To help you understand these two programs better, below is a comparison of FHA HECM to Jumbo, with details for each.
The Home Equity Conversion Mortgage (a.k.a. HECM) is a reverse mortgage insured by the Federal Housing Authority (FHA).
The minimum age requirement for a HECM is 62. This means at least one borrower on the loan must be 62. The co-borrower can be under the age of 62.
The HECM has a mortgage insurance premium (MIP) of 2% of your home value which is added to your initial loan balance.
The MIP ensures you, your heirs, and the lender if the loan balance ever exceeds the home value. In other words, you and your heirs will never owe more than the home value.
The MIP also ensures that the credit line will always remain available as long as you are living in your home, even if your home’s value decreases. This is known as a non-recourse loan.
The HECM limits your home value to $970,800. So, if your home appraised for over $1,000,000, you will only get a percentage of $970,800.
The HECM credit line increases every month at the same rate as the interest rate.
The HECM is ideal for the borrower with a home value of less than $1,000,000, who wants a lower interest rate and a generous credit line for future use.
The proprietary reverse mortgage (a.k.a. Jumbo) is the lender’s private funds and not all lenders have a Jumbo. It is the lender’s investors that determine the underwriting guidelines although mostly similar to one another.
The minimum age for a Jumbo is 55. At least, one borrower must be at least 55 years of age.
The Jumbo limits the loan amount (not the home value of the HECM) to $6,000,000.
There is no 2% MIP fee therefore closing costs are considerably lower than the HECM.
Interest rates are usually higher than the HECM
Underwriting guidelines are sometimes more flexible including for condominiums.
The Jumbo is ideal when the borrower’s home value is greater than $1,000,000, needs a large sum of cash, lower closing costs, and is unconcerned about the interest rate.
If you are still undecided, call me for a conversation about your goals, and together we can discover which reverse mortgage is the best option for you.