Understanding No-Closing Cost Reverse Mortgages: While it’s common knowledge that all loans come with certain fees, the concept of a no-closing cost reverse mortgage might seem puzzling.

Indeed, reverse mortgages, particularly HUD’s Home Equity Conversion Mortgage (HECM), often include substantial initial fees, mainly due to an upfront mortgage insurance premium of 2% of the property value or the maximum lending limit, whichever is less.

However, it’s also worth noting that a frequently cited concern about reverse mortgages is their perceived high cost of acquisition.  Let’s dive into how no-closing cost options are made possible and what this means for borrowers seeking a more affordable path to reverse mortgages.

The Evolution of No Closing Cost Reverse Mortgages

The quest for affordable reverse mortgage solutions led HUD to introduce the Saver version in 2010, a lower-cost alternative aimed at reducing the financial burden for borrowers.  This initiative notably decreased the initial mortgage insurance fees.  However, it also brought a significant limitation: a reduced amount of money available to borrowers.  Despite the reduced fees, the Saver option didn’t fully align with the financial needs of many, leading to its limited use and eventual discontinuation in 2013.

This history raises a pertinent question: How have no closing cost options re-emerged in the reverse mortgage market?  It’s a fascinating story that sheds light on the evolving landscape of reverse mortgages, and I’m here to walk you through it.”

This version provides a more detailed historical context and sets the stage for explaining the current state of no-closing cost reverse mortgages.

Understanding Lender Paid Closing Cost Credits

It’s important to recognize that every loan, including reverse mortgages, inherently involves certain costs.  Essential elements like title reports, credit reports, appraisals, and closing services, not to mention various third-party fees, are all part of the loan process.

However, a significant aspect to consider is that lenders can often offer borrowers credits covering these expenses.  The notable exception here is the reverse mortgage counseling fee, which must be conducted by an independent company and cannot be covered by the lender.

But don’t let this deter you: there are often options for free or subsidized counseling through government grants and other support systems, with typical charges ranging from $125 to $175.  With some research, borrowers can find ways to have these fees covered.

It’s crucial to understand that the size of these lender credits and the interest rates offered in exchange can vary significantly between lenders.  This variability underscores the importance of comparing different options.

In many cases, it’s feasible to secure a reverse mortgage with minimal or no upfront costs paid out of pocket.  However, it’s important to remember that the lender ultimately bears these costs, which can influence the pricing and terms they offer you.

Understanding the Variability of Lender Credits

It’s essential to realize that not all reverse mortgage loans have the same potential for lender credits.  The ability of a lender to offer these credits hinges on their capacity to recoup the costs paid to third parties during the loan process.  This varies significantly depending on the loan type and amount.

For instance, with smaller loan amounts, particularly in HUD HECM (Home Equity Conversion Mortgage) loans, the revenue generated may not suffice to cover these costs.

Consequently, lenders may find offering borrower credits on such loans challenging.  On the other hand, due to their larger nature, jumbo loans might provide lenders with more leeway to absorb some or all borrower costs, which explains why no-cost or low-cost options are more prevalent in jumbo or proprietary reverse mortgage offerings.

However, this doesn’t mean that HECM loans lack lender credits.  While it may not always be feasible for lenders to cover all loan costs, partial credits are still possible.  These can lead to significant savings for borrowers, especially when considering the interest that would have accrued on these amounts.

Additionally, there could be more room for lender credits in situations like HECM-to-HECM refinances where the mortgage insurance premium might be minimal.  Therefore, it’s always beneficial to explore your options thoroughly to understand the potential for cost savings in your specific loan scenario.”

This revised version clarifies the variability in lender credits across different types of reverse mortgage loans and emphasizes the importance of comparing options.

Closing Cost FAQs

FULL DISCLOSURE ON “NO CLOSING COST OPTIONS”

All loans have closing costs, but some loans allow us to provide lender credits to pay those costs on behalf of the borrower.  All loans and all borrowers will not qualify for no closing cost options.

PS – The last time I wrote an article about a No Closing Cost Reverse Mortgage was in 2008