I wish there were such a thing as a perfect mortgage product. People always ask me, "what is the down side to getting a reverse mortgage? It looks too good to be true".
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.
Additionally, HUD charges a two percent fee, based on the value of home up to four hundred-seventeen-thousand dollars. Lastly, the mortgage company charges a transaction fee (origination fee) which can be one percent above normal.
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.
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.
Yes, people are going to moan and groan about the cost to get a reverse mortgage. They will do so until doomsday, but remember, these costs are the mechanism that solves financial problems for so many seniors. - 15224
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.
Additionally, HUD charges a two percent fee, based on the value of home up to four hundred-seventeen-thousand dollars. Lastly, the mortgage company charges a transaction fee (origination fee) which can be one percent above normal.
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.
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.
Yes, people are going to moan and groan about the cost to get a reverse mortgage. They will do so until doomsday, but remember, these costs are the mechanism that solves financial problems for so many seniors. - 15224
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