According to a recent report by Bloomberg jumbo mortgages are on the upswing for both tradition and the reverse mortgage markets. For well-to-do seniors, the reintroduction of jumbo reverse markets on the market is welcome news. While the limit for most traditional mortgages was previously set at $625,000. This won’t get you too far in many parts of the country. As such, let’s look at the ins and outs of getting a jumbo reverse mortgage.
As you may know, a jumbo loan is a loan which is more than the mortgage limits put in place by Fannie Mae, Freddie Mac, or the Federal Housing Authority (FHA). The exact limits vary state-by-state and in some cases by county. For borrowers of jumbo loans, they generally have to find a lender with a proprietary loan program for these loans.
The good news is that there are a number lenders that offer HECM and Proprietary Jumbo Programs. This is a big plus for borrowers as it means they have more choices when it comes to finding a lender to help them set up a reverse mortgage on their home.
Whilst these loans are not insured by the FHA, there are a number of safeguards which were put in place by the government in 2013 which help to protect borrowers. These include limits on the amount of equity which can be taken out of a property and what happens when one spouse dies, but the other is still residing at the property.
Jumbo reverse mortgages which were popular before the financial crisis had practically fallen by the wayside by 2012. However, proprietary jumbo reverse mortgages have become more commonplace in recent years. In fact, they have become so popular that lenders have introduced their own jumbo products which cover properties up to $6 million.
Part of the reason for the popularity of these program is the fact that proprietary loan programs have fewer restrictions, one of them being the loan amount. Another plus is that income and credit issues don’t apply. Basically, lenders are looking at the equity in the property and not the borrower’s credit score. Also, some lenders will allow younger spouses to opt out of the program. This means that the age limit will not be an issue if one of the spouses do not meet the age limit.
There are a few things you need to know about proprietary jumbo reverse mortgages. For one, counseling is not required. Granted owners of more expensive properties tend to have more financial acumen, but a little counseling never hurts. In addition, there are no restrictions on fees. As such, the wrong jumbo reverse mortgage can be a very expensive proposition.
These programs generally have fewer foreclosure protections. In this way, one should take a deep look at this programs and make sure they understand the ins and outs before signing on the dotted line.
The being said proprietary jumbo reverse mortgage tend to be more flexible than other reverse mortgage programs. This makes sense. Lenders are putting up their own money for these programs. So they want to have a bigger say on who they will approve.
In the end, there may be a small window of opportunity for jumbo reverse mortgages. The biggest challenge has been the reluctance of secondary mortgage market buyers to purchase the associated bonds tied to these loans. As such, lenders either have to hold onto the debt, bundle them with other loan products, or stop offering these loans.
However, with interest rates still near historic lows, investors are looking for low- to medium-risk opportunities. So if investors begin clamoring these bonds, it might create a long-term opportunity for proprietary jumbo reverse mortgages.
Should you look into a jumbo reverse mortgage? The answer is yes. More and more financial advisors are giving them a serious look and even if you don’t take the money and run, it is a good way effectively freeze your currently mortgage payments. Given the time value of money, this could add up to big buck. As always, you want to discuss the move with your financial advisor and then you want to reach out to a pool of investors who specialize in jumbo reverse mortgages. This way you can get the best deal possible.