Reverse Mortgage Glossary
Closing costs for a HECM reverse mortgage are charged to cover services necessary to complete the loan. Closing costs for a reverse mortgage are typically lumped into three categories: IMIP, origination fee, and third party costs.
- IMIP – A one-time fee charged at closing by FHA to insure the loan in the event there’s not enough value in the home in the future to settle the entire loan balance.
- Origination fee – This is charged by lenders to cover their overhead and help pad their bottom line. Lenders are often willing to negotiate this fee, particularly if you’re borrowing a pretty sizable initial loan amount.
- Third party costs – These are fees charged to cover third party services necessary for the completion of the loan. Common third party costs include title insurance, appraisal, government recording, credit report, etc. Lenders are not allowed to mark-up third party costs; they can only pass along the bona fide cost they were charged by the service provider.
If you’re refinancing with a HECM, it’s a good bet that most (or all) fees can be rolled into the new loan amount. At most, you may need to pay for the appraisal and counseling out of pocket, but the rest of the closing costs can be rolled into the loan.
If you’re purchasing with a HECM, you’ll likely need to cover all closing costs out of pocket along with your down payment.
How Much Are Closing Costs?
There’s no rule of thumb for how much closing costs will be charged. Fees can vary widely depending on the lender you work with, the amount you’re borrowing, where your home is located, and conditions in the financial markets.
If your initial loan amount is large, the lender may have some extra margin to cover more of your costs. If not, expect to cover most or all of the costs by rolling them into the loan (if you’re refinancing) or paying them out of pocket (if you’re purchasing).
If you want to get a really solid totals for closing costs, the best thing is to have a few lenders run some estimates for you.