For 2026 a federally insured reverse mortgage (HECM) counts home value only up to $1,249,125, effective January 1, 2026 (HUD, FHA Mortgage Limits, HECM, CY2026); a proprietary reverse mortgage is not insured by the federal government (CFPB, Reverse mortgage key terms, page modified December 28, 2022).
What a jumbo reverse mortgage is
The CFPB defines proprietary reverse mortgages as loans "not insured by the federal government" and "typically designed for borrowers with higher home values than those insured by HUD" (CFPB, Reverse mortgage key terms, page modified December 28, 2022). "Jumbo reverse mortgage" is the marketing name for the same thing.
The federal program, the Home Equity Conversion Mortgage (HECM), bases your loan on the maximum claim amount: the lesser of the appraised value, the purchase price, or the national limit (24 CFR 206.3, checked October 14, 2026). For 2026 that limit is $1,249,125 (HUD, FHA Mortgage Limits, HECM, CY2026, effective January 1, 2026). On a $3,000,000 house, a HECM ignores the $1,750,875 above the limit. A proprietary loan does not have to.
What you give up without FHA insurance
- No HUD mortgage insurance premium, and no HUD guarantee. A HECM charges an upfront 2% premium on the maximum claim amount and 0.5% a year on the balance (HUD Mortgagee Letter 2017-12, effective October 2, 2017). A proprietary loan skips that charge, which can make it cheaper. But the FHA insurance is also what pays the lender when a HECM balance passes the home's value, and what lets heirs settle a HECM for 95% of appraised value (CFPB, What happens if my reverse mortgage loan balance grows larger than the value of my home?, last reviewed July 11, 2022). With a private loan, those protections exist only if the contract says so.
- The lender sets the terms. HUD's rules on how much you can borrow (the principal limit factor tables), the origination fee cap of $6,000 (24 CFR 206.31), the first-year draw limit, the counseling rule and the eligible non-borrowing spouse protection all apply to HECMs under 24 CFR part 206. A private loan follows its own contract and your state's law.
- Counseling rules differ. HUD counseling is mandatory for a HECM (24 CFR 206.41); that federal rule does not reach a private loan, so ask whether your state requires it. Get it anyway: a HUD-approved counselor can explain both types, and the CFPB suggests telling the counselor what any lender recommended (CFPB, What should I think about before applying for a reverse mortgage loan?, last reviewed July 11, 2022).
Protections that still apply
Federal Truth in Lending rules cover reverse mortgages in general, not just HECMs. They define a reverse mortgage as a nonrecourse loan due when you die, sell or move out, and require the lender to give you a table of total annual loan cost rates that projects the full cost at several loan lengths and home price growth rates of 0%, 4% and 8%, including the cost of any annuity bought as part of the deal (12 CFR 1026.33, checked October 14, 2026). Ask for that table from every lender and compare them side by side.
Before you sign, look up the lender and loan officer on NMLS Consumer Access and ask your state's mortgage regulator whether any extra state rules apply to private reverse mortgages.
The other path for a large home: selling
A high-value home bought long ago may carry a large gain. If you would rather sell and move, the first $250,000 of gain ($500,000 married filing jointly) on a main home you owned and lived in 2 of the last 5 years can be excluded (IRS, Topic 701, Sale of your home, checked October 14, 2026). See selling a home with a large gain.
An installment sale is one way to handle gain above the exclusion: the buyer pays over time and you report gain as payments arrive, on Form 6252 (26 U.S.C. 453). Excluded gain is left out of the gross profit used to figure the taxable share of each payment (IRS, Publication 537, checked October 14, 2026). The trade-offs, said once: you depend on the buyer's credit, the money comes over time, the note can count as an asset or a transfer for Medicaid unless it meets the rules in 42 U.S.C. 1396p(c)(1)(I), and it has to be set up before closing. See Form 6252 and installment sales.
When a jumbo reverse mortgage can make sense
It can fit an owner of a high-value home who plans to stay for many years, has the income to keep paying taxes, insurance and upkeep, and wants access to more equity than a HECM allows without monthly payments. It fits less well for someone likely to move within a few years, since upfront costs are spread over a short time, or for anyone who has not compared it with a HECM, a home equity line, or selling. Get written offers, the total annual loan cost table, and a counselor's view before deciding. For the federal version, start with how a reverse mortgage works.
A plain example: how the HECM limit caps a large home
Hypothetical: a borrower aged 75 with no mortgage, a hypothetical 6.0% expected rate, and HUD's principal limit factor of 0.443 for that age and rate (HUD PLF tables effective October 2, 2017). The HECM principal limit is the maximum claim amount x 0.443.
| Home value | HECM maximum claim amount | HECM principal limit | Share of home value | Upfront MIP (2%) |
|---|---|---|---|---|
| $1,000,000 | $1,000,000 | $443,000 | 44.3% | $20,000 |
| $1,500,000 | $1,249,125 | $553,362 | 36.9% | $24,983 |
| $3,000,000 | $1,249,125 | $553,362 | 18.4% | $24,983 |
| $5,000,000 | $1,249,125 | $553,362 | 11.1% | $24,983 |
Arithmetic: $1,249,125 x 0.443 = $553,362; $553,362 / $3,000,000 = 18.4%. Above the limit, the HECM amount stops growing, so the share of your home you can reach keeps falling. A proprietary lender may offer more on the larger homes; how much depends on its own terms, which is why the side-by-side cost table matters. Origination and closing costs are not shown.
The sale path, hypothetical: a married couple sells that $3,000,000 home, bought for $900,000. Gain is $2,100,000; after the $500,000 exclusion, $1,600,000 is taxable. In an installment sale with $600,000 down, 53.3% of each principal payment is taxable gain ($1,600,000 / $3,000,000), so $320,000 is reported in the year of sale and the rest as later payments arrive. Selling costs and interest are left out.
Red flags
- Calling a private reverse mortgage "government insured" or "HUD approved."
- Not giving you the total annual loan cost table, or giving it only at closing.
- Saying "you can never owe more than the home is worth" without showing where the contract says so.
- Skipping counseling because "it is not required for this loan."
- A loan that leaves a spouse with no written right to stay in the home.
- Pressure to use the money to buy an annuity, insurance or investments.
- Comparing only the amount you can borrow, not the interest rate, fees and balance growth.
- A variable rate with no clear index, margin or cap written down.
- No NMLS number for the lender or loan officer.
- Dismissing a sale, a HECM or a home equity line without showing the numbers.
Questions to ask before you sign
- Is this loan insured by the FHA, or is it a private loan?
- Where does the contract say I or my heirs will never owe more than the home is worth?
- Can my heirs settle for less than the full balance if the home is worth less? On what terms?
- What is the interest rate, how is it set, and can it change?
- What are all the upfront fees, in dollars, and which are optional?
- May I see the total annual loan cost table for 2 years, my life expectancy and longer?
- What happens to my spouse if I die or move into care?
- What would I get from a HECM on the same home, for comparison?
- Does my state require counseling or add any protections for this loan?
- What would selling the home and using the section 121 exclusion leave me after tax?
Long-Term Care and Your Home: Read This Before You Sign
A one-page checklist: what Medicare will and will not pay, the Medicaid look-back and estate recovery basics, the questions to ask before you buy long-term care coverage or take a reverse mortgage, and the tax rules if the house is sold. Reverse mortgage costs and questions, plus the home-sale tax rules (section 121, installment sale) if you sell instead. We’ll email it to you.
The Retirement Literacy Foundation is a 501(c)(3) public charity (EIN 41-5062266). General education, not tax, legal or investment advice. Nothing is sold here. Unsubscribe any time.
Sources
- HUD: FHA Mortgage Limits, HECM, calendar year 2026 (effective January 1, 2026)
- CFPB: Reverse mortgage key terms (page modified December 28, 2022)
- eCFR: 24 CFR part 206, Home Equity Conversion Mortgage Insurance, sections 206.3, 206.31, 206.41 (checked October 14, 2026)
- eCFR: 12 CFR 1026.33, Requirements for reverse mortgages (checked October 14, 2026)
- HUD: Mortgagee Letter 2017-12, HECM mortgage insurance premiums and principal limit factors (August 29, 2017)
- CFPB: What happens if my reverse mortgage loan balance grows larger than the value of my home? (last reviewed July 11, 2022)
- IRS: Topic 701, Sale of your home (checked October 14, 2026)
- IRS: Publication 537, Installment Sales (checked October 14, 2026)
- Cornell Law School LII: 42 U.S. Code 1396p (checked October 14, 2026)
The Retirement Literacy Foundation is a 501(c)(3) public charity. This page is general education, not tax, legal or investment advice. Nothing is sold here, no product is recommended, and RLF accepts no funding from financial companies. Rules and figures change; each one above shows its source and date. Check anything you plan to act on with your state insurance department or a qualified professional who is not paid on the product.