Reverse Mortgage Eligibility

  • All reverse mortgage borrowers must be 62 and older
  • Must own property and occupy as primary residence
  • Participate in an information counseling session
  • Must have sufficient equity in the property
  • Property must meet FHA property standards
  • Must maintain home with needed repairs, property taxes and insurance

Loan Amount Based On

  • Age of youngest borrower
  • Current interest rate
  • Lesser of appraised value or the FHA insurance limit
  • An Image Slideshow - Reverse Mortgage Educator
  • An Image Slideshow - Reverse Mortgage Educator
  • An Image Slideshow - Reverse Mortgage Educator

Typical Costs in Getting a Reverse Mortgage

Many of the same costs that someone pays to obtain a home purchase loan, or to refinance their existing mortgage, apply for reverse mortgage costs too. You can expect to be charged an origination fee, mortgage insurance premiums, an appraisal fee, and certain other standard closing costs.

In most cases, these fees and costs are capped and may be financed as part of the reverse mortgage. You may see discount ads for "No origination fee, no up front mortgage insurance, no monthly servicing fee" and the like. No origination fee is possible if the interest rate is bumped up high enough, but you may not want to do that because of how it will affect your equity over time. No (or almost no) up front MI is possible with a HECM Saver program, but the interest rate may be higher and you will be eligible for less money. No monthly servicing fee is possible now, as lenders have dropped that from most products. Below is a more in-depth explanation of each type of fee.

Origination Fee
The origination fee covers a lender's operating expenses—including office overhead, marketing costs, etc.—for making the reverse mortgage. If you are working with a broker, this fee may or may not go to the broker, it may go to the direct lender. Some interest rates may not have any origination fee. If there is an origination fee, it cannot be more than 2% of the initial $200,000 of maximum claim amount (lesser of the home value or county lending limit) plus 1% of the remaining balance, with a cap of $6,000.

Mortgage Insurance Premiums
Under the HECM program, borrowers are charged an initial up front mortgage insurance premium (MIP), equal to 2 percent of the maximum claim amount, or home value, whichever is less, plus an annual premium thereafter equal to 1.25 percent of the loan balance.

The MIP guarantees that if the company managing your account – commonly called the loan “servicer” – goes out of business, the government will step in and make sure you have continued access to your loan funds. Furthermore, the MIP guarantees that if the house is sold, the amount to be repaid will never exceed the value of the home.

Appraisal Fee
An appraiser is responsible for assigning a current market value to your home. Appraisal fees generally range between $375-$600.

In addition to placing a value on the home, an appraiser must also make sure there are no major structural defects, such as a bad foundation, leaky roof, or termite damage. Federal regulations mandate that your home be structurally sound, and comply with all home safety codes, in order for the reverse mortgage to be made.

If the appraiser uncovers property defects, you must hire a contractor to complete the repairs. Once the repairs are completed, the same appraiser is paid for a second visit to make sure the repairs have been completed. The cost of the repairs may be financed in the loan and completed after the reverse mortgage is made. Appraisers generally charge $50-$75 dollars for the follow-up examination.

Servicing Fee

Servicing fees are not as common as they used to be. Basically it's a monthly fee to cover the costs of servicing your account. It's a "set-aside" from the monies you are eligible for, and pulled out during loan origination, so you don't have to worry about it in the future. They estimate the number of months required over the life of the loan based on actuarial tables, etc. The amount typically is about $20-$35 per month.

Closing Costs
Other closing costs that are commonly charged to a reverse mortgage borrower include:

  • Credit report fee. Verifies any federal tax liens, or other judgments, handed down against the borrower. Cost: Generally under $20
  • Flood certification fee. Determines whether the property is located on a federally designated flood plane. Cost: Generally under $20
  • Tax certification fee. Allows the lender to monitor payment of property taxes. Cost: Generally under $20 
  • Escrow, Settlement or Closing fee. Covering various required closing services. Cost: $300-$550
  • Document preparation fee. Fee charged to prepare the final closing documents, including the mortgage note and other recordable items. Cost: $50-$150
  • Counseling Fee: The required 3rd party counseling from an approved FHA counselor. Cost: $0 to max of $150
  • Recording fee. Fee charged to record the mortgage lien with the County Recorder's Office. Cost: $50-$125
  • Notary Fee. Fee charged for the notary to confirm your identity and signing at close. Cost: Generally under $200
  • Wire Fee. Fee charged for the lender to wire funds. Cost: Generally under $30
  • Courier fee. Covers the cost of any overnight mailing of documents between the lender and the title company or loan investor. Cost: Generally under $125
  • Title insurance. Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against any loss arising from disputes over ownership of a property. Varies by size of the loan, though in general, the larger the loan amount, the higher the cost of the title insurance. Cost: $400 to $1300+
  • Title endorsement fee: This covers exceptions that are specific to a property, including covenants, conditions, restrictions, encroachments, easements, mineral developments, etc.  Cost: Generally under $200
  • If the transaction is a purchase rather than a refinance, there will be additional costs, for example for pest inspection, owner's title insurance, city/county tax stamps, natural hazard disclosure fees, home warranty fees, etc.
 
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