Reverse Mortgage Fees

The three largest closing costs are the FHA mortgage insurance, the origination fee, and escrow fees. However the only cost that is typically paid out of pocket is counseling.
For the HECM standard, the upfront insurance premium is 2% of the property value up to the HUD property value limit. The FHA insurance provides three guarantees:

  • The homeowner cannot “outlive” the reverse mortgage
  • The homeowner and heirs will not be personally liable if the balance of the loan exceeds the value of the home at the time of sale.
  • The FHA will take over the loan if the lender becomes financially troubled
The origination fee is what the reverse mortgage lender earns on the loan. The FHA uses a formula to determine what the lender can charge. The formula is:

  • 2% of the first $200,000 of property value and 1% of the second $200,000 of property value
  • An absolute maximum of $6,000
Title guarantees the homeowner’s legal ownership of the property and is required for all mortgages whether reverse or conventional. The largest part of title fees is title insurance. Title fees are usually broken down into:

  • Title insurance (varies by state and with property value)
  • Title settlement
  • Title search/exam
  • Recording
  • Delivery/courier
  • Payoff (if a mortgage is being paid off)
  • Notary
  • Doc prep