How High Reverse Mortgage Closing Costs Solve the Problem
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.
Reverse mortgages, which are insured by HUD, have high closing costs for multiple reasons... It starts with the lender charging costs based on the home's value. Forward mortgages charge costs on the actual loan amount, which is going to be less than value.
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.
No need to do the math. You can extrapolate that there are some costs to pay. And no one is happy about it.
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.
When it comes down to it, the FHA mortgage insurance is the culprit when determining why reverse closing costs are as high as they are. The thing is without this pricey mortgage insurance premium most seniors would be stuck with a second rate reverse mortgage and many with none at all.
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.
There was once a number of outlets for non-FHA insured reverse mortgages. They exist only as ultra niche scenarios now. The reason is they simply couldn't compete with the FHA reverse. In our example a reverse mortgage customer, using a private product, would receive $100,000 at best.
Why ? Because the FHA insurance, everyone is so unhappy about, allows lenders to feel comfortable enough to lend such large amounts.
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.
The basic fact about the high cost to get a FHA reverse mortgage is you gotta pay to play. People have real financial issues that the cheaper, proprietary reverse mortgages simply couldn't solve.
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.
Reverse mortgages, which are insured by HUD, have high closing costs for multiple reasons... It starts with the lender charging costs based on the home's value. Forward mortgages charge costs on the actual loan amount, which is going to be less than value.
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.
No need to do the math. You can extrapolate that there are some costs to pay. And no one is happy about it.
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.
When it comes down to it, the FHA mortgage insurance is the culprit when determining why reverse closing costs are as high as they are. The thing is without this pricey mortgage insurance premium most seniors would be stuck with a second rate reverse mortgage and many with none at all.
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.
There was once a number of outlets for non-FHA insured reverse mortgages. They exist only as ultra niche scenarios now. The reason is they simply couldn't compete with the FHA reverse. In our example a reverse mortgage customer, using a private product, would receive $100,000 at best.
Why ? Because the FHA insurance, everyone is so unhappy about, allows lenders to feel comfortable enough to lend such large amounts.
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.
The basic fact about the high cost to get a FHA reverse mortgage is you gotta pay to play. People have real financial issues that the cheaper, proprietary reverse mortgages simply couldn't solve.
About the Author:
A pair of tremendous resources to help prospective Texas reverse mortgage customers gage whether the Texas reverse mortgage is a viable option click on either of the A pair of links in this section.
posted by Credit Counseling at
11:04 PM
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