As with a conventional mortgage, there are costs associated with a reverse mortgage. While perceived as high, once understood you’ll see the reverse mortgage costs are comparable to a conventional loan. Most people don’t understand the fees, what they cover or why they have to be paid with a conventional loan either, they just accept them as part of doing a loan.
One difference is that with the HUD insured reverse mortgage, the Home Equity Conversion Mortgage (HECM), HUD regulates the fees and does not allow marked up or “junk fees,” borrowers only pay the actual costs.
To get clear, let’s understand what the Minnesota fees are and what they cover.
|Origination Fee||Covers the lender’s time and costs associated with originating the loan including: loan officer’s and staff’s salary, administrative costs, business overhead (computers, office space, utilities, health insurance, office supplies, marketing, processing, underwriting, etc.) (Note processing and underwriting fees are generally additional fees on conventional loans but have to be included in the origination fee on FHA reverse mortgages loans.)||HUD sets guidelines for the origination fee: Maximum of 2% of the first $200,000 of the home value or lending limit, 1% on the balance thereafter with a cap of $6,000 or a minimum of $2,500.|
|FHA Mortgage Insurance Premium||A required charge from FHA because they are insuring the loan. Keeps the interest rate lower, allows more to be borrowed, guarantee funds are available, and covers risk so borrower or heirs are not personally liable.||2% of the property value or mortgage lending limit, whichever is less.|
|Appraisal||Fee for FHA licensed appraiser to determine the market value of the property. Includes a management fee for an independent company to order the appraisal.||$450 – $500|
|Repair Administration Fee||All loans with repairs are charged an administration fee for overseeing that the repairs are completed, ordering inspection, processing payments, etc.||1.5% of the repair bid|
|Credit Report Fee||This is to check if there are any liens or judgements against the property or person that would need to be paid or other contradictory information.||$18 – $20|
|Flood Certification Fee||For verifying whether flood insurance is required or not.||$15 – $20|
|Courier Fee||To send pay offs to a current lender if there are any.||Approximately $30 each|
|Counseling by Third-party HUD approved counselor||A fee may be charged to the borrower for counseling services as long as it does not create a hardship. The counselors must make a determination about the borrowers ability to pay which may include factors such as income and debt obligations – HUD recommends a written procedure for this. Counselors must inform borrowers of the fee structure in advance of services and cannot be turned away, nor the counseling certificate be withheld based on failure to pay. The Counseling fee may become part of the costs at closing.||Up to $125 allowed by HUD|
|Document Preparation Fee||Charge for preparing the loan documents for closing. A specialized company prepares the loan package.||$100-$125|
|Escrow, Settlement or Closing Fee||Charged by the title company for handling the title work and closing of the loan.- – – – – – – – – – – – – – – – – – – – – – – – – – – – – -Sometimes there is an additional signing/notary fee or an additional fee for going to a borrower’s home.||Generally $250 – $350- – – – – – – – – – – – – – – $125-$200 signing/ notary fee|
|Abstract or Title Search||This charge is for searching the county records.||$150-$185|
|Title Examination||This is for the examiner to review the title and put the commitment together.||$135-$150|
|Title Insurance||Title company’s insurance on the property guaranteeing clear ownership and protect lender if there is a defect in the title. Different than owner’s title insurance policy.||Based on property value.|
|Recording Fees||Fees for recording documents with the county such as mortgage, deeds, county taxes, bankruptcy, name change due to divorce or loss of spouse||$46 each + a $5 conservation fee|
|County Tax||Mortgage Registration Tax required in Minnesota and collected by the county.||Based on Principal Limit|
|Survey/Plat Drawing; Name & Assessment Search||Fee for obtaining and reviewing the plat drawing; Fee for searching names and assessments on title||$60; $30; $30 = $120 combined (higher for some counties)|
|Fees Paid by Lender to Broker such as Yield Spread Premium; Service Release Premium; Lender Paid Broker Compensation||Brokers/originating lenders are paid in two ways, one by you (the origination fee) the other by the lenders. Lenders pay brokers/originating lenders compensation for submitting loans to their company. This compensation also covers the broker’s/originating lender’s time and costs associated with their running their business.It does need to be disclosed on the Good Faith Estimate. Note that federally chartered banks do not have to disclose this information to borrowers even though the same compensation is paid.||This is NOT A BORROWER EXPENSE!To disclose this to you, on the GFE it will be shown as a fee then credited back so it is not actually charged to you.|
As the RESPA (Real Estate Settlement and Procedures Act) changes effective January 1, 2010 a Good Faith Estimate (GFE) can ONLY be provided with an actual application. It is no longer allowed for the informational or quote package to include a GFE.
- Information (in addition to the name, birthday, property information, current loan details,) that will trigger the application include the Social Security Number, Monthly Income, assets, debts, any other pertinent information. This information should NOT be provided until lender is chosen and ready to proceed with an application. Once lenders have this information they may start processing the loan.
Note that the fees, other than the Appraisal and possibly the counseling fee, are wrapped into the loan so there are no other out of pocket costs.
Being clear and having an understanding of the reverse mortgage costs helps you make better decisions and takes the fear away from the reverse mortgage.
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