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.
I believe I'm a poor salesman. As such I dive right in and tell my customers straight away, "The closing costs for your reverse mortgage will be higher than you might think".
Now, closing costs are high for three reasons... The first being closing costs are charged on the value of the home, not necessarily what the lender allows the borrower to cash out of the loan (aka "Available Principle Limit").
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.
One doesn't need to have a degree in advanced calculus to quickly figure out that closing costs are fairly expensive.
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.
Fannie Mae offered a reverse mortgage product until September of this year. It discontinued it. You know why? Everyone took the FHA product because it offered far more money than the Fannie product. The same borrower would have received less than $100,000 on the Fannie product.
Why ? Because the FHA insurance, everyone is so unhappy about, allows lenders to feel comfortable enough to lend such large amounts.
The biggest danger to a lender is the possible event that more is owed on the home than the actual value. The mortgage insurance covers lenders in this event.
Expensive, horrible, bitter FHA insurance hedges the lender's risk, which makes much more money available to borrowers. But in the end it allows so many seniors to solve stressful financial issues.
I believe I'm a poor salesman. As such I dive right in and tell my customers straight away, "The closing costs for your reverse mortgage will be higher than you might think".
Now, closing costs are high for three reasons... The first being closing costs are charged on the value of the home, not necessarily what the lender allows the borrower to cash out of the loan (aka "Available Principle Limit").
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.
One doesn't need to have a degree in advanced calculus to quickly figure out that closing costs are fairly expensive.
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.
Fannie Mae offered a reverse mortgage product until September of this year. It discontinued it. You know why? Everyone took the FHA product because it offered far more money than the Fannie product. The same borrower would have received less than $100,000 on the Fannie product.
Why ? Because the FHA insurance, everyone is so unhappy about, allows lenders to feel comfortable enough to lend such large amounts.
The biggest danger to a lender is the possible event that more is owed on the home than the actual value. The mortgage insurance covers lenders in this event.
Expensive, horrible, bitter FHA insurance hedges the lender's risk, which makes much more money available to borrowers. But in the end it allows so many seniors to solve stressful financial issues.
About the Author:
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posted by Debt Consolidation Loan at
10:25 PM
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