Reverse mortgages are available in two main flavors: FHA conforming and non-conforming, the latter is also known as a Jumbo Reverse Mortgage. An FHA conforming loan limit is the maximum amount of home value that is recognized in calculating the amount of money that will be lent on the home. Jumbos are considered by senior homeowners when the value of their home exceeds the FHA conforming loan limit for their county. Counties that have a maximum conforming loan limit for reverse mortgages of $362,790 (considered “high cost” areas) often have thousands homes worth far more and would be potential candidates for a jumbo.
Jumbo Versus Conforming
Senior’s that own a home valued significantly above $362,790 (or the conforming FHA reverse mortgage limit for their county) ought to consider all of the available Jumbo Reverse Mortgage programs. Because Jumbo Reverse Mortgages do not have the same value restriction as FHA reverse mortgages, the borrower can qualify for a larger amount of money when their home value is much greater than the conforming limit. Still, for this to be a better deal than the FHA reverse mortgage (known as the Home Equity Conversion Mortgage or HECM), the home value must not only be above the $362,790 limit, but far above. This is because, despite the loan limit, the FHA conforming loan offers a much greater percentage of the home’s value within that limit.
Example
A 68 year old with a home in Los Angeles, California that is worth $400,000 might qualify for $225,000 under the FHA reverse mortgage, while a Jumbo program would only offer $160,000. The reason is that Jumbo Reverse Mortgages are much more conservative in the percentage of the value of the home that they will offer. However, when the home value is considerably higher than the limit, this more conservative loan-to-value ratio will overtake the FHA reverse mortgage. If the 68 year old’s home is worth $700,000 for example, then they might qualify for $280,000, which is $55,000 more than the FHA reverse mortgage would offer.
When a Jumbo Reverse Mortgage Starts to Make Sense
The amount of money available under the Jumbo Reverse Mortgage increases as the home value goes up, while the FHA program does not change due to the conforming loan limits. Generally, Jumbos begin to offer an advantage when the home is valued above $600,000, but there are exceptions for both higher and lower values. The older the homeowner is, the more likely that a jumbo could offer more money on a home value of less than $600,000. Conversely, the closer to 62 the homeowner is, the higher the home value will have to be for a jumbo reverse mortgage to make sense. Check with a reverse mortgage lender for specifics.
Congress is discussing the possibility of raising the FHA reverse mortgage loan limit. Keep an eye on the FHA Modernization Act for the latest on their progress.
Luke
Reverse Mortgage Pro
California Reverse Mortgage Lender
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