July 15, 2024
An FHA reverse mortgage, or Home Equity Conversion Mortgage (HECM), can provide financial flexibility for qualifying homeowners aged 62 or older, but it’s crucial to understand the associated fees and expenses.
If you meet the HECM age requirement and either own your home outright or are very close to doing so, what follows will be helpful for you.
Primary Costs
When considering an FHA reverse mortgage, you should be prepared to pay several key costs: FHA mortgage insurance, interest fees, lender’s fees, and potential service charges are among them.
FHA mortgage insurance premiums consist of an initial 2% charge, followed by annual premiums of 0.5% of the outstanding loan balance. The FHA does allow borrowers to finance the upfront mortgage insurance premium as part of the loan.
Additional Expenses
In addition to the primary costs, you may incur charges for third-party services necessary for your HECM. These can include appraisal fees, credit check fees, and other related charges. Typically, these expenses are paid upfront and cannot be financed.
Lender’s Loan Origination Fee
Lenders participating in the FHA reverse mortgage program can charge an origination fee.
According to HUD.gov, this fee is either $2,500 or 2% of the first $200,000 of your home’s value, plus 1% of any amount over $200,000.
However, the FHA caps these origination fees at $6,000, as of the time of writing. It’s important to note that these caps can change depending on legislation or alterations to the program.
Confirming the current limit with your lender is a good idea, especially if you haven’t compared lenders or options in a while.
HECM Loan Service Fee
HUD regulations also allow for a monthly service fee on HECM loans. Currently, this fee is capped at $35 for adjustable-rate loans and $30 for fixed-rate loans.
Unique Requirement: Housing Counseling
A unique requirement of the FHA reverse mortgage program is mandatory housing counseling for all borrowers obligated on the loan. This required counseling ensures that borrowers fully understand their rights and responsibilities under the program.
You may be required to pay a fee for this counseling, which your lender may not be allowed to cover.
Conclusion
While an FHA reverse mortgage can be a valuable financial tool, it’s essential to carefully consider all the associated costs before proceeding. Understanding these financial obligations will help you decide whether this type of loan is right for your needs.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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