There are three primary acquisition costs for a HECM Reverse Mortgage. However, the only cost that is typically paid out-of-pocket is for HUD counseling and the appraisal.
1. FHA Mortgage Insurance Premium (MIP)
This required insurance is purchased by the borrower and financed into the loan. It goes to the Federal Housing Administration (a division of the United States Department of Housing and Urban Development—HUD), and guarantees that the total debt repayment will never be greater than the value of the home at the time of repayment.
It also guarantees that you will receive your promised loan advances and will not have to repay the loan for as long as you live in the home and meet the requirements of the loan. It is currently calculated at 2 percent of the home’s appraised value (up to the lending limit).
The FHA MIP also provides these guarantees:
- If you or your heirs sell your home to repay the loan, your total debt can never be greater than the value of your home.
- You will continue to receive your HECM proceeds, based upon the program plan you selected, even in the event that your lender becomes financially troubled.
2. Origination Fee
The lender is permitted to charge a fee to cover their costs. HUD sets the maximum amount to be calculated at 2 percent of the first $200,000 of the home’s value and 1 percent of any remaining value. The maximum amount that can be charged is $6,000. Origination fees will vary from lender to lender and vary according to secondary market pricing functions.
3. Third Party, Title and Closing Settlement Fees
This includes costs charged by third-party vendors associated with transacting and closing the loan (see below). These charges typically range between 0.5 percent to 1 percent of the home’s appraised value (up to the lending limit). Most of these fees (with the exception of the appraisal) can usually be financed into the loan.
- Title insurance (varies by state and with property value)
- Title settlement
- Title search/exam
- Payoff (if a mortgage is being paid off)
- Document preparation
Standard Retail Acquisition Costs 2018
The chart above reflects standard retail pricing as of November 2018. Pricing will vary based on product choice and interest rates at the time of securing the loan.
Other 3rd party charges include:
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. Most lenders will charge the consumer either the full or part of the appraisal fee.
Other Closing Costs
- Counseling fee
- Wire fee
- Flood certification fee
- Credit report fee