Reverse Mortgage Closing Costs Breakdown
|Financed Charges||POC (Paid outside of closing)||Estimated Amount|
|Mortgage Insurance Premium||$4,300.00 (2% of appraised value)|
|Lender’s title insurance||$1,556.00|
|Title Search Fee||$75.00|
|Notary / Signing||$200.00|
|Closing Protection Letter||$125.00|
|Recording charges mortgage||$444.00|
|City/County tax/stamps deed||(Applicable in FL, GA VA)|
|State tax/stamps deed||(Applicable in FL, GA VA)|
|HECM counseling fee||$125.00|
There are a number of closing costs borrowers are required to finance when getting a reverse mortgage. What many people don’t know is that some of the costs vary by lender and the area in which the borrower lives. It is in the borrower’s best interest to shop around and compare prices when considering a reverse mortgage.
Some of the most common variable costs include origination fees and appraisal costs. Rates will also have an impact on the amount you can borrow, and the amount of interest you’ll accrue over the course of the loan.
Origination / Processing fees
To originate a reverse mortgage, lenders may charge an origination fee. In general, the origination fee compensates the lender for the processing of a Home Equity Conversion Mortgage (HECM). A lender cannot charge more than $2,500 or 2% of the first $200,000 of the home’s value plus 1% of the amount over $200,000.
Keep in mind that there is a cap of $6,000 for the total origination fee for HECMs. The cap is set by law to keep closing costs reasonable for borrowers.
In some cases, we may offer to waive or reduce the origination fee for certain reverse mortgage products.
As part of the reverse mortgage application process, all homeowners must have an appraisal done on their home. The appraisal is done to help establish the property’s market value, which then is factored in deciding how much the borrower will qualify to receive in a reverse mortgage.
There is a fee charged for the appraisal, which varies from state to state. Right now, appraisal fees are generally higher than they were historically throughout most of the country due to the lack of appraisers. Industry sources have reported a decrease of 20% in the number of active appraisers, which is driving closing costs up, especially in areas where appraisers are particularly scarce.
Some of the reasoning behind the drop in numbers in the appraisal industry is due to a lack of college graduates who want to become appraisers. The job currently requires a four-year college degree, 200 hours of classroom training and an apprenticeship, which usually has relatively low pay.
It’s also worth noting that borrowers do not have the power to choose their own appraiser, which means shopping around isn’t really an option. It all depends on the area the borrower lives in. An appraisal management company manages appraisals and determines who conducts them.
Another aspect that will impact the costs the borrower faces are the current interest rates. Borrowers have two options when it comes to interest rates: fixed rate or variable rate.
Fixed rate reverse mortgages used to be very popular among HECM borrowers due to the certainty factor of a rate that remains unchanged over time. A recent rule change made fixed rate reverse mortgages less desirable for many borrowers due to new restrictions on loan proceeds.
Variable rate reverse mortgages have a rate that is subject to change throughout the life of the loan, which can lead to varying costs. However, it’s important to keep in mind that the loan balance is not due until the loan comes due; usually when the borrower moves from the home or passes away. Variable rates also offer more flexible payment plans such as the most popular line of credit payment option.
List of common reverse mortgage fees:
Doc Preparation – This is a 3rd party service selected by the Lender that is responsible for preparing the final closing documents which include the note, deed of trust, agreement, etc. They are responsible for making sure that the documents are in compliance with local and federal guidelines.
Flood Certification – This is a 3rd party service that is responsible for ascertaining whether or not a property is located in a Flood Zone as determined by FEMA and provides a Life of Loan determination/guarantee
Mortgage Insurance Premium or MIP – This is the fee that is paid directly to HUD at closing of the loan to insure the individual loan under the HECM program.
Settlement or Closing Fee – This is a 3rd party service that is responsible for handling the settlement or closing of the loan. They work with the title company to get the public records information, they work with existing lenders to obtain payoffs, coordinate with the lenders for funding and the counties for recording of the loan.
Counseling Fee – This is a 3rd party service that is providing the counseling session to each Reverse Mortgage applicant in the beginning stage of the process. This is a HUD requirement in order to start the Reverse Mortgage process. The counselors are tasked with educating the borrowers about Reverse Mortgages as well as determining if there are any other types of financing they may qualify for.
Appraisal Fee – This is a 3rd party service again as well. The appraisal fee goes to an Appraisal Management Company or AMC. Their responsibility is to assign the appraisal order to a local FHA approved appraiser in the same market area as the property of the Reverse Mortgage borrower and to be the go-between for the Lender and the appraiser to maintain appraiser independence. They also are required to review all appraisals for errors or omissions prior to delivering the report to the Lender.
Credit Report – This is another 3rd party service. The credit company is required to provide a full credit report from all 3 bureaus (Experian, Transunion & Equifax) for each Reverse Mortgage applicant to determine the borrower’s credit scores, credit history and any delinquencies or public record items. This is a necessary step in the process as a Lender must review a borrower’s credit history for specific items to determine eligibility into the program.
Lender’s Title Insurance – This is a 3rd party service that is required for any type of loan that is done and is not specific to Reverse Mortgages. For every loan done, a title report must be obtained from a Title Company and the company has to insure the Lender in the transaction for the required dollar amount based on appraised value, etc. The fee for title insurance usually varies by loan type and from state to state.
Endorsements – Lenders require various different types of endorsements to the title policy based on the type of loan being given. For a Reverse Mortgage, some endorsements that are required are the Neg-Am and Environmental and in order to provide these endorsements to the policy, there are usually additional charges. Other such endorsements that are required can vary based on property type (ex. Condo, PUD, Manufactured Home). The charges for these endorsements will vary from state to state.
Recording Charges Mortgage – Whenever a new loan is completed, the Security Instruments (Deeds of Trust or Mortgage – verbiage varies from state to state) must be recorded with the county recorder’s office to finalize the transaction. There is always a charge to record documents and that is why there is a Recording fee for all loans. Recording charges can vary from County to County and State to State as well.
Notary – All final loan documents must be executed in front of a notary as there are documents that require notarization such as the deed of trust. This is a 3rd party service and is based on the amount that the signing service will charge to handle the signing and notarization of all necessary documents.
***Miscellaneous fees that are not applicable in all States***
State Tax/Stamps Mortgage – In some states (ex. Florida) there are state charges whenever you do any type of Real Estate transaction including Refinances. These are state or county specific charges that are required to be paid and are usually based on the dollar amount shown on the Deed or Mortgage.
Intangible Tax – This is just like the State Tax/Stamps Mortgage and is required for all Real Estate Transactions in some states. Again the example is Florida where is a mandatory state charge.
Other States such as Texas, Illinois, Pennsylvania and New Jersey (just to name a couple) have other miscellaneous additional charges not seen on all Good Faith Estimates as they are either local or state fees that vary from transaction to transaction but usually do not add up to be too significant as far as the dollar amount of the cost.
To learn more about the various costs associated with reverse mortgages, request your quote or call Toll Free (800) 565-1722