There was a time when jumbo reverse mortgages received a bad rap amongst consumers, but over the last decade, jumbo reverse mortgages have evolved to become one of the more popular financing vehicles for borrowers throughout the San Francisco Bay area.
Historically, jumbo reverse mortgages were almost exclusively for luxury homes located in high-value areas. Over the years new jumbo reverse mortgage programs have evolved, moving away from niche markets, and broadening in scope to offer value to a larger variety of borrowers.
In fact, the industry is now pushing towards classifying these programs in a less stigmatized fashion, referring to them as private reverse mortgages. So, what exactly is a private reverse mortgage?
If you live in the San Francisco Bay area, here is how homeowners just like you are using jumbo reverse mortgages to their advantage.
What is a Jumbo Reverse Mortgage?
Much like forward mortgages, traditional reverse mortgages typically must conform to designated loan limits set for by the Federal Housing Administration (FHA) to be eligible for a federal guarantee.
On the other hand, jumbo reverse mortgages are loans not restricted to these conforming limits, although they aren’t eligible to be backed by the FHA. But because these loans don’t follow FHA’s guidelines, they can be a more flexible option, especially in high-value areas.
A Brief History: Jumbo Reverse Mortgage Programs
Jumbo reverse mortgage programs rose from the aftermath of the 2008 financial crisis, when most traditional reverse mortgage programs dried up, except for the FHA’s Home Equity Conversion Mortgage program1.
Many providers found that the new lending limit caps were having a significant impact on borrowers with high-value properties. After no new programs had been established in the last four or five years, new options started to become available and gained traction1.
As the market started to warm up to reverse mortgage loans again, the FHA began tightening its guidance for new loans, making private programs even more attractive.
Now new jumbo reverse mortgage solutions have come to market which are priced to attract investors who buy them, consequently adding liquidity to the market. This also benefits lenders and borrowers because they have solutions that can meet their needs.
Why Choose a Jumbo Reverse Mortgage?
One of the reasons why jumbo reverse mortgages are so popular in the San Francisco Bay area is because borrowers are not restricted to tighter loan restrictions like most traditional reverse mortgages.
Some programs allow homeowners to borrow up to $6 million, depending on a variety of factors2. One of the biggest sticking points is your property’s value.
Since the San Francisco Bay area is home to a multitude of high-value properties, it’s obvious why jumbo reverse mortgages have found a home here.
Another benefit to using a jumbo reverse mortgage is that there is typically a shorter waiting period to receive the loan proceeds as one lump sum.
With a traditional solution, you may be restricted to how the loan is structured and how you can access the funds. In some cases, you may be subject to a predetermined distribution schedule2.
Additionally, unlike FHA-backed reverse mortgage loans, jumbo reverse mortgages don’t carry an upfront mortgage insurance premium.
Although many providers do charge an underwriting and processing fee, often as a percentage of the appraised value of your home, in some cases they can be less than if you went with a traditional solution2.
Lastly, while jumbo reverse mortgages don’t offer the same protections as a federally backed loan, providers do often provide consumers some protections that are similar to traditional products. For example, some jumbo providers offer non-recourse loans2.
Not all jumbo reverse mortgages carry the same protections so make sure to ask your lender upfront what protections are being provided. In most cases they should be stated plainly in the contract.
1Branson, M. G. (2020, November 23). Council Post: The Evolution Of Jumbo Reverse Mortgages. Retrieved April 26, 2021, from https://www.forbes.com/sites/forbesrealestatecouncil/2020/03/04/the-evolution-of-jumbo-reverse-mortgages/?sh=24dba4a0627d
2 Rounds, H. (2018, June 05). Understanding Jumbo Reverse Mortgages. Retrieved April 26, 2021, from https://www.lendingtree.com/home/reverse-mortgage/understanding-jumbo-reverse-mortgages/