Are there any limitations on the upfront charges a bank can charge for a reverse mortgage?
Most reverse mortgages today are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program. The specific costs listed here are for HECM loans. In addition to HECM reverse mortgages, some lenders may offer what are called proprietary reverse mortgages or ones that are not insured by the FHA, which may have different costs.
Here is a list of typical fees that lenders charge at the start of a loan.
- The Upfront Mortgage Insurance Premium (MIP) is a one-time, nonrefundable charge.
- Origination fee. An origination fee is what the lender or mortgage broker charges the borrower for making the HECM reverse mortgage loan. Lenders may charge an origination fee of up to $6,000 for these loans. For homes worth less than $400,000, the maximum origination fee for these loans is calculated on a sliding scale between $2,500 and $6,000, depending on the value of the home. For homes worth more than $400,000, the maximum origination fee for these loans is $6,000. Learn more here.
- Real estate settlement (closing) costs. These are the same costs you would pay to take out a traditional mortgage. They include appraisal, title insurance, and inspection fees.
- Reverse mortgage counseling costs are charged by the counseling agency, not the lender. Counseling usually costs around $125, and consumers are responsible for paying this cost directly to the counseling agency. Low-income individuals can often get this fee waived, so be sure to ask your counselor if you qualify.
Paying for upfront costs.
Many borrowers choose not to pay for their upfront costs out of pocket. Instead, many borrowers use a portion of their loan funds to pay for the upfront costs.
Example: Lets say youre authorized for a $100,000 loan, and upfront costs are $8,000. You could choose to use $8,000 of the loan funds to pay for the upfront costs, rather than coming up with $8,000 from other savings. However, this means that youd only get $92,000 of the $100,000 loan amount.
Paying for upfront costs with loan funds is more expensive than paying them out of pocket. If you use your loan funds to pay for upfront costs, you will be charged interest and ongoing mortgage insurance on these costs. This means the total amount you will pay for these costs will be more than if you paid for them out of pocket.
Visit HUD's counselor search page or call HUDs housing counselor referral line (1-800-569-4287) to find a HUD-approved housing counselor.
HUD is the federal Department of Housing and Urban Development. It is charged with training and certifying counselors who will give reliable advice.