Some of the most significant loan closing costs are typically the Federal Housing Administration (FHA) initial Mortgage Insurance Premium (MIP), loan origination fee, and title insurance. Typically, all closing costs can be financed as part of the loan.
Generally, when you close the loan the only out of pocket fee is the Housing and Urban Development (HUD) required independent counseling. Although it cannot be paid by the reverse mortgage lender, often times the counseling fees can be financed into the loan and sometimes counseling fees can be waived by the counseling agency.
HECM fees include the Upfront Mortgage Insurance Premium (UFMIP) at closing, and, over the life of the loan, an annual MIP fee on the loan balance. This is based on a percentage of the Max Claim Amount (MCA), which is based on the lesser of your home’s value, the current maximum lending limit set by the Federal Housing Administration (FHA), or the purchase price (if purchasing a new home).
The mortgage insurance provides the following guarantees:
- The HECM is a “non-recourse” loan. If you sell the home to repay the loan, you or your heirs will never owe more than the loan balance or the value of the property, whichever is less; and no assets other than the home must be used to repay the debt
- If the lender becomes insolvent or otherwise fails to make payments due to the borrower, MIP ensures that the borrower will continue to receive their payments
Loan Origination Fee
The origination fee is the lender’s fee. The maximum fee is set by law according to a formula:
- 2% of the first $200,000 of the property’s value and 1% of the amount over $200,000
- A maximum of a $6,000 origination fee
Title fees are required for all types of mortgages and primarily consist of:
- Title insurance (the largest component)
- Title settlement
- Title examination
- Document preparation
The home appraisal determines the market value of the property. A reverse mortgage loan appraisal must be conducted by a FHA-approved appraiser and meet the required guidelines.
Other closing costs
- Flood Certificate
- Wire Fee
- Credit report
Interest accumulates on a reverse mortgage loan just like on a traditional mortgage. However, instead of paying down the balance, the loan balance increases over time.