Understanding Every Dollar in Closing Costs
Like any mortgage, a reverse mortgage involves closing costs. Understanding what these costs are and how they're structured helps you evaluate the overall value of your HECM loan. Most closing costs can be financed into the loan rather than paid out of pocket.
Origination Fee
Lenders charge an origination fee to cover the cost of processing your loan. FHA sets maximum limits: $2,500 for homes valued at $125,000 or less; for homes above $125,000, the fee is 2% of the first $200,000 of home value plus 1% of the amount over $200,000, with a maximum cap of $6,000. Some lenders may charge less than the maximum.
Initial Mortgage Insurance Premium (IMIP)
The initial MIP is 2% of the maximum claim amount (the lesser of your home's appraised value or the FHA lending limit). For a home valued at $400,000, this would be $8,000. This premium is what provides you with the non-recourse protection and guaranteed access to funds.
Appraisal Fee
An FHA-approved appraiser must evaluate your home's value and condition. Appraisal fees typically range from $450 to $750, depending on your location and property type. The appraisal determines your maximum claim amount.
Title Insurance and Search
Title insurance protects the lender (and you) against any claims or liens against your property. Title search and insurance costs vary by state and property value but typically range from $1,000 to $3,000.
Recording Fees and Government Charges
These are fees charged by your local government to record the new mortgage. They vary by location but are typically a few hundred dollars.
Third-Party Fees
Additional third-party costs may include credit report fees, flood certification, courier fees, and document preparation. These typically total a few hundred dollars.
Financing Your Closing Costs
One advantage of a reverse mortgage is that nearly all closing costs can be financed into the loan rather than paid out of pocket. While this means the costs accrue interest over time, it eliminates the need for a large cash outlay at closing. Your advisor can show you the long-term impact of financing versus paying costs upfront.
