Proprietary or Private reverse mortgage programs were commonly referred to as “jumbo” reverse mortgages because that was just about the only time they were used by borrowers. The only time they seemed to make sense for a borrower was when the property was valued over the HUD maximum lending limit.
Even then, when they first reemerged after the mortgage meltdown, since the loan amount available as a percentage of the value of the home was so much lower than the HUD Home Equity Conversion Mortgage (HECM) program, it often made more sense to use the HUD program in many circumstances even when the home value was higher.
However, over the recent years, the loan amounts as a percentage of the value of the home have been rising, and the programs have been improving but we just received some really exciting news regarding these programs.
Reverse mortgage programs are now available starting at 55 years old
Many borrowers have been waiting for their 62nd birthday for the HUD program to be able to take advantage of the reverse mortgage product, and were concerned about rising interest rates.
Higher rates mean less money available to the borrowers and the ability to utilize the reverse mortgage program at an age less than 62 allows these borrowers to consider a reverse mortgage earlier. But aside from just being able to get the loan at a younger age if needed, this brought additional benefits to borrowers.
ADDITIONAL BENEFITS OF PROPRIETARY REVERSE MORTGAGES
Not all condominium projects will qualify but different private programs have different approval criteria. Most have minimum loan amounts so it will not work for all condominiums but if your unit is valued at $450,000 or more and is not approved by HUD, you have another outlet you can potentially use.
They do still require an approval of their own because they are concerned about the property that secures their loan, but the process is different than HUD, and many HOA’s and condo boards seem to be less hesitant to participate in the approval process if they were concerned with a HUD approval in the first place.
You can use the loans for both refinances and for purchases. Now Borrowers age 55 and over can use a reverse mortgage to purchase a home in many cases, which can free up cash assets or eliminate the need for a monthly mortgage payment. You can still make a payment in any amount at any time if you wish, there is never a prepayment penalty.
You can also still use the program for homes valued HUD limits, and if the value is over $2,000,000, two appraisals are required. The good thing is, the investor of the program will pay for the second appraisal for you.
Because the loan programs are from a private investor and are not a HUD program, some of the programs will be slightly different and not all options will be available. For example, if you are looking for the payment for life (the HUD tenure option), the proprietary programs will not offer that.
CLOSING COSTS ARE MUCH LOWER ON PROPRIETARY REVERSE MORTGAGE LOANS
Mortgage insurance is not required so the loans are much less expensive to close, and you may be able to get lender credits to help pay for some or most of your closing costs depending on the loan.
It also depends on where the property is located and market conditions as to which costs the lender may be able to pay on your behalf, so be sure to check with your lender and shop around.
The rates on the proprietary loans are higher, but you have no mortgage insurance up-front cost or annual renewal so you need to keep that in mind when you do your comparison. HUD also has no program available below age 62.
The Chart below outlines the typical rates available at this time to determine the loan to value available by age:
Age 55-60 Reverse Mortgage Loan-to-values (LTV)
Available Payout: Lump Sum
*To calculate your loan amount divide your home value into the LTV percentage.
E.g., $500,000 value, age 55 = 41.3% LTV or $206,500 loan amount.
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