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, a lifetime of investment in your property has doubled as an investment in your future financial stability.
At Smartfi Home Loans, we understand the importance of making informed decisions regarding your property mortgage and financial risks. In this blog, we talk about non-FHA-insured reverse mortgages, what sets them apart from other types of reverse mortgages, and who proprietary reverse mortgages benefit most.
For more information about fixed-rate mortgages, reverse mortgages, and other home refinancing options, please browse our website or give our team a call today.
Non-FHA Reverse Mortgage Definition
If you’re an experienced homeowner, you’ve probably heard of a reverse mortgage loan. Unless you’ve needed one, however, you may be unfamiliar with what they are, how they work, or how they may be able to benefit you.
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, non-profit organizations, and other financial institutions.
What Are Reverse Mortgage Loans?
No matter which type of loan you receive, reverse mortgages are a way to turn the equity stored in your 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 you should take time and considerable thought. Speak to your financial advisors or licensed loan officer in your area to receive a current financial assessment, discuss interest rates, and discuss which loan options are best for you.
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 your 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.** To determine which loan options are ideal for your current financial situation, speak a licensed loan officer and a reverse mortgage counselor.
Non-FHA Reverse Mortgage vs. Other Reverse Mortgages
Now that you understand 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 equal, so spend time reading below and speak to your trusted loan servicer to discuss your options.
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 you can age on your own terms, without the financial stress of monthly mortgage payments.* Simply handle your property taxes and monthly mortgage insurance premiums, and you’re set.
HECM loans do come with certain restrictions, notably the FHA lending limit. Borrowers will need to determine which reverse mortgage option best suits their goals and meet the criteria for that specific program. Reach out today to determine what criteria you need 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, so vet your lender before beginning the application process.
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:
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- 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 you time and frustration. You now know how reverse mortgages work, continue to help yourself along the way by brushing up on:
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- Which institutions in your area offer reverse mortgages
- The monthly payment for insurance for your primary residence and other current expenses
- Your appraised home value
- Ideal interest rates for the type of loan you need
- What you’ll use the loan for
- How rates and additional fees impact your final loan balance
Most lenders will help you by answering your questions and providing a thorough list of available loan and refinance options. If the financial institution you speak with offers questionable loan terms or a loan in gross excess of the appraised value of your home’s equity, seek a second opinion before signing.
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 clients find financial success and stability in retirement with our Smartfi Choice options. Give us a call today for personalized answers to all of your proprietary reverse mortgage questions.
**Age requirements differ by product and state.
These materials are not from and have not been approved by, HUD, FHA, or any government agency.
Smartfi Home Loans, LLC does not guarantee the accuracy of any information. These materials do not pre-qualify you for any loan program and details should be verified independently with one of our Smartfi Specialists. All home lending products are subject to credit and property approval. Rates, program terms, and conditions are subject to change without notice. Not all products are available in all states or for all amounts. Other restrictions and limitations apply.