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It is true that just about all reverse mortgages being originated at this time are the HUD Home Equity Conversion Mortgages (HECM or “Heck-um”). So many people think that the reverse mortgage fees and the rates are all going to be about the same. However, this is not always true and those borrowers who take the time to compare have found that sometimes a little extra research can save some big money, both now and over time.
Let’s start with the reverse mortgage fees charged by HUD for the Up-Front Mortgage Insurance (UFMIP). Mortgage Insurance is required on every HECM loan and therefore, most borrowers think that they are going to have to pay this same amount no matter which loan they take. However, HUD introduced the Saver Program in 2010 for borrowers who do not need all the funds available to them under the Standard HECM program.
In recognition of the lower availability of funds and lower risk to HUD, the UFMIP charged on the Saver Program is just a fraction of that charged on the Standard Program. For example, on a $200,000 property today at 4.5% fixed interest, a 75 year old borrower will receive $22,200 less on the Saver Program than they would have on the Standard Program, but if he/she did not intend to use all the funds available under the Standard Program anyway, then the UFMIP would cost just $20 instead of $4,000. Right away that is a savings of almost $4,000 in fees on your reverse mortgage just by knowing how much of the loan proceeds you will need. The Saver is available as both a fixed rate and an adjustable so all the same pay-outs are available as on the Standard Product.
The next reverse mortgage closing cost that often varies from company to company is the Reverse Mortgage Origination Fee. While HUD does set maximums that can be charged to the borrowers, the amount that is charged up to those maximum charges is often determined by the market and the individual company. Borrowers should not be afraid to compare several companies to determine that the rates and fees that they are being quoted is the best deal for them.
Don’t be afraid to check companies with sources such as the Better Business Bureau and online to see what their past clientele have to say about them and their service. Oftentimes we hear of companies who cannot or choose not to compete with lower rates or fees telling borrowers that the lower rates and fees just aren’t available and borrowers end up paying higher costs because someone convinced them that a competitor’s lower rates and fees were “too good to be true” when they were available all the time. Just a little bit of homework can save you thousands of dollars.
The next thing that borrowers need to consider when comparing reverse mortgage fees is what rate they have to take to get the fees. On a reverse mortgage there is no monthly payment so many borrowers end up over-looking the true cost of a some of the “lower fees” at times. If you have to pay 1/2% more in interest to lower your up-front fees by a thousand or two thousand dollars and that ends up costing you tens of thousands of dollars in interest over the life of the loan, you paid far too much to lower for closing costs a little bit. Borrowers need to be aware of interest rates and especially of margins on adjustable rate loans as these are reverse mortgage costs that can really add up over time.
So when you are comparing the reverse mortgage costs and fees of different companies, remember there is more to check than just the actual hard costs for Origination Fee and third party costs. Remember to ask yourself if the Saver Program would not be better for your needs or if you think you will need all the proceeds of the Standard Program. And finally, at times like this, when interest rates are very low, a higher interest rate will give you the same funds at closing so it won’t look much different until you look a the amortization schedules. The higher the interest rates, the more the loan will cost you through the years. Knowing what to look for will help save you money not only in up-front reverse mortgage fees but over time as well.
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.
“Reverse Mortgage Fees” by reverse.mortgage
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