Reverse mortgage fees: The demand for reverse mortgages is heavier this year than at anytime in the past and the fees associated with these loans are receiving a lot of scrutiny. The cost of doing a reverse mortgage is higher than a traditional home equity loan. If you're considering a reverse mortgage you should not be overly concerned with price gauging as the cost associated with these loans are regulated by the federal government. Typical cost you can expect to be charged are an origination fee, up-front mortgage insurance premium (for the FHA Home Equity Conversion Mortgage or HECM), an appraisal fee, and certain other standard closing costs.
The FHA caps origination fees to help make reverse mortgages more affordable for seniors. Additionally almost all the fees can be financed as part of the loan, so very little money actually comes out of pocket. Below is a more in-depth explanation of each type of reverse mortgage fee.
Origination Fee: Covers a lender's operation expenses. Under the HECM program, which accounts for most reverse mortgages made in the U.S., the origination fee equals 2% on the initial $200,000 of maximum claim amount and 1% on the balance thereafter with a cap of $6,000.
Mortgage Insurance Premium: With Home Equity Conversion Mortgages, called HECM's, borrowers are charged a mortgage insurance premium (MIP), equal to 2 percent of the maximum claim amount, or home value, whichever is less, plus an annual premium thereafter equal to 0.5 percent of the loan balance.
The MIP guarantees that if the loan “servicer” – goes out of business, the government will step in and make sure you have continued access to your loan funds. The loan "servicer" and the lender are sometimes different. You can get a better explanation of this by talking with a Reverse Mortgage Specialist by dialing 1-877-311-7383.
Furthermore, the MIP guarantees that you will never owe more than the value of your home when the HECM must be repaid. This is known as non-recourse.
Appraisal Fee: The lender is required to complete an appraisal by an FHA approved appraiser before completing your loan. The appraiser is responsible for assigning a current market value to the home. Appraisal fees generally range between $300-$450. You may have to pay this out of pocket. The reason for this is that if for some reason you decide to back out of the reverse mortgage application process the lender still has to pay the appraiser for her work.
The appraiser determines the market value of the home and must also make sure there are no major structural defects, such as a bad foundation, leaky roof, or termite damage. Federal regulations mandate that your home be structurally sound, and comply with all home safety codes, in order for the reverse mortgage to be made.
Sometimes the appraiser uncovers property defects, and you must hire a contractor to complete the repairs. Once the repairs are completed, the same appraiser is paid for a second visit to make sure the repairs have been completed. The cost of the repairs may be financed in the loan and completed after the reverse mortgage is made.
Other closing costs that are commonly charged to a reverse mortgage borrower, include.
- Credit report fee. Verifies any federal tax liens, or other judgments, handed down against the borrower. Generally under $20
- Flood certification fee: Determines whether the property is located on a federally designated flood plane. Generally under $20
- Escrow, Settlement or Closing fee: Generally includes a title search and various other required closing services. Cost: $150-$450
- Document preparation fee: Fee charged to prepare the final closing documents, including the mortgage note and other recordable items. Cost: $75-$150
- Recording fee: Fee charged to record the mortgage lien with the County Recorder's Office. Cost: $50-$100
- Courier fee: Covers the cost of any overnight mailing of documents between the lender and the title company or loan investor. Cost: Generally under $50
- Title insurance: Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against any loss arising from disputes over ownership of a property. Varies by size of the loan, though in general, the larger the loan amount, the higher the cost of the title insurance.
- Pest Inspection: Determines whether the home is infested with any wood-destroying organisms, such as termites. Cost: Generally under $100
- Survey: Determines the official boundaries of the property. It's typically ordered to make sure that any adjoining property has not inadvertently encroached on the reverse mortgage borrower's property. Cost: Generally under $250
- Service Fee Set-Aside: The service fee set-aside is an amount of money deducted from the available loan proceeds at closing to cover the projected costs of servicing your account. It is not a cost that is charged to your loan it is just a claculation. The only amount added to your loan balance is the monthly servicing fee, which ranges from $30-$35.
Federal regulations allow the loan servicer (which may or may not be the same company as the originating lender) to charge a monthly fee that ranges between $30-$35. The amount of money set-aside is largely determined by the borrower's age and life expectancy.
Have a Reverse Mortgage Specialist contact you and find out how much cash you can get by completing this online reverse mortgage quote request.
