2024 Guide to Proprietary Reverse Mortgages: Lenders, Rates, and Limits

Q: Is a proprietary reverse mortgage Non-FHA?

Yes, a proprietary reverse mortgage is non-FHA. Unlike FHA-insured reverse mortgages, HUD does not insure jumbo or proprietary reverse mortgages. However, they offer similar features, such as no mortgage payment requirements and a non-recourse clause, which means borrowers or their heirs will not owe more than the home is worth when the loan is repaid.

June 20, 2024

Michael G. Branson Edited by

Cliff Auerswald 8 comments

Welcome to our comprehensive guide on proprietary reverse mortgages! If you’re considering a reverse mortgage and curious about the distinctions between a Home Equity Conversion Mortgage (HECM) and a proprietary reverse mortgage, this guide is for you.

In this overview, you’ll learn about the following:

What is a proprietary reverse mortgage?
When is it better than a Home Equity Conversion Mortgage (HECM)?
What are the qualifications?
How do the costs compare to a HECM?

Whether you are a homeowner exploring your financial options, a family member assisting a loved one, or simply curious about how proprietary reverse mortgages work, this guide will provide the information you need to make an informed decision.

Table of Contents

• Types of Reverse Mortgages

• What is a HECM (Home Equity Conversion Mortgage)?

• Eligibility Requirements for Proprietary Reverse Mortgages

• Comparing HECM and Proprietary Reverse Mortgages

• Jumbo Reverse Mortgage Rates

• Like Any Mortgage, Compare!

• Top FAQs

Types of Reverse Mortgages

When considering a reverse mortgage, it’s crucial to understand the three main types available. Each type has unique features and benefits, allowing you to select the best option based on your financial needs and the value of your home.

Home Equity Conversion Mortgage (HECM):
- Often referred to as the “government” reverse mortgage, the HECM is the most common type.
- Insured by the Federal Housing Administration (FHA): This federal backing provides significant protection for borrowers.
- Eligibility: Available to homeowners aged 62 and older.
- Benefits: Offers a variety of payout options, including monthly payments, a lump sum, a line of credit, or a combination of these.
Proprietary Reverse Mortgages:
- These are non-FHA reverse mortgages offered by private lenders.
- Higher Loan Amounts: Can offer larger loan amounts compared to HECMs, making them suitable for those with home values higher than the HECM national lending limit.
- Flexibility: May have different terms and eligibility criteria compared to HECMs, offering more tailored solutions.
- Custom Guidelines: Lenders can design their own set of guidelines, allowing for more flexible approval criteria.
- Property Types: Can approve certain property types not eligible under FHA, such as non-FHA approved condominiums.
Jumbo Reverse Mortgages:
- A subset of proprietary reverse mortgages specifically designed for high-value homes.
- Larger Loan Amounts: Provides access to larger loan amounts, typically up to $4,000,000, with no property value caps. It is ideal for homeowners with significant home equity who need more funds than what HECMs offer.
- No FHA Insurance: These loans do not have the same federal insurance, which means they come with different risks and benefits.

Understanding these types of reverse mortgages will help you make an informed decision about the right product for your needs and financial situation. Whether you prioritize federal insurance, higher loan amounts, or flexibility, there is a reverse mortgage option to suit your circumstances.

What is a HECM (Home Equity Conversion Mortgage)?

The traditional reverse mortgage, known as a Home Equity Conversion Mortgage (HECM), allows senior homeowners aged 62 and older to borrow against the value of their home. The loan proceeds can be received through regular payments, a single lump sum, a home equity line of credit, or a combination of these options.

Key Features:

FHA Insurance: HECMs are federally insured by the United States government, which provides significant protection to both lenders and borrowers. These loans are non-recourse, meaning that the amount a borrower will owe when the loan comes due can never exceed the home’s value at the time of sale.
Loan Limits: The government restricts loan conditions to ensure borrower safety. One of these restrictions is the loan amount limit, which is capped at $1,149,825 as of 2024.
Regulation and Mandatory Counseling: HECMs are regulated by the Department of Housing and Urban Development (HUD). HUD sets limits on the amount of money a borrower can receive from the loan proceeds and requires potential borrowers to undergo mandatory counseling to understand all aspects of the product before proceeding.

Benefits of HUD Mortgage Insurance: One significant benefit of a government-insured HECM is that the government guarantees access to your funds by paying into the Mortgage Insurance Premium (MIP). This ensures that even if the lender goes out of business, your line of credit remains available, and your access to funds is secure.

The insurance offers a layer of security that proprietary reverse mortgages lack. Without this insurance, proprietary lenders can face financial difficulties, potentially leading to frozen lines of credit and losing access to funds.

Understanding these features and protections will help you determine if a HECM reverse mortgage is the right choice for your financial needs. By offering federally backed security and clear regulations, HECMs provide a reliable option for senior homeowners looking to tap into their home equity for their lifetime.

Eligibility Requirements for Proprietary Reverse Mortgages

Qualifying for a proprietary reverse mortgage involves several key factors, similar to a regular reverse mortgage, but with some distinct differences:

Lower Age Requirements: Unlike the government-insured HECM, which requires a minimum age of 62, proprietary reverse mortgages can lend to borrowers as young as 55.
Jumbo Reverse Mortgages: Proprietary reverse mortgages are often referred to as “jumbo reverse mortgages” due to their larger loan amounts. These are especially beneficial for seniors with home values that exceed the government’s HECM limit of $1,149,825. Through a proprietary reverse mortgage, these homeowners can access more significant equity.
Ideal for High-Value Homes: Proprietary reverse mortgages are ideal for seniors with homes valued well beyond the government’s limit. They provide access to substantial loan proceeds that wouldn’t be possible with a standard HECM.

Understanding these qualifications can help you determine if a proprietary reverse mortgage is the right option for your financial needs, especially if you own a high-value home and require a larger loan amount than what a HECM can offer.

Comparing HECM and Proprietary Reverse Mortgages

	Government HECM	Proprietary
2024 Lending Limit	$1,149,825	$4,000,000
Payout Options	Lump Sum Line of Credit (Guaranteed for life)	Lump Sum Line of Credit (Maximum 10 year draw period)
Lump Sum Limitations	YES - 60% of available proceeds within first 12 months	NO
Mortgage Insurance	Yes - 2% Upfront and .50% ongoing	NO
Line of Credit Guaranteed Growth Rate	YES	Max 7 Years
Non Recourse	YES	YES
Property Types	Single Family Residence, FHA Approved Condo, PUD, 2-4 Units	Single Family Residence, FNMA Warrantable Condo, PUD, 2-4 Units
Special Approval for Condominium	YES	NO

Jumbo Reverse Mortgage Rates

Fixed Rate	Adjustable Rate	Lending Limit
8.990% (9.075% APR)	11.485% (6.625 Margin)	$4,000,000
9.625% (10.146% APR)	11.610% (6.750 Margin)	$4,000,000
9.690% (9.775% APR)	11.735% (6.875 Margin)	$4,000,000
9.875% (10.407% APR)		$4,000,000

Fixed Rate Payment Options: Lump Sum
Jumbo APR Illustration: Scenario is for a 70 year old borrower in California with a $1,000,000 loan amount, includes standard 3rd party closing costs.
Adjustable-Rate Payment Options: Lump Sum or Line of Credit
Index: 12-Mo. CMT
Lifetime Cap: 5% Over Start Rate

Like Any Mortgage, Compare!

When considering a reverse mortgage, it’s crucial to compare interest rates and fees to ensure you get the best deal. Here are some tips to help you navigate the process:

Compare Interest Rates and Fees: Interest rates and closing costs can vary significantly between reverse mortgage products. When shopping around, compare these costs with those of traditional reverse mortgages (HECMs) to increase your chances of finding the most beneficial option.
Consider Your Home’s Value: If your home’s value is under the HECM lending limit of $1,149,825, it may be worthwhile to consider traditional government-insured options. These options often offer lower interest rates and more favorable terms, along with the added security of federal insurance.
Use a Reverse Mortgage Calculator: Our reverse mortgage calculator can help you shop for the best rates and products and find a reverse mortgage that best fits your financial situation.
Seek Advice from Trusted Sources: It is always a good idea to discuss your decision with trusted friends and family. Every individual borrower’s situation is unique, and those closest to you can offer personalized advice to help you make an informed decision before signing the dotted line.

By taking these steps and thoroughly comparing your options, you can ensure that you choose the reverse mortgage product that best suits your financial needs and goals.

Top FAQs

What is a proprietary reverse mortgage?

A proprietary reverse mortgage is a loan product not insured by the Federal Housing Administration (FHA) and offered by private lenders. Unlike traditional reverse mortgages, which are designed for homeowners who are 62 years of age or older, proprietary reverse mortgages are often available to borrowers with high home values and to borrowers as young as 55.

When is a proprietary reverse mortgage better than a HECM?

Several instances exist when a proprietary reverse mortgage can be better for a borrower than a HECM loan. Most often, it is due to the property value. The current limit for 2024 for value on a HECM loan is $1,149,825, and there is no limit on the value for these loan programs. Proprietary programs can have loan amounts as large as $4 or $5 million. Other instances include property types not eligible for FHA and underwriting guidelines that differ from FHA.

Is there mortgage insurance on a proprietary reverse mortgage?

No. The government does not insure these reverse mortgage types; therefore, no mortgage insurance premiums are required.

Do proprietary reverse mortgages have higher closing costs than a HECM?

In most instances, the answer is no because no mortgage insurance premiums exist. While most proprietary loans have significantly lower costs than a HECM loan, there are rare instances where the costs would be higher. Those instances only occur at very high property values.

Do proprietary reverse mortgages have higher interest rates than a HECM?

On average, yes. As of January 2024, HECM programs have rates from the mid-6 % to low 7% range. Proprietary programs have rates from 9% to the mid-11 % range. The lower the rate, the lower the loan-to-value you can borrow.`

Is the proprietary reverse mortgage program available in Texas for borrowers under 62?

Proprietary programs are available in Texas, but Texas law requires borrowers to be at least 62 to be eligible for a reverse mortgage.

Is a proprietary reverse mortgage Non-FHA?

Yes, a proprietary reverse mortgage is Non-FHA. Unlike FHA-insured reverse mortgages, HUD does not insure jumbo or proprietary reverse mortgages. However, they offer similar features, such as no mortgage payment requirements and a non-recourse clause, which means borrowers or their heirs will not owe more than the home is worth when the loan is repaid.

Can I rent rooms as an Airbnb if I have a proprietary reverse mortgage?

The documents for a jumbo or proprietary program are written by the investor who offers the program and, therefore, could be different. You cannot use the property for transient purposes on the HECM program. Therefore, I recommend you carefully review your documents to see what they say. Remember, your lender only has the authority or power you granted them when you agreed to the loan terms and signed the documents.

Does a proprietary reverse mortgage need to have HUD approval for my condo?

You may apply for proprietary programs if your property value is $450,000 or higher. These programs typically have more streamlined approval processes and require less documentation. For example, the underwriting for the Platinum Reverse Mortgage only requires the condominium to meet FNMA warrantable guidelines. However, an HOA questionnaire must still be completed and returned by the HOA as part of the process.

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Have a Question About Reverse Mortgages?

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Post your question in the comments below and anticipate a personalized response from Mr. Branson himself, typically within one business day. He's here to illuminate all angles of reverse mortgages, ensuring you're equipped with the knowledge to make informed decisions. Take this opportunity to gain insights from a seasoned professional.

8 Comments on this Article

Marshall S.
July 22nd, 2024

Can my spouse's age of 87 be used instead of my age of 73 for a jumbo/proprietary reverse mortgage? Otherwise, the cash to close based on my age may not be doable at this time, but based on her age, we could close with no additional cash brought in. I would be the non-borrowing spouse.
Reply to Marshall
- Michael Branson
  July 22nd, 2024
  
  Hello Marshall,
  Proprietary programs do allow for a non-borrowing spouse, which means your age would not be considered when determining the loan amount in most states (although some states prohibit this practice). However, if you have been on the title or have resided in the property at any time prior to the loan application, you are required to attend a taped interview before closing the loan.
  During this interview, you will acknowledge that you understand there are no protections for you as the non-borrowing spouse should your spouse predecease you. The loan becomes due and payable when the borrower is no longer living in the home, and you would be required to repay the loan at that time, even if that meant you had to refinance the loan or sell the property.
  Reply to Michael
John
June 17th, 2024

What are the allowable percentage LTV on a proprietary reverse mortgage based on the borrowers age starting at 55?
Reply to John
- Michael Branson
  June 21st, 2024
  
  Hello John,
  Keeping in mind that 55 is the youngest age at which you can get a reverse mortgage (and assuming you live in a state that allows borrowers under the age of 62 to access the reverse mortgage program, since a few states limit reverse mortgages to borrowers aged 62 and older), the starting loans for the youngest borrowers typically begin at around 31.5% of the home's value. Since the proprietary programs are privately owned and offered by investors/lenders, although they will be very similar, their guidelines are determined by each company and therefore may vary from lender to lender. Ultimately, each company will seek to be as aggressive as possible while still adhering to sound underwriting practices. However, the market where they must sell the bonds that provide liquidity to continue offering the loans will often dictate how aggressive they can be. Too aggressive, and there will be no investors for the bonds secured by the loans, resulting in no liquidity to continue offering the loans to borrowers.
  Borrowers need to consider their needs and goals. While 31.5% may not sound like a large percentage of the home's value, if you have a $3 million home, you can still get a reverse mortgage for close to $950,000 with no payments. If you are just 55 years old, you might have 30 years or more to live in that home. While reverse mortgages are not typically good short-term or interim home loan solutions for the HUD HECM program, jumbo or proprietary options do not require large initial mortgage insurance payments. So, if you're looking for a 5-7 year option that requires no payments, it might fit well into your plans as a 55-year-old borrower. Ultimately, only you can make that decision, but we find that younger proprietary reverse mortgage borrowers often have different motives and plans than our older borrowers. If that loan amount works for your short- and long-term planning, it can still make sense for many younger reverse mortgage borrowers with proprietary programs.
  Reply to Michael
Sergio S.
April 13th, 2023

Hello Arlo,

Can I take out a proprietary reverse mortgage on home #1 to use as a down payment and use a reverse for purchase on home #2? I will immediately sell home #1 and use the proceeds to pay off the proprietary loan on home #1. Thanks!
Reply to Sergio
- Michael Branson
  April 13th, 2023
  
  Hello Sergio,
  
  I am afraid that would not work. You can only qualify for a reverse mortgage on a home that you intend to occupy as your primary residence, and you can only have one reverse mortgage at a time since you can only have one primary residence.
  Your scenario would not work because you have already indicated that you do not intend to occupy home #1 as your primary residence (you intend to sell it) and therefore it would not qualify for the loan.
  You would not be able to use a second reverse mortgage for the purchase of another property (home #2) while you already have one reverse mortgage so that would also prevent you from achieving your desired goals.
  Reply to Michael
Samuel
July 21st, 2019

1. Wondering if there is a prepayment penalty on the closed-end loan?
2. Origination fee max is $6,000, did I read it correctly?
3. Other typical closing costs paid by borrower?
Reply to Samuel
- Michael Branson
  July 21st, 2019
  
  Hello Samuel,
  
  There is never a prepayment penalty on any reverse mortgage, open or close-ended. HUD does limit the origination fee on the HUD programs, but this does not apply to any proprietary or private reverse mortgage programs. That is a HUD rule. Other typical closing costs are those that borrowers would pay in their areas for any loan transaction.
  They can include appraisal, title, settlement, recording, taxes and other standard fees. Every borrower receives a fee breakdown for your area with your initial proposal so you would know every fee in advance. The one fee that borrowers need to be aware of is the HUD Initial Mortgage Insurance Premium. This can be the largest fee in the transaction, and it will equal 2% of the property value or the HUD lending limit, whichever is less.
  If you would like a total breakdown of what you could expect in proceeds and costs for your area (different states and counties have different title and taxes), you can get that information with no cost or obligation on our calculator. There is never any obligation and no cost to find out if the loan is right for you.
  Reply to Michael

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