Borrowers and their families looking at the possibility of obtaining a reverse mortgage are understandably concerned about the fees / costs of the loan.  Because this is one of the most regulated loan programs, most of the fees are heavily regulated as to what can and cannot be charged by lenders and brokers.  In fact, of all the fees, there is only one fee that goes directly to the originator and that is the origination fee. This means that regardless of whether your loan is originated by a bank, credit union or a mortgage broker, the only fee they can charge you is the Loan Origination Fee and the maximum allowable fee is set by HUD.

The formula for the maximum allowable fee is set on a sliding scale and is 2% of the first $200,000 of the property value, and 1% of everything above that to a maximum fee of $6,000, with a minimum allowable fee of $2,500.00. Now notice I said “maximum fee”. HUD does not mandate that they charge you this full amount, only that they are allowed to charge up to these amounts. Under this scenario, an originator could charge up to $4,500 for a property with a value of $250,000, but can charge less. This is the one and only fee that should be present on the Good Faith Estimate going to the originator as they are not allowed to charge processing fees, admin fees or any other “junk fees” on the loan. There will be other HUD approved third party charges that I’ll get into later, but nothing else that goes to the originator.

The single largest fee in any reverse mortgage transaction is typically the HUD Mortgage Insurance Premium (except for properties where the value is less than $125,000 and the originator is charging a full origination fee). As I stated earlier, the Origination Fee is calculated on a sliding scale and the Mortgage Insurance Premium is 2% of the property value up to the HUD lending limit (which is currently $625,500). Which means that on a reverse mortgage for a home valued at $400,000, the Mortgage Insurance Premium is $8,000 and on the highest of transactions, the Mortgage Insurance Premium is $12,510.00. This is the FHA insurance the guarantees that the borrower will always receive any funds due to them, on time, for as long as they live in the property.

The Federally Insured Mortgage guarantees that the borrower and the borrower’s heirs will never owe more than the property is worth on a bona fide third party sale, regardless of how long the borrower lives in the home, how much interest accrues or what property values do in the future.

After these two fees what make up the bulk of most transactions, the remainder of the fees charged really depend on where you live as to how high they will be.  Starting with the appraisal fee, most FHA approved appraisers are pretty consistent.  Originators can look around a little bit but there really should not be more than $50 - $100 difference in any market. The next fee showing up on the Good Faith Estimate is usually the Credit Report Fee. Mortgage Lenders do not consider a credit score when underwriting a reverse mortgage, but they do need to check to be certain that the borrower is not late on government obligations and also there are some restrictions relating to bankruptcies.

The credit report fee is under $15 and the lender can only charge the borrower the actual cost, they are not allowed by law to pad any third party charges.  There are flood certification fees to determine if the property is in a flood hazard area that typically run around $7.  The counseling fee is the actual fee charged by the HUD approved counseling agency and the maximum allowed by HUD is $125…borrowers may be able to find it for less and in some cases free of charge. 

The settlement or closing fee is customary for the area and usually runs between $500 and $700.  This is the escrow fee in an escrow state.  The fee will include all couriers and over-night expenses as these are non-allowable expenses by HUD.  Most Good Faith Estimates will include a Notary Fee around $175.00.  This is the amount that is charged if the settlement agent has to get a notary to travel to the borrowers’ home to sign loan documents and if the borrowers travel to the closing agent, this fee will be less.

The next fee that varies greatly depending on where you are located is the title insurance.  Some states like California have fairly low title insurance fees while Texas and Florida fees run very high.  Speaking of Florida, they have both Mortgage Tax Stamps and Intangible taxes that must be paid on each transaction that can run as much as $5,000 or more for a property worth $625,500 as well as the fact that they require additional endorsements for the title report.  And then, the liens must be recorded so there will always be a recording fee which will vary, but should be at or under $150.00.

Remember, the Good Faith Estimate is an estimate of closing costs and it can always be less, but if the loan originator under-estimates by large a margin, then they must re-disclose the actual figures and then there is an additional disclosure period during which the lender cannot issue the closing documents and can cause closing delays.  If you are comparing two quotes and the origination fee is the same and the only difference is in the third party fees, you may want to question the difference carefully.

I was recently informed by a borrower that my quote was “way too high” for a Florida property on which my competition did not use any of the intangible taxes or the county tax. When I pointed this out to the borrower, she told me that the agent told her he didn’t have to charge it, he was located in a different state (regardless of where the property was). I told her whether she used me for the loan or not, to get a third quote as that information was incorrect and the location of the originator had no bearing on the recording requirements of the state.  I have not heard back from her but I surely hope she does not get to closing only to get a rude awakening.

Other than those fees, the only fees you will be concerned with are the servicing fee (not to be confused with the servicing set-aside) and any repair set aside fee you might have.  The servicing fee is the monthly fee charged to service your loan and it will range from $25 - $35.  Compare these as these will affect the amount of money you will ultimately receive (the lower the fee, the more money).  A repair set aside fee can only be charged if the lender has to set funds aside while work is being done to your property and then the fee is limited to $150.00 (based on the amount of the funds set aside).

So when you’re comparing fees and programs, remember a few important facts.  The mortgage insurance goes to HUD and no lender can change the amount.  The loan origination fee is capped at a maximum, but there is no minimum set by HUD.  Third party fees are what they are, the originator cannot pad the fees so if the appraisal or any other fee comes in less than the originator discloses in the Good Faith Estimate, you get the actual lower fee (if it comes in higher for any reason, you get the higher fee as well). 

And lastly, if you compare quotes and one of the quotes is substantially lower and the difference is in the third party fees, then you might want to look at one more set of calculator results to see if one of the two you already received looks out of line.  Under disclosing requires new disclosures but after you’ve gone through all the time to get your reverse mortgage ready for loan documents, it’s a bit late to make a change at that time and I have found that most disclosure issues were problems with software or just a typographical error in the zip code which drives so much in some of the reverse mortgage systems.

 by: Mike & Cliff (All Reverse Mortgage Company)

>Click Here to receive your detailed comparison We will return a complete, no-obligation personal analysis including a good faith estimate which includes all fees / costs associated. Rather Talk to an Expert?... Toll Free (888) 801-2762

Like this article? You may also find interest in:

• Reverse Mortgage Costs Explained
• Typical Costs by NRMLA - National Reverse Mortgage Lenders Association
• Reverse Mortgage Disadvantages - Things you should know
• Reverse Mortgage Post Closing Issues
• No Cost Reverse Mortgage (program discontinued)