Closing Costs

The three most significant closing costs can be the FHA mortgage insurance premium, origination fee, and title insurance. Almost all closing costs are financed into the loan, however the HUD required independent counseling cannot be paid by the lender.

Mortgage insurance

The initial insurance premium is 2% of the home’s value. The insurance provides three guarantees:

• The homeowner cannot “outlive” the loan
• The estate will not be liable if the payoff balance exceeds the home’s value (“upside-down”)
• The FHA will pay out loan proceeds if the lender cannot

Origination fee

The origination fee is the lender’s fee. The maximum fee is set by law according to the formula:

• Maximum of $6,000
• Between the minimum and maximum, the amount is 2% of the first $200,000 of property value and 1% of $200,000 to $400,000 of value up to the max available fee.

Title fees

Title fees are the same for all types of mortgages and consist of:

• Title insurance (the largest component)
• Title settlement
• Title examination
• Recording
• Delivery
• Payoff (only if an existing mortgage is present)
• Notary
• Document preparation

Appraisal

The appraisal determines the market value of the property. A reverse mortgage appraisal has higher standards than a normal appraisal. It is conducted by an FHA-approved appraiser according to guidelines that require more documentation than a typical appraisal. An appraisal can costs $475-550 depending on the state.

Other closing costs

• Counseling fee
• Flood Certificate
• Wire Fee
• Credit report

Interest

Interest accumulates on a reverse mortgage just like on a traditional mortgage. However, instead of paying down the balance, the loan balance gets larger over time. Most homeowners today choose a fixed rate reverse mortgage rather than an adjustable rate.

The interest rate on adjustable reverse mortgages has remained betwen 3% and 5% over the last ten years.