Over the last few months, three reverse mortgage lenders have made announcements that they will be coming out with their own Non-FHA based or “Jumbo” reverse mortgage products.
Most people probably have no idea what this means. If you fall into this group, allow me to explain.
A Jumbo reverse mortgage is a reverse mortgage with features and benefits offered only by one company, and is not FHA insured.
Most of these Jumbo programs have been geared towards homes with higher values above the FHA goal limits.
The reason for this is that HECM loans all have a limit on the maximum value they are able to use in their loan calculations. This is called the “maximum claim amount”.
Currently, this amount is $679,650. In other words, if someone has a $1.5 million home, the HECM loan will calculate the amount of the loan as if it was only worth $679,650.
Proprietary reverse mortgages, also called Jumbo reverse mortgages, don’t have a value cap. They can go up to $7 million.
However, since lenders that offer these loans don’t have FHA to back them up with mortgage in-surance, the percentage of appraised values they lend on are lower compared to the value of the HECM loan.
The good news is that they also don’t have the big upfront mortgage insurance premiums, and are not limited on the appraised values like HECM loans.
The Mortgage Insurance Premium on an FHA-backed HECM loan for a home valued $679,650 would be $13,593 (2% of max claim amount).
For example, if a Jumbo lender will loan 25% of the value of a home worth $1.5 M, that’s $375K. An HECM loan on the same property at 40% of $679,650 (FHA max loan amount), is just $271,860 – over $100K less than the Jumbo program.
A major advantage of the Jumbo loans are the higher loan amounts. These new programs are a significant benefit to people who own higher valued homes. These loans are also available on non-FHA approved condos.
Back in 2006-2007, there was a lot of activity in Jumbo RMs, but that died with the financial and housing crisis of 2008.
It’s exciting to see Jumbo loans returning, so consumers will have more options to chose from. I am now seeing people who own multi-million dollar homes or who have non FHA-approved condos take advantage of this program!
