Yin Yang of Reverse Mortgage Closing Costs
Some areas of my business are tougher than others. Tackling the question and reasoning behind the costs of getting a reverse mortgage is one of them.
I believe I'm a poor salesman. As such I dive right in and tell my customers straight away, "The closing costs for your reverse mortgage will be higher than you might think".
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.
The second is FHA charges 2% of the value of the home up to $417,000. And the last is reverse mortgage lenders charge an origination fee .5% to 1% higher than typical forward mortgages.
One doesn't need to have a degree in advanced calculus to quickly figure out that closing costs are fairly expensive.
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.
To put this into perspective, a seventy year old customer with a two hundred thousand dollar home would be entitled to borrow roughly $130,000 with an FHA insured mortgage.
Fannie Mae offered a reverse mortgage product until September of this year. It discontinued it. You know why? Everyone took the FHA product because it offered far more money than the Fannie product. The same borrower would have received less than $100,000 on the Fannie product.
Why ? Because the FHA insurance, everyone is so unhappy about, allows lenders to feel comfortable enough to lend such large amounts.
The insurance covers the lender in the event that one day more is owed on the home than the home is worth. This is the lender's biggest fear.
Expensive, horrible, bitter FHA insurance hedges the lender's risk, which makes much more money available to borrowers. But in the end it allows so many seniors to solve stressful financial issues.
I believe I'm a poor salesman. As such I dive right in and tell my customers straight away, "The closing costs for your reverse mortgage will be higher than you might think".
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.
The second is FHA charges 2% of the value of the home up to $417,000. And the last is reverse mortgage lenders charge an origination fee .5% to 1% higher than typical forward mortgages.
One doesn't need to have a degree in advanced calculus to quickly figure out that closing costs are fairly expensive.
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.
To put this into perspective, a seventy year old customer with a two hundred thousand dollar home would be entitled to borrow roughly $130,000 with an FHA insured mortgage.
Fannie Mae offered a reverse mortgage product until September of this year. It discontinued it. You know why? Everyone took the FHA product because it offered far more money than the Fannie product. The same borrower would have received less than $100,000 on the Fannie product.
Why ? Because the FHA insurance, everyone is so unhappy about, allows lenders to feel comfortable enough to lend such large amounts.
The insurance covers the lender in the event that one day more is owed on the home than the home is worth. This is the lender's biggest fear.
Expensive, horrible, bitter FHA insurance hedges the lender's risk, which makes much more money available to borrowers. But in the end it allows so many seniors to solve stressful financial issues.
About the Author:
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10:44 PM
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