Non FHA (Proprietary) Reverse Mortgage – What Is It?

Non FHA (Federal Housing Administration) Mortgage

With today’s ever-changing economic climate, there are many reasons why long-time homeowners and seniors might find themselves in need of additional income. Fortunately, your client’s lifetime investment in their property has doubled as an investment in their future financial stability. At Smartfi Home Loans, we understand the importance of making informed decisions regarding your client’s property mortgage and financial risks. In this blog, we talk about what a non FHA reverse mortgage is, also known as a proprietary reverse mortgage, what sets them apart from other types of reverse mortgage products, and who they benefit most. 

For more information about FHA reverse mortgages, check out this article. For a comparison of traditional mortgages and reverse mortgages, read here.  

Non-FHA Reverse Mortgage Definition

If your client is an experienced homeowner, they’ve probably heard of a reverse mortgage loan. However, unless they’ve wanted or needed one, they may be unfamiliar with what they are, how they work, or how they may be able to benefit from them. 

Specific types of reverse mortgages are insured by a government agency known as the Federal Housing Administration (FHA). Other types, which are non-FHA mortgages, are distributed through private lenders and other financial institutions. 

What Are Reverse Mortgage Loans?

No matter which type of loan the borrower receives, reverse mortgages are a way to turn the equity stored in their residential property into cash assets. There are three primary types of reverse mortgage loans, each with its own limitations, borrower requirements, and repayment clauses. 

Choosing which type of reverse mortgage is right for your client will take time and discovery.  The reverse mortgage can be structured to uniquely benefit each individual clients needs. In our experience you may talk to the borrower, their children and even financial advisors to gather the important information to customize the reverse mortgage loan program. 

How a Reverse Mortgage Loan Works

Basically, a reverse mortgage is a way to obtain cash, payable through a line of credit, structured installments or in one lump sum, secured against the value of the borrower’s home as collateral. With reverse mortgages, the reverse mortgage lender makes payments to the borrower instead of the borrower making monthly payments to the lender. 

Most reverse mortgages are only available for homeowners 62 years of age or older.** As your client’s trusted financial advisor and loan officer, discuss which loan options are ideal for their current financial situation. If you need assistance with this, reach out to your Smartfi^® Account Executive. Click here to learn more about how a reverse mortgage works.

Non-FHA Reverse Mortgage vs. Other Reverse Mortgages

Now that the borrower understands what reverse mortgage loans are, it’s time to talk about the different types of reverse mortgage loans available. Not all of these loans are created equally, so spend time discussing the options with your clients.  

The Home Equity Conversion Mortgage

Home equity conversion mortgages (HECM), otherwise known as an FHA loan, are reverse mortgages insured by the Federal Housing Administration (FHA), a federal government organization designed to aid in housing and urban development. FHA reverse mortgages are one way the borrower can age on their own terms, without the financial stress of monthly mortgage payments.* They must handle their property taxes, insurance premiums, HOA fees and maintain the property and they’re set. 

HECM loans come with certain restrictions, notably the FHA lending limit. You can help your client determine which reverse mortgage option best suits their goals and ensure they meet the criteria for that specific program. Reach out to Smartfi today to find out what criteria your client needs to meet to qualify for a HECM loan. 

The Single-Purpose Reverse Mortgage Loan

Single-purpose reverse mortgages, otherwise known as property-tax deferral programs, are a line of credit or a lump sum payment extended to a homeowner based on the property’s current value. As the name implies, single-purpose reverse mortgage loans are extended to complete a single project or purchase, agreed upon during the loan application process. 

Reverse mortgage lenders for this type of loan include private financial institutions, government agencies, and non-profit organizations. The line of credit or lump sum option isn’t available from all lenders and doesn’t have set restrictions on interest rates. 

The Proprietary Reverse Mortgage

Many private financial institutions offer reverse mortgage options in the form of private loans, otherwise known as proprietary loans, like the Smartfi Choice. The main benefit of a proprietary reverse mortgage is that some private reverse mortgage products, such as jumbo reverse mortgages, avoid the lending limitations present in FHA financing. These loans also may come with a lower or higher interest rate, and generally offer less restrictive loan terms. 

Each type of reverse mortgage, whether a private jumbo reverse mortgage or a government-backed loan, comes with additional fees. As part of the loan process, be prepared to address: 

• The interest rate
• Origination fees
• Servicing fees
• Loan closing costs
• Any upfront mortgage insurance payments
• Standard 3rd party closing cost

Who Benefits From a Non-FHA Reverse Mortgage?

In truth, many people of retirement age benefit from a reverse mortgage. People living in retirement on a moderate income may need increased cash flow for various reasons. With less restrictive loan limits set, better interest rates, and other benefits, non-FHA proprietary reverse mortgages help homeowners: 

• Stretch retirement income
• Have reliable funds to pay property taxes and homeowners insurance premiums
• Reduce or eliminate their mortgage payment*
• Complete home repairs
• Have savings for living expenses, medical emergencies, and other needs
• Get a lump sum loan for extensive remodeling projects and more

How to Prepare for a NON-FHA Private Loan Reverse Mortgage

Taking steps to stay informed during the loan application process can save your client time and frustration. After letting the borrower know how reverse mortgages work, continue to help them along the way by brushing up on: 

• Which institutions in their area offer reverse mortgages
• The monthly payment for insurance for their primary residence and other current expenses
• Their appraised home value
• Ideal interest rates for the type of loan they need
• What they’ll use the loan for
• How rates and additional fees impact their final loan balance

When you work with Smartfi, we can help you answer your clients’ questions and provide them with a list of available loan and refinancing options. 

Get Expert Guidance For Reverse Mortgage Loans Today

Applying for a proprietary reverse mortgage doesn’t have to be a headache. At Smartfi Home Loans, we help our partners find their clients financial success and stability in retirement with our Smartfi Choice product. Give us a call today for personalized answers to your client’s proprietary reverse mortgage questions.