Reverse Mortgage Costs
Reverse mortgage fees are standard for reverse home loans, as with any mortgage product. While a somewhat unique financial product, a reverse mortgage is still a loan that has a lender, borrower, repayment terms, and fees. Borrowers can anticipate paying several expenses, including an appraisal fee, repair fees, up-front mortgage insurance premiums, an origination fee, and certain closing costs. Many of these fees can either be financed by the borrower directly or paid using funds from the reverse mortgage. This makes reverse mortgages very affordable, leaving very little out-of-pocket expense for the reverse mortgage holder.
The costs associated with reverse mortgages are outlined in detail below:
Appraisal Fees
During the processing stage of the reverse mortgage application process, the lender will order an appraiser to determine the Fair Market Value (FMV) of the property. The cost of the appraisal (generally between $300 and $400) is paid by the borrower.
Repair Fees
The appraiser will also assess the condition of the home. In order to be eligible for a reverse home mortgage the appraiser must certify that the physical condition of the home meets all FHA guidelines and that there are no structural defects with the property such as a leaky roof, termite damage, or a cracked foundation. If the appraiser finds issues with the property, the applicant must hire a contractor to complete all necessary repairs (repairs may be financed using funds from the reverse mortgage) and pay for a follow-up appraisal to verify that the repairs have been made. A follow-up appraisal generally costs between $50 and $75.
Reverse Mortgage Insurance Premium
Mortgage Insurance Premiums (MIP) ensure that if the borrower’s loan servicer (the company managing the reverse equity mortgage) goes out of business, the government will make certain that the borrower has continued access to his or her loan funds.
With the FHA Home Equity Conversion Mortgage(HECM) program, borrowers must pay a MIP equal to 2 percent of the county FHA loan limit or the value of the home (fee is equal to the lower figure), in addition to an annual premium of .5% of the total loan balance.
Origination Fees
Origination fees refer to the lender’s operating expenses involved in processing and disbursing the reverse mortgages. For a FHA HECM, the origination fee will be equal to 2 percent of the maximum loan limit or $2,000 (fee is equal to the higher figure). This fee generally ranges between $4,000 and $8,000.
Origination fees can generally be financed as part of the reverse equity mortgage.
Closing Costs
Closing costs can vary; however, there are several expenses that are generally charged to the borrower, including:
• Closing fees: includes title search, escrow, settlement fees, and other closing costs
Cost: Typically between $150 and $500
• Document preparation fee: cost of preparing the final closing documents, such as the promissory note and other recordable documents
Cost: Typically between $75 and $150
• Title insurance: protects all parties from financial losses resulting from any potential disputes over the property’s ownership
Cost: varies
• Pest inspection: used to determine whether the property is infested with wood-destroying pests (termites)
Cost: Typically less than $100
• Flood certification fee: an assessment of whether the property is on a flood plain
Cost: Typically less than $20
• Credit report fee: used to check for federal tax liens and other judgments charged to the borrower
Cost: Typically less than $20
• Courier fee: cost of mailing of documents between lender, investors, and title company
Cost: Typically less than $50
• Recording fee: cost of recording the reverse mortgage lien with the County Recorder’s Office
. Cost: Typically between $50 and $100