If you own a higher-value home in California, you may have looked into a reverse mortgage and come away disappointed. The numbers didn’t seem to add up. The amount available was far less than you expected, given what your home is worth.
That’s a common experience, and there’s a reason for it. It doesn’t necessarily mean a reverse mortgage can’t work for you. It may just mean the standard program isn’t built for your situation.
The question is not whether the private program is better. The question is whether the standard program solves the actual problem. If it does, there may be no reason to look further. If it doesn’t, a private option is worth comparing side by side.
Why the standard program can fall short
The FHA-insured reverse mortgage, the HECM, only counts a home’s value up to a national limit set by FHA. If your home is worth much more than that, the extra value doesn’t help you. The HECM also limits how much you can draw in the first year. For homeowners with a large existing mortgage or significant debts to pay off, that combination can leave a real gap. Reverse Mortgages Explained
What a proprietary (jumbo) reverse mortgage is
A proprietary reverse mortgage is a private reverse mortgage offered by individual lenders rather than insured by FHA. Many are designed specifically for higher-value homes, which is why they’re often called jumbo reverse mortgages.
In general terms, depending on the lender and program, proprietary options may:
- Count more of a high home value than the HECM does.
- Not carry FHA mortgage insurance, which changes the cost structure.
- Have different rules for condos, which can help when a building isn’t FHA-approved.
- Offer different payout options. Some focus on a lump sum, while others offer a line of credit.
Like a HECM, you keep ownership of your home and must keep living in it, paying property taxes and insurance, and maintaining it. Many proprietary programs are non-recourse, but terms vary, so that’s something we confirm program by program. Counseling is still part of the process.
What a second-lien reverse mortgage is
Some lenders also offer a reverse mortgage in second position. Instead of paying off your existing first mortgage, it sits behind it.
This can make sense for a homeowner who has a first mortgage they want to keep and wants to access more equity without a new required monthly payment on that second loan. You’d still keep making your regular payments on the first mortgage, and you’d still be responsible for living in the home, property taxes, insurance, any HOA dues, and upkeep.
It isn’t right for everyone. These programs have their own minimums and requirements, and depending on your age and home value, the amount available may be too small to be useful. That’s why we always compare it against the other routes, including a standard home equity loan. Using Your Home Equity Wisely
The tradeoffs, honestly
- Pricing and terms vary widely between programs and lenders. Comparing them is essential.
- The balance grows over time, which reduces the equity left for heirs.
- Credit and financial requirements differ. Some programs work with lower credit by setting aside funds for taxes and insurance, while others have firm minimums.
- Not every program is available everywhere, and features change over time.
A real example from our clients. A retired couple with a high-value Southern California home wanted to retire their whole monthly payment burden, a first mortgage plus a heavy load of consumer debt, and keep living in the home they love. The government program stood in their way. Its home-value limit and first-year draw limit left them far short of a full payoff, and their credit was below some lenders’ published minimums. We put the HECM next to the proprietary options. A proprietary reverse mortgage counts much more of their home’s value and doesn’t have the same first-year limit, so it could cover the full payoff, and one lender’s program can work with their credit by setting aside a reserve for taxes and insurance. We were also upfront about what would decide the outcome: the appraisal, the actual property tax bill, and their ages at closing. With that clarity, they chose the proprietary path, started their required counseling, and sent their trust documents in for review. Now they have a plan built around what they actually want, and they never paid for an appraisal on a program that couldn’t get them there.
Illustrative of one client’s situation. Not a guarantee or commitment to lend. Every file is different.
Qualified Home Loans brokers reverse mortgages through wholesale lenders, including HECMs, proprietary (jumbo) reverse mortgages, and second-lien reverse products, so we can compare programs side by side for you.
A simple plan
- Book a strategy call. Adult children and advisors are welcome to join. We’ll talk about what you want the home to do for you.
- We review everything up front. Your home’s realistic value, existing mortgage, debts, income, credit, and how the home is held.
- We compare every route side by side. The HECM, proprietary and second-lien reverse options, and non-reverse alternatives, before anyone orders an appraisal.
Is your home “too valuable” for a reverse mortgage?
Probably not. It may just need a different program. If you’d like an honest side-by-side comparison, I’m happy to walk through it. Adult children and advisors are welcome to join.
Mike Pacheco
President, Qualified Home Loans
Qualified Home Loans, NMLS 884457 · CA DRE 01910455 · Mike Pacheco, NMLS 236302 · Equal Housing Opportunity · Subject to qualification.