The most expensive fee associated with a reverse mortgage is the upfront MIP. MIP stands for mortgage insurance premium. It is the fee charged to the borrower to cover any risk involved in the transaction. This fee is 2 percent of the appraised value of the home, which can become considerably expensive depending upon the value of the home. For example, if the home is appraised at $200,000, the upfront MIP is $4,000. This fee cannot be waived and is required by federal law.
The origination fee is the fee given to the lender for completing the transaction. While HUD (the federal organization charged with regulating reverse mortgages) limits the fee to $6,000, it is based upon the appraised value of the home as well. The fee is 2 percent of the first $200,000 of the value and 1 percent of the second $200,000 of the value. For example, if the house's value is $300,000, the origination fee would be $4,000 (2 percent of $200,000) plus $1,000 (1 percent of $100,000) for a total of $5,000.
Just like a traditional mortgage, title insurance is mandatory for any mortgage transaction. The fees associated with title insurance vary by state and county; however, different closing companies do charge different rates. It is in the buyer's best interest to shop around for the best title insurance rates.
Each mortgage transaction requires an appraisal. Appraisals are especially important for reverse mortgages, as the loan amount of the transaction is based upon a percentage of the value of the home. The average home appraisal runs between $350 and $550.
There are numerous other fees associated with a reverse mortgage that vary based upon the mortgage lender and the applicable laws within your area. However, most of these fees are charged nationwide. Each reverse mortgage borrower must receive HUD counseling prior to procuring the reverse mortgage debt. This fee varies by state and is free in many states. Other fees include a credit report fee, FEMA flood certification, recording fee, notary and documentation preparation fees, a settlement or escrow fee, property inspection fee, payoff calculation fee, courier fee and a wiring fee. Additional fees may apply based upon your lender's standard fee sheet. It is always wise to get more than one quote when purchasing a mortgage. Ask each lender to provide you with a Good Faith Estimate outlining all costs associated with the debt to determine the cheapest overall mortgage option.