As with a conventional mortgage, the closing costs for reverse mortgages may vary depending on the home value and the complexity of the loan. The fees associated with the reverse mortgage are fully financed as part of the loan with no out of pocket expenses. Lenders will provide Good Faith Estimates upon application. The closing costs for Minnesota Reverse Mortgages include:
We at Prestige Mortgage LLC, Reverse Mortgages S I D A C pride ourselves on providing a complete estimate close to the actual fees that will be charged at closing. For more information, contact us.
Origination Fee– Pays the loan officer’s salary, the processing, underwriting, and administrative costs (overhead, equipment, health insurance, etc.) associated in originating the loan. HUD guidelines are 2% on the first $200,000, 1% thereafter with a cap of $6,000 of the home value or maximum claim amount, whichever is higher and a minimum of $2,500.
The origination fee on the Reverse Mortgage is an initial closing cost. Conventional loans will have additional charges at end of loan and/or charges will be incorporated into interest expense. The origination fee on a Reverse Mortgage is based on the appraised home value or maximum claim amount/lending limit because:
Loan balance rises and could equal home value or more.
Loans are insured against future market value of home.
Loan is based on full value of home, it is not a partial loan.
FHA Mortgage Insurance Premium (MIP)– A required charge from FHA. It is 2% of the home value or maximum claim amount initially then ½% of the loan balance charged annually. FHA insuring the loan keeps the interest rate low and allows more dollars to be loaned than with proprietary programs. FHA guarantees the funds are available for the borrower and that the borrower or their heirs are not personally liable to repay the loan.
Courier Fee – To send pay offs to a current lender if there is one. To send documents from the processor to the title company and the title company to send them to the loan funder.
Title Examination – Pays for the examiner to review the title and prepare commitment.
Document Preparation Fee – Charged by a specialized company to prepare the closing loan documents. They verify the laws and regulations are met in the documents.
Title Insurance – Title company’s insurance on the property. This protects the lender against issues that may occur with the title if something was missed during the search or against hidden risks or unknown issues that may occur in the future regarding property ownership.
Recording Fees – Fees for recording documents with the county such as deeds, mortgage, county taxes, bankruptcy, name change due to divorce or loss of spouse, etc.
Miscellaneous Fees – The appraiser may call for a water test to check for chemicals including lead for those who have a well and/or septic. A pest inspection may also be required by a licensed inspector.
Counseling Fee - Borrowers are required to receive third part counseling prior to lenders processing the loan. HUD allows counselors to charge up to $125 per session.
When compared to a conventional
mortgage, the costs are comparable. The third party fees (appraiser,
title company, recording fees) are the same as with a conventional/"forward" mortgage. In comparison the difference is the FHA Mortgage Insurance Premium. HUD regulates the fees
and the borrower pays only the fees charged, there are no mark ups. And in the big picture the reverse mortgage costs less since the interest rate on the reverse mortgage is so much lower than a conventional loan.
Although not an initial or closing cost, another cost of the reverse mortgage is:
Monthly Servicing Fee – The companies servicing the Reverse Mortgage (servicers) receive a fee for servicing the loans. This covers the record keeping, sending payments and loan advances, transferring insurance premiums, verifying taxes and insurances are paid, sending statements, communications, etc.
Since the borrower is not making monthly payments, at the time of closing, a calculated amount totaling anticipated charges is set aside or withheld (not an initial cost), reducing the amount available to the borrower. The set-aside amount is not a cost of the loan nor does it become part of the beginning loan balance. It is just a calculation determined by the age and life expectancy of the borrower. The borrower is charged ($30 to $35) monthly for servicing the loan at which time this monthly charge becomes part of the loan balance. Interest is accrued only on the amount when it added to the loan balance.
Note: There are servicing fees associated with conventional loans however they are usually included in the interest rather than being a separate fee.
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