CHAPTER NINE
H.E.C.M. COSTS
Almost all Reverse Mortgage costs can be financed, that is, they can be paid from the proceeds of your HECM Reverse Mortgage. Costs include origination fee, third-party closing costs, FHA insurance premium, servicing fees, and interest.
OUT-OF-POCKET COSTS
The only out-of-pocket costs are:
(1) The fee charged by the HUD-approved housing counselor. (Typically $125 but can be waived by the counseling agency if you meet certain financial qualifications.);
and
(2) The fee to appraise your home. (Usually ranges from $400 to $550, depending on your area.)
The remaining costs can all be financed.
ORIGINATION FEE
The Origination Fee on HECM Reverse Mortgages is limited to:
2% of the first $200,000 of your home’s value;
plus
1% of the amount over $200,000.
The minimum Origination Fee that a lender can charge is $2,500 and the maximum Origination Fee is $6,000.
FHA INSURANCE
The FHA Insurance Premium on HECM Reverse Mortgages is 2% of your home’s value or of the FHA HECM loan limits, (whichever is less) and 0.5%, which is added to the interest rate after closing.
OTHER COSTS
Third party closing costs include appraisal fee, title insurance and escrow fees, county taxes and recording fees, inspections/certifications, credit check, flood certification, property taxes, and your homeowner’s insurance. These costs vary somewhat with the value, state, and county of your home, but typically range from seventeen ($1,700) to twenty-five ($2,500) hundred dollars.
In addition to up-front fees, mentioned above, the following fees are incurred durring the life of your HECM Reverse Mortgage:
SERVICING FEE
The servicing fee is limited to $35 a month for a monthly-adjustable H.E.C.M. or $30 a month for both the fixed rate and annual-adjustable H.E.C.M.s You choose whether the fixed rate, monthly-adjustable or annual-adjustable fits you best. This does not mean you will have a $35 or $30 monthly payment to make. Again, you are not required to make any payments on a Reverse Mortgage until the end of the loan. The servicing fee is simply added to the amount you owe, every month. On traditional “forward” mortgages, the cost of servicing is added to the interest rate. You may not have seen this fee before, but you’ve paid it.
INTEREST
The interest rate on HECM Reverse Mortgage loans can be adjustable or fixed. Adjustable rates can both increase and decrease over time. The lender does not have control nor discretion over what the rate will be or how it will change over time. Many HECM Lenders now offer fixed rate HECM Reverse Mortgages, but fixed HECMs typically require you to receive all your proceeds as a lump-sum.
ANNUALLY-ADJUSTABLE
Choosing the annual-adjustable H.E.C.M. means that the rate will change once each year. Changes in this rate are limited to a 2% adjustment per year and a 5% lifetime adjustment cap.
MONTHLY-ADJUSTABLE
Choosing the monthly-adjustable H.E.C.M. means that the rate will change once every month. Changes in this rate are limited to a 10% lifetime adjustment cap.
FIXED
Choosing the fixed rate H.E.C.M. provides for better predictability of your overall costs, however most, if not all, Lenders require that you borrow the entire amount of funds you are eligible for, at closing.
CHAPTER TEN
STEPS
From beginning to end, the Reverse Mortgage process can take as little as 5 weeks, but in some circumstances can take longer.
STEP ONE
Decide Whether a HECM is Right for YOU.
With the vast amount of MISinformation that Reverse Mortgages have attracted in the past, it is important to talk with a specialist that can answer ALL your questions. Meet with an experienced HECM Specialist or Reverse Mortgage Loan Officer that is willing to sit down with you, your family, friends and/or advisors, all wherever you are most comfortable. Deciding on a H.E.C.M. may be one of the biggest retirement decisions you make and may not be easy to make alone.
STEP TWO
Receive HUD-Approved Counseling.
You must provide a Certificate of Counseling to your HECM Specialist or Reverse Mortgage Loan Officer prior to completing a HECM Reverse Mortgage application. HUD will allow your counseling to be done via telephone if you prefer. Your Reverse Mortgage Loan Officer will provide you with a list of all HUD approved counselors in your State. Your Reverse Mortgage Loan Officer may NOT assist in scheduling your counseling session.
STEP THREE
Submit an Application.
Schedule an interview with a Reverse Mortgage Loan Officer that is willing to meet with you either in your home, their office, or wherever you are most comfortable.
STEP FOUR
Receive FHA Certified Appraisal.
HECM benefits are based on the value of your home, which must be certified by a licensed FHA Certified Appraiser. The appraiser will determine if your home meets HUD requirements. If any deficiencies are found they must be corrected either before closing or within nine-months, for most repairs.
STEP FIVE
Wait for Lender Approval.
This step is simply time consuming. The lender is responsible to review your file to ensure it meets FHA approval and HECM guidelines. With the numerous regulations, set forth by the FHA, it is no wonder that this can take a while.
STEP SIX
Sign Final Loan Documents.
Once approved, you will be required to sign, and have notarized, the final loan agreements. Be sure to ask that this be done in the comfort of your home, as it can be lengthy. A copy of all documents will be provided at the time of application and again at the time of final signing.
FINAL STEP
Receive Proceeds.
Three days after signing the final Reverse Mortgage loan documents, the proceeds are released from escrow. By law, you must wait three days to ensure you haven’t changed your mind.
CHAPTER ELEVEN
ALTERNATIVES
Consider selling and moving. If you cannot picture selling your home, then a H.E.C.M. Reverse Mortgage may be the best solution for you.
If you plan to move in the near future, the H.E.C.M. Reverse Mortgage may not be the best plan. Consider what repairs are needed. If you cannot afford to invest into your home so as to receive an appealing sales price, then maybe you should check out a single purpose reverse mortgage. If one is not available in your area, then maybe a HECM is the correct choice. Check out http://www.aoa.gov/AoARoot/Index.aspx for many programs available to seniors.