What Should I Know About Closing Costs
Closing is the last step in the home-buying process. Closing happens in a meeting between a combination of the buyer, the buyers agent, the seller, the sellers agent and a closing agent. The closing agent is either an attorney or a representative from the title company which manages the homes ownership paperwork.
Why Do I Need To Get Counseling Before Applying For A Reverse Mortgage
The Department of Housing and Urban Development requires counseling for interested applicants to help them understand the pros and cons of reverse mortgages, how they work and how the borrower can receive the loan proceeds. Counseling also explains how this type of loan may affect a persons eligibility for other government programs, such as Supplemental Security Income or Medicaid. Additionally, it helps borrowers determine whether a reverse mortgage is the best option available to them.
Reverse Mortgage Closing Costs
ByCheryl Hale | Submitted On November 14, 2007
Reverse Mortgages involve many of the same closing costs that you would pay for a home purchase or a refinance. Here is a breakdown of the typical closing costs for a reverse mortgage:
Origination fee
This covers the operating/overhead expenses for the lender. A portion of this is also paid to the loan originator. Under the HECM , which accounts for the majority of reverse mortgages, the origination fee is as follows:
2% of the lesser of the property’s appraised value or the FHA maximum loan limit for your county. In most major metropolitan areas,the FHA max loan limit is $362,790. So if your home was appraised at $400,000, the origination fee would be 2% of $362,790 or $7256. The minimum origination fee is $2000.
Mortgage Insurance Premium
The mortgage insurance premium is calculated the same as the origination fee.
With a reverse mortgage, the lender recovers their principal, plus interest, when the home is sold or refinanced. The remaining value of the home goes to the homeowner or to his or her survivors. If the sales proceeds are not enough to pay off the loan, HUD will pay the lender the amount of the shortfall. The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage.
Appraisal fee
The appraisal fee is typically $325-$350. This is the only fee that is paid “up front”. The appraiser will expect to be paid at the time of the property inspection.
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Costs You Have To Pay But That Are Deducted From The Amount Borrowed
These costs rather than being upfront costs that you have to pay out of your own pocket can be deducted from the amount that you receive.
So lets say you arrange a reverse mortgage for $150,000 and these costs are $2,000. Then you will receive $148,000 instead.
You can choose to pay them if you like but almost every single person chooses to have them deducted from the amount borrowed instead.
These are split between two different sets of legal costs:
How Are Closing Costs Paid
If youre buying a home, closing costs must be paid in cash and cant be rolled into your mortgage payment, as they can with a mortgage refinance. Budget these costs into your home purchase and plan on how you will cover these costs at closing time.
That said, you can always try negotiating on your closing costs to help reduce your out-of-pocket expenses.
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What Is The Reverse Mortgage Foreclosure Process When Does It Happen
Given that our customers do not have to make regular mortgage payments and therefore do not default on payment reverse mortgage foreclosures are extremely rare.
Reverse mortgage foreclosures usually only come about when customers do not maintain the condition of their home or fail to keep their homeowners insurance or property taxes up to date. These conditions are in place to help you and us to protect the investment in your home.
A foreclosure on a reverse mortgage after the death of a borrower seldom happens. Typically, the home is sold to pay off the debt, so a reverse mortgage foreclosure affecting heirs is rare.
Reverse mortgage foreclosures are the last resort and before we even consider them, we work with our clients to try to stop foreclosure on a reverse mortgage. This may involve increasing the amount of the reverse mortgage to cover the payment of outstanding taxes or insurance, or to pay for necessary repairs.
If this does not work, we will begin the reverse mortgage foreclosure process. Depending on where you live, this could lead to a power of sale or judicial foreclosure, both of which could lead to your home being sold. The proceeds would then go towards paying off the debt and any other costs involved in the foreclosure process. Depending on the courts decision, you or your estate would receive any remaining amount.
As we mentioned, though, the reverse mortgage foreclosure process is extremely rare.
Learn more about Reverse Mortgages
Reverse Mortgage Closing Costs & Fees Explained
Its no secret that nobody likes to pay closing costs and fees. And when it comes to mortgages, you likely have several questions about what these costs and fees entail. What exactly are you paying for? What do all these various fees cover? And most of all, how much is it going to cost you?
Whether youre considering a reverse mortgage, traditional mortgage, or any type of financial tool, its important to have a clear understanding of all the associated costs. From closing costs to lending fees and even applicable interest rates, youll want to know exactly how much money youll need to bring to the table.
In the case of a Home Equity Conversion Mortgage , also known as a reverse mortgage, there are both upfront and ongoing costs that youll need to consider before you choose to tap into your homes equity. Check out some of the costs you can expect to pay throughout the process of the loan.
Upfront CostsJust like a traditional forward mortgage, a reverse mortgage will require you to pay one-time upfront costs at the beginning of the loan. However, since a reverse mortgage involves tapping into equity that is already in your home, you have the option to roll a majority of these costs into your loan. Should you opt to use loan proceeds to cover upfront costs, you will not need to pay them at closing. In this scenario, these costs will be subtracted from your total reverse mortgage loan proceeds.
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What Are The Interest Rates For Reverse Mortgages
Your interest rate is expressed as a percentage of the loan amount you borrow. This rate will stay the same over the life of your loan if you select a fixed-rate reverse mortgage, and this rate will fluctuate if you select an adjustable-rate reverse mortgage.
A fixed rate will usually result in a smaller loan amount however, the interest rate will not change.
An adjustable rate usually offers a lower introductory rate because the borrower is assuming some of the lenders interest rate risk, in the event of a rising-rate environment. Adjustable rates also come with more reverse mortgage payment choices.
The interest rate you pay is based on multiple factors, including your lenders cost in acquiring the money its lending you . Other key factors influencing the rate you receive are your credit history, the homes price and location, interest-rate type , existing mortgage liens, loan size and the reverse mortgage disbursement method you select.
Your interest rate is calculated daily and added to your loan balance monthly. This amount is indicated in your monthly statement. A reverse mortgage is unlike a traditional mortgage in that you can defer payment of your loan balance until you sell or move out of the home or pass away. However, you must continue to maintain your home, pay property taxes and homeowners insurance and comply with your loan terms.
What Are Other Typical Reverse Mortgage Closing Costs
Reverse mortgage loan expenses may also include closing costs that are typical of any loan. This may include the following:
- Title Insurance. This insurance protects both buyer and lender against potential losses from possible property ownership disputes.
- Recording Fee. This is a fee to record the mortgage lien with your countys recorders office, often the county clerk.
- Documentation Preparation Fees. This is a fee for the preparation of all final closing documents.
- This is a fee for verifying any liens or judgments.
- Pest Inspection Fees. This fee is for inspecting to see if the home is infested with any pests.
- Flood Certification Fee. This fee is to determine if the property is located on a flood plain.
- Survey Fee. This fee determines property boundaries and ensures the neighboring property is not intruding upon the reverse mortgage borrowers property.
- Courier Fee. This fee covers the delivery of documents between the lender and loan investor or title company.
- Settlement/Escrow/Closing Fee. This is the fee for closing services such as a title search.
Disclaimer notice: Origination fees, lender margins, payment options, and closing costs are subject to change and may vary. Amortization tables and APR calculations will be provided by your lender in the loan application package. A good faith estimate of closing costs, TALC disclosure, and other disclosures will also be provided on the loan application as required by the Truth in Lending Act and Regulation Z.
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Who Pays Closing Costs
Both buyers and sellers pay closing costs. However, the buyer usually pays most of them. You can negotiate with a seller to help cover closing costs, which are called seller concessions. Seller concessions can be extremely helpful if you think youll have trouble coming up with the money you need to close. There are limits on the amount that sellers can offer toward closing costs. Sellers can only contribute up to a certain percentage of your mortgage value, which varies by loan type, occupancy and down payment. Weve broken this down below:
Reverse Mortgage Costs & Fees Explanation And Breakdown Of Costs Involved For 2014
First and foremost you must have around $550 dollars to pay for the out of pocket reverse mortgage fees . These fee has to be paid by for the consumer and there are laws in most states against the lenders covering these fees We are able to find reverse mortgage counselors which do not charge a fee and there is a desktop appraisal which charges only $100 first then the remainder to make sure that the home value is close to where it needs to be. These two costs are similar to refinancing costs minus the HUD counseling fee if any since that is not a requirement to refinance do not hesitate to contact us about finding you a free HECM counselor.
Reverse Mortgages Typical Fees Involved
- Appraisal
- Document preparation and recording the loan
- Appraisal or survey of the property
- Title and tax search
- Attorneys fees charged to the lender in connection with the closing of the loan
- Repairs contracted for, at or before the loan closing
- Tax reporting service
- Mortgage insurance
- Real estate taxes and property insurance
- Mortgage brokerage services
1.) Origination fees: Pays the lender for preparing all of your paperwork and processing your loan, which is known as originating the loan. A lender can charge you up to $2500 as a fee if the home is worth less than $125,000.
If the home is worth more, the lenders/banks can charge a 2% fee on the first $200,000, and then a 1% fee on any amount greater than $250,000.
Example: $300,000 home
origination fee:
HECM insurance guarantees that
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How Closing Costs Affect Your Mortgage Interest Rate
Mortgage loan pricing is flexible. You can choose the fee structure that works best for your financial situation.
For instance, maybe you want the lowest interest rate and monthly mortgage payment possible and youre willing to pay extra upfront to get it.
Or, you might accept a slightly higher interest rate if your lender will cover the closing costs and get your out-of-pocket expense to zero.
You should be aware of your options so you can choose the structure thats most affordable for you.
Should You Pay Refinance Closing Costs Out Of Pocket
Take a close look at your financial situation when deciding the best way to pay your refinance closing costs.
If you have sufficient home equity, it might be worthwhile to add your refinance closing costs to your mortgage balance to avoid an out-of-pocket expense.
This also makes sense when you dont have much money saved, or if you dont want to deplete your personal savings when refinancing.
However, rolling closing costs into your loan increases the loan balance, your monthly mortgage payment, and your total interest charges. So if you can spare the cash, it might be better to pay your closing costs out-of-pocket and be done with it.
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Home Equity Conversion Mortgage
This is the most common type of reverse mortgage, and it’s backed by the government. You must meet with a HUD counselor before closing so they can explain the process, pros, and cons to you.
The loan amount is within the limits set by HUD, which is $970,800 in 2022.
You’ll pay more in upfront costs with a HECM than with other types of reverse mortgages, but you can use the money for anything.
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What Are Typical Closing Costs On A Cash Purchase
February 3, 2017 By JMcHood
You have enough money to pay cash for a home congratulations! That is a very big accomplishment. Before you start counting your chickens, though, you should know the different fees you have to pay regardless of the fact that you wont need a mortgage. Every home purchase has closing costs that coincide with it. Some of the fees you pay and others the seller pays. The costs will likely be lower than your standard amount because you dont have a loan, but they can still amount to thousands of dollars in fees. Knowing ahead of time what you have to pay can have you properly prepared when you get to the closing table.
Understand The Different Costs
Closing fees come in different sizes and from various sources. There are the fees that the lender charges, and then there are also state and federal taxes that homebuyers have to pay. Lender fees are going to vary from one bank or mortgage broker to the next, and this is where you can find the most potential savings. On the other hand, theres little to no room for negotiation with things such as city, county, and state transfer taxes, prepaid property taxes, and recording fees.
The most common costs that homeowners will face to close on the home include a land survey, a home appraisal, credit checks, a loan origination fee, an application fee, and home inspection fees. A borrower may also purchase points to lower the interest rate over the life of the mortgage loan. The amount that someone is going to pay in closing costs depends on the financial company and the mortgage-related fees that it charges, the state in which the home is located, and how much the loan is for.
In 2019, the highest average closing costs, excluding taxes, were in the District of Columbia , New York , Hawaii , California , and Washington , while the lowest were in Indiana , Nebraska , Iowa , South Dakota , and Arkansas .
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Do All Lenders Have The Same Closing Costs
No. On a federally insured HECM loan, all lenders will charge the uniform 2% upfront mortgage insurance premium which is a requirement of the loan and paid to HUD. However, each lender offers its own interest rates, margins and set of closing costs as private companies operate on their own margins. Generally, you will find that brokers have higher costs as they serve more as a middleman to a direct lender. It pays to shop around and compare both rates and total costs.
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Other Major Closing Costs Associated With Reverse Mortgages Include The Following:
- Origination Fee
- Appraisal Fee
- Mortgage Insurance Premiums
The origination fee covers the lenders operating costs that are associated with originating the reverse mortgage.
Under the Home Equity Conversion Mortgage program, which accounts for nearly all reverse mortgages in the U.S., the maximum origination fee that lenders are allowed to charge is 2% of the initial $200,000 of the homes value and 1% of the remaining value, with a cap of $6,000.* So, for example, if the homes value is $300,000 the origination fee would be $5,000 plus 1% of $100,000 ). Note that some lenders will waive or reduce the origination fee for certain products. Ask your lender for details.
The appraisal fee covers the cost of the appraisers assessment of the homes current market value.These fees can vary greatly by region, value of home, condition of home and other factors however, the average cost of a reverse mortgage appraisal fee is around $450.*
According to the National Reverse Mortgage Lenders Association, this fee is generally paid upfront in cash and not paid using the Reverse Mortgage Proceeds.
If the appraiser finds any significant problems, the homeowner is required to hire a contractor to make any needed repairs. In some cases, the cost of the repairs can be paid for using the Reverse Mortgage proceeds. Talk to your lender or see the NRMLAs website for details.
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*subject to change figures based on data from April 2015
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