there another reverse option that allows owners to receive more than that, as much as $2,250,000. It’s often referred to simply as a “Jumbo Reverse” mortgage.
A jumbo reverse mortgage might at first look seem like nothing more than a cash out refinance in a different form. While a jumbo reverse and a cash out refinance both provide cash proceeds to the owners at the settlement table, a cash out refinance is still a brand new loan and requires monthly payments each month. For those retired or retiring soon, taking on a new monthly credit obligation isn’t very appealing. As one nears retirement age the objective is to be as debt free as possible, not add still more debt that will be paid for by retirement savings, social security and pension payments. With a jumbo reverse, there are no monthly payments. And unlike the traditional HECM, there is no mortgage insurance premium, putting more dollars into the owners’ pockets. Borrowers must occupy the property as a primary residence and be at least 62 years of age.
Interest does accrue however on the amount received but does not have to be paid back until all borrowers on the loan leave the permanently leave the property. At that point, the home is sold and the proceeds go toward the initial balance plus accrued interest, with the balance going to the borrowers.
Jumbo Reverse: Basic Guidelines
Owners must still qualify for the jumbo reverse and the property must also be appraised. As it relates to an appraisal, a full appraisal is required, and no BPOs or other limited type appraisals. Only one appraisal is needed if the value is at or below $1 million and two full appraisals if the property is valued more than $1 million. The appraisal report must identify at least three closed transactions within the previous 12 months and should the appraisal note the property is in a “declining market” more comparable sales might be necessary along with an appraiser report noting why the property was deemed so.
As it relates to higher end homes, such properties can take longer to sell compared to a home closer to the median home value for the area. As such, appraisers have the ability to use comparable sales outside the subject property’s immediate area if no similar comparable sales can be found. Single family homes, duplexes and condominium units are eligible for the jumbo reverse program.
A complete credit report will be reviewed along with credit scores. Even though there are no minimum credit score requirements and credit is not typically used to make a decision on a reverse mortgage application but a report will be reviewed for any recent derogatory information including recent mortgage payment history. And as with a standard HECM, loan counseling is a requirement. We provide a list of approved jumbo reverse counselors. A jumbo reverse mortgage cannot be approved without counseling.
Borrowers will also be asked to verify current monthly income and compare the income with current expenses to establish a positive monthly cash flow meeting minimum residual income requirements. Residual income requirements vary by region and family size but for a family of four living in San Diego County, the residual income minimum is $1,160 per month, for example. In addition to current monthly obligations, borrowers must also be able to demonstrate the ability to pay property insurance and property tax bills as required.
The jumbo reverse lender will document the loan file prior to submitting the loan for an approval by an underwriter. These loans are manually underwritten and not eligible for an automated approval. The loan file must contain income and employment information, credit report, appraisal, insurance information, title commitment and
any other documentation requested by the jumbo reverse lender.
Once the loan is approved, closing documents are prepared and sent to the escrow agent who will oversee the settlement process. The borrowers sign the closing papers where needed and the escrow agent returns the signed documents to the lender who reviews the paperwork making sure the agent followed the lender’s instructions properly. If so, the lender provides the escrow agent with the authority to release the funds. If there is any existing mortgage, it will be paid off first. There can be no other mortgage on the property when closing on a jumbo reverse. At that time, the funds are delivered to the borrower’s account of choice.
Unlike the traditional HECM, there is no choice between a lump sum or a credit line or both. The proceeds from a jumbo reverse come in one lump sum and is a fixed rate loan, there are no variable rate options.
If you’re a senior and of age and have considered a reverse in the past but the loan amounts with the original HECM didn’t appeal to you or wouldn’t work in your situation you should take a closer look at the jumbo reverse program. Simply call your loan officer who will ask a few questions over the phone and provide you with a general idea about how much cash you can get today with a jumbo reverse along with a spreadsheet detailing costs, prevailing rates and potential proceeds.
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