FINALLY! AN IN-DEPTH LOOK AT REVERSE MORTGAGE CLOSING COSTS
To start, being fully transparent, we give our seniors the exact same list of reverse mortgage costs as we’re going to highlight for you below.
But first, to establish a benchmark, we’ll look at the cost for a senior to sell his or her home. We compare these costs because in our experience, many seniors end up choosing between either GETTING A REVERSE MORTGAGE or SELLING THEIR HOME. Although they’re doing research to figure out what’s right for them, they know they need to do something.
In MOST states, the cost of a real estate transaction is 6% of your home’s value, with another 1% as a property transfer tax. So, it costs approximately $28,000 to sell a $400,000 home.
***Just to set the record straight, this is a GENERALIZATION. We are not realtors, nor do we know where you live(it would be strange if we did). Please confirm exactly what your property transfer charges are IN YOUR COUNTY. Ok, thanks…fine print over***
TWO TYPES OF REVERSE MORTGAGE COSTS
There are two main types of reverse mortgage closing costs. First, we have OUT OF POCKET(or up-front) costs. Next, we have FINANCED fees. We’ll go over out of pocket first.
OUT OF POCKET REVERSE MORTGAGE CLOSING COSTS
These are what you’ve actually got to pay out of your wallet to get a reverse mortgage. Out of pocket reverse mortgage costs ALWAYS include
- Appraisal Charges-All reverse mortgage lenders require an appraisal. Underwriters only accept FHA appraisals done through appraisal management companies(AMC’s). The total cost of a ONE UNIT suburban or urban appraisal is anywhere between $450 and $550(yes, that’s a higher cost than the typical non-fha appraisal by a couple hundred dollars. We understand…these are just the rules we’ve got to play by). Multiple units, rural properties, or properties with large acreage(which are almost all rural by the way) will all increase the cost. One thing to note, many reverse mortgage lenders offer a proprietary reverse mortgage that reimburses the appraisal fee at closing!
- Reverse Mortgage Counseling-Before you can order your appraisal, you need to be counseled. You’ll speak with a FHA certified counselor who will explain your loan options, other alternatives and your responsibilities. In other words, they’ll basically repeat our initial call! However, counseling IS a way to ensure you’re educated about reverse mortgages(believe it or not, some lazy or uneducated lenders actually skip over details). Counselings range from $20(there’s a reverse mortgage counselor in Doylestown, Pennsylvania who only charges $20 for face to face appointments) to $150. However, the majority of the counseling agencies charge right about $125. By the way, counseling is also required by all reverse mortgage lenders.
SOME RARE OUT OF POCKET REVERSE MORTGAGE COSTS
Those are the two MAIN out of pocket reverse mortgage closing costs. Others might include
- Survey-Some states like Florida require a survey. Now, if you already have one recorded it can normally be used. If not, expect to spend anywhere from about $350 to $600 to get it done. A rule of thumb is the more acreage you have, the more expensive your survey will be. Remember, in states like Pennsylvania and New Jersey, surveys ARE NOT required.
- Engineers Certificate-If you live in a manufactured home, you’ll need an engineer’s certificate. Basically, an engineer inspects your home to ensure it conforms with HUD guidelines, like it’s permanently secured to a concrete block foundation. The cost is about $450, but if you don’t have a manufactured home you don’t need to worry about it!
- Required FHA Repairs-Ok, these aren’t typical reverse mortgage costs, but if an appraiser notes that your home has structural or safety concerns, repairs must be done PRIOR to closing. Normally these are out of pocket expenses, BUT we do work with an exclusive network of contractors who will do the work and charge the repairs AT CLOSING. This way you won’t have to write a check or pull out your credit card. Please CONTACT US before you speak with any contractor, as there may be ways to mitigate the damage and NOT REQUIRE a contractor.
Ok, that’s it for the out of pocket reverse mortgage costs. 96% of the time they just include counseling and appraisal. And to keep it as manageable as possible, just about every counseling agency and appraisal management company takes credit card for payment.
JUMBO REVERSE MORTGAGE CLOSING COSTS
TRADITIONAL HECM FINANCED CLOSING COSTS
Now its time to go over the typical reverse mortgage closing costs for traditional HECM’s. They differ slightly from program to program, and state to state, but after reading this article you’ll understand exactly what the reverse mortgage costs are and why they exist.
Ok, let’s jump right into it!
MORTGAGE INSURANCE PREMIUM(IMIP)
IMIP is the first reverse mortgage cost and is required on every FHA insured reverse mortgage(lenders all require it). Mortgage insurance renders reverse mortgages “non recourse”. This protects you and your heirs if the real estate market drops, like it did in 2008. Here’s an example of how this works. Martha got a reverse mortgage for $200,000 in 2007 when her home was worth $400,000. In the 2008 crash, Martha’s home value dropped to $240,000(she lived in Cape Coral, Florida, where property values got destroyed).
When she died in 2012, Martha owed $260,000(for this example let’s assume Martha’s home value stayed the same from 2008 to 2012). As you can see, there’s a $20,000 shortfall between what’s owed($260,000) and the home value($240,000).
Martha’s kids inherited her home, and they saw that the house was “Under Water”. Because of the FHA mortgage insurance premium, they could give up the deed to the lender in lieu of foreclosure, and the FHA reimbursed the lender for the shortfall.
IMIP ensures that the lender(or the government) CAN NOT go after the heirs, the estate, life insurance or any money passed down. Thus making the reverse mortgage safe and secure for the senior AND the heirs. The cost is 2% of the home value, rolled into the loan.
By the way, a PROPRIETARY REVERSE MORTGAGE does not charge for IMIP(although they have the same non-recourse protection).
The origination fee is the next reverse mortgage cost, and is how the lender gets paid. Again, this reverse mortgage closing cost isn’t charged up front, rather it’s rolled into the loan(just like the IMIP). The origination fee is set by HUD, and it’s basically 2% of the first $200,000 and 1% of anything above that. It starts at $2500 and is capped at $6000.
Here’s a chart that shows how it works.
Home Value Origination Fee
$0-125,000 $2,500(this is the minimum)
$800,000 $6,000(as you can see $6,000 is the cap)
Similar to IMIP, a Proprietary Reverse Mortgage rarely includes origination charges(if your home is valued at $700,000 or more, you should at least look into a proprietary reverse mortgage).
THIRD PARTY REVERSE MORTGAGE CLOSING COSTS
The final type of reverse mortgage costs are “Third Party Fees”. These are disclosed on the loan comparison form(a page you get for your counseling session) as “Other Fees”. The majority of these fees are included on all residential mortgage loans(not just reverse mortgages). Here’s a list of what they are(the costs vary greatly by state).
- Title Insurance-Because this is a “mortgage”, you’re required to have lender’s title insurance. If you already have an “owner’s” policy, you don’t need to add this(in fact any title company who adds this in on a reverse mortgage REFINANCE should be questioned)
- Recording Charges-Reverse Mortgages record twice to your deed. Once to the lender and once to HUD. With that said, YOU, the homeowner still have full ownership and control of your home. You are free to sell it at any time, and you’ll pass it on to your kids. You probably know this by now, but just wanted to make sure😊 Typical recording charges range between $300 and $750, depending on how many liens are paid off, and what your county charges.
- Appraisal/Counseling-Those are “Up Front” reverse mortgage costs, but they are still itemized here under “Other Fees”. You’re never “double charged” through.
- Word to the Wise: Most reverse mortgage lenders offer a Proprietary Reverse Mortgage that waives the majority of these fees.
WHY REVERSE MORTGAGE LENDERS SHOULD BE TRANSPARENT
Most reverse mortgage lenders aren’t transparent with their fees, which I personally think is silly. After all, every reverse mortgage cost is regulated by HUD and the FHA. In my opinion it’s far better for you to know EVERYTHING about reverse mortgages up front. Personally I don’t like surprises and neither should you!
With that said, if your home is worth about $700,000 or more, you should compare a Proprietary Reverse Mortgage with a traditional HECM. While we won’t go deep down that rabbit hole here, one main reason to consider the Proprietary Reverse Mortgage is fees. They don’t charge IMIP and for the most part they don’t charge origination fees either. A growing number also don’t charge “Other Costs” as well. Doing the math for you, a Proprietary Reverse Mortgage might save you 90%+ on closing costs.
FINAL THOUGHTS ON REVERSE MORTGAGE COSTS
Reverse Mortgages do have fees, just like all other loan programs. Far more important that reverse mortgage closing costs, however, is the PURPOSE of the loan. What do you need a reverse mortgage to do for you? Will it help you save money on your monthly mortgage payments? Will it keep more of your money in investments? Can a reverse mortgage pay for the care your loved one needs to stay in her home?
As you can see there are “big picture” questions that are just as important(if not more) as the reverse mortgage costs. With that said, unlike other reverse mortgage lenders, our business has always been and will always be transparent about every aspect of the process.
If you’d like to learn more on how a reverse mortgage can work for yourself, a loved one or a client…