Fees

July 31, 2019 Fees No Comments

“No Costs” Reverse Mortgages

Is that even possible? The answer can either be “yes” or ” no” because it depends upon the type of loan that is being used and the size of the new mortgage.

In traditional mortgages, by buying up the interest rate, the Lender can utilize credits they receive from the “investor” by passing that along to the borrower. The borrower does have to be okay with the higher interest rate if they want to do a loan at zero points and/or not pay for any closing costs.

It is the same procedure with a reverse loan. The higher the rate, the lower the fees and sometimes that results in a “zero” cost loan. But again, the trade off is a higher interest rate. If a senior is sensitive about having a higher interest rate, that will result in a larger loan balance in the future, that may not be a good option for them.

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Each borrower has their own personal situation and reasons why they are looking to apply for a reverse loan, and there isn’t any one answer for them as to whether or not to save on the loan costs by having a higher interest rate, or pay the costs through the new loan, and have a lower interest rate,.

They have to see their options and the details in a professionally prepared loan proposal for their consideration and to personally meet with a Reverse Loan Consultant before they apply for the loan.

June 4, 2019 Fees, Reverse Mortgages No Comments

Reverse Loans and MIP

In the post that I previously shared, I discussed the fees and costs the borrower pays when they originate a reverse loan, and I mentioned the fees were very similar to traditional mortgages with the exception of the Mortgage Insurance Premium.

This insurance fee is quite expensive and gives the reverse loan a reputation for having higher closing costs compared to more traditional loans and I agree. it is expensive, but it is important to understand why it is being charged and how it protects and benefits the borrower and their heirs.

A reverse mortgage or HECM is insured by the federal government and will be repaid in the future regardless of how long the borrower(s) lives or if the property value declines. It has a “non-recourse” feature and that means you can never owe more than the property is worth at the time the loan is repaid.

If for any reason all of the equity has been used over the years and now the loan balance exceeds the value of the property, the borrower and or the estate will not have to pay the difference between the two figures, as the MIP will cover the shortfall.

At the time of the loan application and Closing, the fee is currently 2% of the Maximum Claim Amount and an annual fee for the life of the loan at .50% that is charged upon the loan balance during the time the loan is active.

I don’t want to make my explanation too complicated or confusing, so, for now, I will conclude my comments but will discuss the fee further in my next post and why it’s such a great benefit to the borrower and their heirs.

I will explain what the Maximum Claim Amount is and also give a bit of information about what a “Principal Limit” is and why the “Expected Interest Rate” and not the Note rate is used to calculate the amount of funds an applicant may receive from their reverse mortgage.

April 11, 2019 Fees No Comments

Reverse Loans Are Expensive

Many people and professionals are under the impression that the costs and fees associated with a reverse loan are very expensive and there is some truth to that belief and because of that belief, will not consider meeting with a qualified loan consultant to get the details.

Because there is more to consider and although initially, the loan is more expensive, over the years it becomes more affordable and could be the ideal solution for a senior who wishes to remain in their home and have some financial stability.

Whether or not the mortgage is a traditional loan or a reverse mortgage, they have similar fees with the exception of the IMIP fee that is charged on all FHA loans, including those where payments are made by the borrowers.

All mortgages have fees such as the following:

Escrow
Appraisal
Title Insurance
Loan Processing
Credit Report
Points/Origination Fee
Recording Fees
Notary Fee
Lender “Junk” fees

Reverse loans have some of the same fees with the exception of the following:

No Processing Fee
No Lender “Junk fee”
Attorney review of Living Trust fee for the borrower
Initial Mortgage Insurance Premium.

All fees on a reverse loan are well regulated by the federal government and that applies to traditional mortgages as well and cannot be changed after the initial disclosure to the loan client unless there has been a “change in circumstances” in reference to the appraisal of the property or the payoff information for an existing mortgage on the subject property.

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I will go into this in more detail in my next post and will explain why reverse loans are more expensive in their Closing Costs.

This is due to the initial Mortgage insurance Premium charged by FHA on each loan.

February 21, 2018 Fees No Comments

Fees or Costs Allowed on a Reverse Loan

In my previous post I discussed the one fee or expense on reverse loans that conventional mortgages do not have. And that was the FHA insurance premium for MIP.

Conventional mortgages allow what some would call “Lender junk fees”, which typically are for processing, underwriting and other “back office” costs the lender will pass on to the borrower. And they can add up to additional $1800 to $2000 on a traditional mortgage.

But they are not considered “allowable fees” to a reverse mortgage borrower and cannot be charged and built into the loan.

What are the fees that a reverse loan applicant can expect?

Flood Certificate – Pulled by the Appraiser
Appraisal fee
Credit Report
All title settlement, title insurance, transfer fees and recording fees. These are based on the loan amount, the Title company and county or state.
Document preparation fee
Notary
Payees; all third party fee and third party providers must be disclosed on the HUD-1 Settlement Statement per RESPA. List all required loan fees, including fees paid outside of Closing on their worksheets.

All HECM/Home Equity Conversion Mortgage are subject to FHA’s requirements on allowable closing costs.

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In my next post I will provide a list of fees that are not allowable and cannot be passed on to the borrower.

February 14, 2018 Fees No Comments

What is MIP and PMI?

In my previous post I described what IMIP is in regards to Reverse mortgages and that it is one of the fees listed as a Closing Cost for all borrowers.

Let’s pick up where I left off in the earlier post.

The other benefit to paying this insurance premium, is that in the event and if for any reason the Lender who is servicing the borrower’s Line of Credit should cease to exist and or are unable to provide funds to the borrower from their Line-of-Credit, the borrower is protected, because their loan and funds in the LOC are insured by FHA.

Any money left in the borrowers account will continue to be available to them regardless of whether or not the company servicing their loan continues to exist.

The IMIP protects the borrower, their funds in the Line-of-Credit and the heirs to the estate and that’s very reassuring and beneficial to everyone who has a reverse loan and to their family.

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Sometimes the consumer is confused about what MIP and PMI are and there is a difference between them. PMI is used in conventional mortgage financing whenever a borrower will have less than 80% in equity.

This is typically seen when someone is buying a home and coming in with a small down payment. PMI protects the Lender in the event the borrower ceases to make mortgage payments on their loan and there is a foreclosure. PMI gives the Lender some protection by having the loan insured against this possibility.

PMI is for traditional financing and IMIP is for FHA government insured loans.

And there you have it.