The three largest closing costs are the Federal Housing Administration (FHA) mortgage insurance, the origination fee, title and other closing settlement fees. However, the only cost that is typically paid out-of-pocket is for HUD counseling.
One of the requirements for FHA insurance is that the borrower
is charged an up-front mortgage insurance premium (UFMIP) fee* at closing and, over the life of the loan, is charged an annual MIP fee on the loan balance.
The FHA insurance provides these guarantees:
The origination fee is what the reverse mortgage lender or broker earns on the loan. HUD uses a formula to determine what the lender can charge. The formula is:
Title guarantees the homeowner’s legal ownership of the property. These fees are required for all mortgages whether it is a reverse or conventional loan. The largest part of title fees is title insurance. Title and closing settlement fees are usually broken down into:
The appraisal establishes the legal value of the home. A reverse mortgage appraisal is conducted by an independent HUD approved appraiser and follows specific HUD guidelines that require more specific documentation than a typical appraisal.
A reverse mortgage loan accrues interest similar to a traditional mortgage except the homeowner is not making payments (interest or principal) each month to reduce the loan balance. As a result, the loan balance grows with a reverse mortgage until the loan becomes due, usually when the homeowner permanently moves out of the property or passes away.
Over the last few years, the interest rates on reverse mortgage loans have fluctuated between 3% and 6%. The true interest rate is half a percent above the quoted rate because the total rate includes the annual FHA’s ongoing Mortgage Insurance Premium (MIP) charges. For example, if the quoted rate is 4.51%, with the annual MIP charges of .5%, the total rate would be 5.01%.
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What is a Reverse Mortgage
Reverse Mortgage Eligibility
Reverse Mortgage
Reverse Mortgage Closing Costs
*The Upfront Mortgage Insurance Premium (UFMIP) is based on a percentage of the Max Claim Amount. The Max Claim Amount (MCA) 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).