As with many types of financial transactions, you will have to pay fees when taking out a reverse mortgage. You'll also have to pay closing costs because you'll be dealing with a real estate transaction. In order to get the best deal possible on your reverse mortgage, you should be aware of what reverse mortgage fees and closing costs you should be expected to pay. Here's what you should know.
Typical Reverse Mortgage Fees
The following costs are for loans that are part of the Home Equity Conversion Mortgage (HECM) program which is insured by the Federal Housing Administration (FHA). There are other reverse mortgage loans available, but HECM reverse mortgages are the most common. Reverse mortgages part of other programs may have different costs.
One major fee you'll see is the Upfront Mortgage Insurance Premium (UMIP) fee. The amount of the fee depends on how much you borrow up front in the first year of the reverse mortgage. If you borrow more than 60 percent of the initial principal limit, a number calculated by your lender, then the insurance premium fee will be 2.5 percent of the appraised value of the home. If you borrow less than 60 percent, the fee is 0.5 percent of the appraised value of the home. These costs are for homes worth up to $625,500 according to the Consumer Financial Protection Bureau.
Origination fees are another common fee borrowers will see. Origination fees normally cover the lender's costs for processing and underwriting your loan. The maximum possible origination fee on a HECM reverse mortgage is $6,000 if your home is worth more than $400,000. If your home is worth less than $400,000, the maximum origination fee could be as low as $2,500 or up to $6,000 depending on the value of your home. Different lenders may charge different amounts for this fee so it pays to shop around.
Servicing fees may be included in some reverse mortgages. Essentially, the lender is charging you to maintain all the necessary information on your loan and for services like sending your monthly statements. These fees can be up to $35 per month, but you should try to negotiate this fee away or find a reverse mortgage without this fee to save money.
Typical Reverse Mortgage Closing Costs
You'll find closing costs on all real estate loans, including reverse mortgages. Closing costs can vary from region to region, but the most common closing costs are covered below.
In order for your lender to determine the value of your home, you'll likely need to pay a fee for an appraisal upfront. The appraiser will value your home and make sure your home is in good shape per the requirements of your loan. The fee is normally around a few hundred dollars. In addition to an appraisal, your lender will want to make sure that the home is properly located on the property you own and that other structures aren't infringing on your property. They do this by conducting a survey. The survey fee is normally a couple hundred dollars. Title insurance may also be required in order to protect either the lender or yourself from future disputes over who really owns your property. Title insurance costs vary based on the value of your loan.
The bank may require additional inspections, such as a pest inspection, to verify certain features of the home are up to the proper standard. These fees vary by the inspection being done, but normally aren't more than a hundred dollars. The lender will also need to pull your credit in order to determine what interest rate you qualify for. They may pass this fee on to you, and it normally costs about $35 or less. Recording fees are charged to record the mortgage in your local municipality's records. These charges vary from one area to another. Finally, you may have to pay a flood certification fee to make sure that your home isn't located in a flood plain as designated by the federal government. This fee normally is around $20.
The above fees are some of the most common fees, but lenders may try to charge other fees as well. Always ask to understand why you are being charged a fee, if the fee is really necessary and if the fee can be waived so you can get the best bang for your buck with regards to your reverse mortgage.
How to Find the Best Reverse Mortgage for You
To find the best reverse mortgage for you, you'll need to consider both the interest rate offered on the loan in combination with the various fees the lender and others will charge you. Once you have information on the interest rates and fees, calculate which loan will have the lowest overall cost for you. Shopping around to find the best deal for a reverse mortgage can be a hassle. Luckily there are resources, such as LendingTree, that help get quotes from multiple lenders so you can quickly find the best deal for your situation.