Like any home loan, a HECM reverse mortgage comes with closing costs. The typical closing costs fall into three categories: IMIP, origination, and third party closing costs.
Third party closing costs are the services the lender has to hire out to get your reverse mortgage completed. Such costs typically include (but are not limited to) appraisal, credit report, flood certification, tax certification, notary, document preparation, attorneys fees, notary, escrow, survey, foundation inspection, and title insurance, etc.
Not all of these costs will apply to every loan scenario. There may even be added costs not mentioned here that might apply to your particular situation. Regardless, lenders are not allowed to charge for costs that were not actually incurred to complete your loan. Nor are they allowed to markup closing costs; the cost incurred is exactly what has to be passed through to you.
All closing costs are required by law to be disclosed to you by your lender. If you have any questions on what is being charged, be sure to ask your lender.
Lenders are also bound within strict tolerances to their initial closing cost estimates. Lenders are not allowed to substantially increase fees unless there is a legitimate unforeseen circumstance that requires them to do so. If this happens, they’re required to disclose the change to you.
Third party costs are often negotiable
Depending on market conditions, the amount you’re borrowing, and the lender you’re working with, you may be able to negotiate closing costs.
Now, keep in mind that lenders make money off of the initial loan amount. Larger loans generate more interest and more profit for the lender. If your starting reverse mortgage balance is relatively large (such as if you’re paying off an existing mortgage), the lender will make more money on interest and likely have more room to reduce costs.
On the other hand, if your home is free and clear (or very nearly so) and your starting loan balance is relatively low, the lender will make relatively little interest. The lender will likely have very little room to discount.
If you’re successful at negotiating down your closing costs, you’ll receive the discount in the form of a lender credit. Lenders don’t cut or eliminate fees. Instead, they offset them with a lender credit, which is essentially a payment to you at closing to cover closing costs.
If you would like to get a discount on your third party closing costs, be sure to ask! Lenders want your business and the worst they can say is no, right?