It was just a few short years ago that people were reading about how expensive reverse mortgages were but that does not have to be the case at this time. Don’t get me wrong, HUD still charges an Initial Mortgage Insurance Premium based on the value of the home that can run as high as 2.5% for this one cost alone for the higher draws exceeding 60% of the available Principal Limit.
And depending on the part of country in which you live, some of the necessary costs like title insurance and state and local fees can still run into the thousands of dollars. So what’s the difference now and how can I call this an “affordable alternative”?… I’m glad you asked!
You see, mortgages are valued to lenders based on the initial draw that the borrower takes. The pricing for lenders at this time is advantageous enough on the higher draws that we can often waive origination fees, give credits to borrowers to help pay their costs and in some cases, pay the entire up-front costs of their reverse mortgage (with the exception of the counseling fee which HUD will not allow lenders to pay for borrowers).
The majority of the loans we are doing at this time have no origination fees (many lenders charge up to $6,000 for this fee alone). This reduces the charges significantly but since many of them also contain lender credits as well, we are actually giving the borrowers money at closing to help pay the other costs.
I’ve had some borrowers question me and ask if a lender credit meant that we just added the charge onto the loan balance or someplace else. The answer to this is absolutely not. If we send you a proposal that shows that we are giving you a credit to pay costs, that is money that we have to actually pay to cover the costs shown on the estimates.
Even if we are giving you a credit to pay a cost, we still have to disclose all costs in a transaction and who is paying it. So if a loan has $10,000 in costs, we have to show you all of those costs even if we are giving you a $10,000 credit to pay them for you.
How can we do that and why would we do it?
Because the pricing is good enough now that as a direct lender we can pay costs for borrowers when possible and still keep the lights on! The pricing we receive when we sell loans in the secondary market is not always going to be high enough that we can pay borrowers costs. And because we receive compensation based on the amount of the loan the borrower actually draws at closing, we cannot pay costs in all instances. But when we can, we will.
The bottom line is that borrowers can get a reverse mortgage and save thousands (and sometimes tens of thousands) of dollars now while the pricing is strong for these loans. We would encourage borrowers who have been on the fence about reverse mortgages or those who decided against it at some time in the past because they thought the initial costs were too high but really wish they could get one to take another look now. It costs nothing to request a proposal and we don’t believe in badgering borrowers if you’re trying to make a decision.
The loan has to be right for you and you don’t need us or anyone else constantly calling, emailing and putting pressure on you to make a decision or act. If the loan is right for you and you want to proceed, great we’re only too happy to help. If you just aren’t sure or you are sure that it’s not right for your circumstances, the last thing you need is someone trying to pressure you to do something you don’t want to do. So if you would like to see if a low or no closing cost reverse mortgage is possible for you, please let us know and we will be happy to send you a proposal.