The Double Edged Sword of Reverse Mortgage Closing Costs
If I were to name the biggest hurdle to get over, with prospective clients in the reverse mortgage business, it would have to be the closing costs.
There is no doubt, and I let my folks know this upfront, reverse mortgage closing costs, for FHA insured mortgages, are higher than typical forward mortgages.
FHA insured mortgage upfront costs are high for 3 reasons: First, the lender performs an appraisal on the home and charges costs on the value of that appraisal, not the money the borrower is qualified to receive.
Additionally, HUD charges a two percent fee, based on the value of home up to four hundred-seventeen-thousand dollars. Lastly, the mortgage company charges a transaction fee (origination fee) which can be one percent above normal.
You don't need to pull out the calculator to get the basic gist... Costs are not so customer relations friendly.
One could argue the origination fee is not really higher than a typical mortgage, because forward mortgages simply build the fee into the rate. That's another subject for another day.
Much of the differences in comparing closing costs between forward and reverse mortgages comes down to the FHA upfront mortgage insurance. For a home valued at $417,000 just the MIP is over $8,000. It's no doubt a bundle, but without it, most of the same people griping about costs couldn't use this tool.
Example: for a 70 year old borrower with a $200,000 home. Today, a reverse mortgage lender will allow this borrower to pull out in excess of $130,000.
Non-FHA products are not really in existence anymore. However, Fannie Mae had one prior to dumping it in the fall of '08. Here is one of the reasons why it's gone. The same customer would have been eligible to receive less than one hundred thousand dollars.
The reason the FHA product is so strong is that crummy insurance. The insurance guards the lenders against loss, thus allowing them to lend more money.
Companies are now going out of business because more is owed on mortgages than the home is actually worth. FHA mortgage insurance covers a reverse mortgage company in this circumstance.
Yes, people are going to moan and groan about the cost to get a reverse mortgage. They will do so until doomsday, but remember, these costs are the mechanism that solves financial problems for so many seniors.
There is no doubt, and I let my folks know this upfront, reverse mortgage closing costs, for FHA insured mortgages, are higher than typical forward mortgages.
FHA insured mortgage upfront costs are high for 3 reasons: First, the lender performs an appraisal on the home and charges costs on the value of that appraisal, not the money the borrower is qualified to receive.
Additionally, HUD charges a two percent fee, based on the value of home up to four hundred-seventeen-thousand dollars. Lastly, the mortgage company charges a transaction fee (origination fee) which can be one percent above normal.
You don't need to pull out the calculator to get the basic gist... Costs are not so customer relations friendly.
One could argue the origination fee is not really higher than a typical mortgage, because forward mortgages simply build the fee into the rate. That's another subject for another day.
Much of the differences in comparing closing costs between forward and reverse mortgages comes down to the FHA upfront mortgage insurance. For a home valued at $417,000 just the MIP is over $8,000. It's no doubt a bundle, but without it, most of the same people griping about costs couldn't use this tool.
Example: for a 70 year old borrower with a $200,000 home. Today, a reverse mortgage lender will allow this borrower to pull out in excess of $130,000.
Non-FHA products are not really in existence anymore. However, Fannie Mae had one prior to dumping it in the fall of '08. Here is one of the reasons why it's gone. The same customer would have been eligible to receive less than one hundred thousand dollars.
The reason the FHA product is so strong is that crummy insurance. The insurance guards the lenders against loss, thus allowing them to lend more money.
Companies are now going out of business because more is owed on mortgages than the home is actually worth. FHA mortgage insurance covers a reverse mortgage company in this circumstance.
Yes, people are going to moan and groan about the cost to get a reverse mortgage. They will do so until doomsday, but remember, these costs are the mechanism that solves financial problems for so many seniors.
About the Author:
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posted by Debt Consolidation Loan at
10:49 PM
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