There are several closing costs borrowers must finance when getting a reverse mortgage. Many people don’t know that some of the costs vary by lender and the area in which the borrower lives.

When considering a reverse mortgage, it is best to shop around and compare prices. Some of the most common variable costs include origination fees and appraisal costs.

Rates will also impact the amount you can borrow and the interest you’ll accrue throughout the loan.

Origination Costs 

To originate a reverse mortgage, lenders may charge an origination fee. The origination fee generally compensates the lender for processing 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% over $200,000. Remember 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. Sometimes, we may offer to waive or reduce the origination fee for certain reverse mortgage products.

Appraisal Costs

As part of the application process, all homeowners must have an appraisal done on their homes. The appraisal is done to help establish the property’s market value, which then is factored into 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 a lack of college graduates who want to become appraisers. The job requires a four-year college degree, 200 hours of classroom training, and an apprenticeship, which usually pays relatively low.

It’s also worth noting that borrowers do not have the power to choose their appraiser, which means shopping around isn’t an option. It all depends on the area the borrower lives in. An appraisal management company manages appraisals and determines who conducts them.

Interest Rates

Another aspect that will impact borrowers’ costs is the current interest rates. Borrowers have two options for 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 essential to remember 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 option.

Reverse Mortgage Closing Cost Worksheet 

Document Preparation  – This is a 3^rd party service selected by the lender responsible for preparing the final closing documents, including the note, deed of trust, agreement, etc. They are responsible for ensuring the documents follow local and federal guidelines.

Flood Certification – This is a 3^rd party service responsible for ascertaining whether a property is in a Flood Zone as determined by FEMA and provides a Life of Loan determination/guarantee.

Initial Mortgage Insurance (MIP) – This insurance premium is paid directly to HUD at closing to insure the individual loan under the HECM program.

Settlement Closing – This is a 3^rd party service responsible for handling the settlement or closing of the loan. They work with the title company to get the public records information, work with existing lenders to obtain payoffs, coordinate with the lenders for funding, and the counties to record the loan.

Counseling – This is a 3^rd party service that provides counseling sessions to each Reverse Mortgage loan applicant in the beginning stage of the process. The counselors are tasked with educating the borrowers about Reverse Mortgages and determining if they may qualify for any other types of financing. This is a HUD requirement to start the Reverse Mortgage process.

Appraisal – This is a 3^rd party service again as well. The appraisal fee goes to an Appraisal Management Company or AMC. They are responsible for assigning the appraisal order to a local FHA-approved appraiser in the same market area as the property of the Reverse Mortgage borrower and being the go-between for the lender and the appraiser to maintain appraiser independence. Before delivering the report to the lender, they must also review all appraisals for errors or omissions.

Credit Report – This is another 3^rd party service. The credit company must 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 things to determine eligibility into the program.

Lender Title Insurance – This is a 3^rd party service required for any loan that is done and not specific to Reverse Mortgages. For every loan done, a title report must be obtained from a Title Company, and the company must ensure 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 types of endorsements to the title policy based on the loan type. The charges for these endorsements will vary from state to state. For a Reverse Mortgage, some required endorsements are the Neg-Am and Environmental; to provide these endorsements to the procedure, there are usually additional charges. Other approvals needed can vary based on property type (ex., Condo, PUD, Manufactured Home).

Recording – 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, so there is a Recording fee for all loans. Recording charges can vary from County to County and State to state.

Notary – All final loan documents must be executed before a notary, as some documents require notarization, such as the deed of trust. This is a 3^rd party service based on the amount the signing service will charge for handling the signing and notarizing 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 state or county-specific charges must be paid, usually based on the dollar amount shown on the Deed or Mortgage.

Intangible Tax is like the State Tax/Stamps Mortgage and is required for all Real Estate Transactions in some states. Again the example is Florida, where there is a mandatory state charge. Other States such as Texas, Illinois, Pennsylvania, and New Jersey (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.

Closing Cost FAQs

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