Reverse Mortgage Glossary
Title insurance is a closing cost required by a HECM reverse mortgage lender to protect against future title disputes that could result in a financial loss for the lender. For example, if another lender is able to prove ten years down the road that they have a loan against your home that the reverse mortgage company’s title insurer missed, the title policy insures and protects the reverse mortgage lender against any resulting financial loss.
The cost of title insurance can vary widely depending on how much the home is worth and where it is located. As a general rule, title insurance for a HECM reverse mortgage can be more expensive than for traditional home loan because it has to insure not only the loan amount today, but the loan amount in the future – which is likely to be larger because a reverse mortgage is designed to convert equity into cash over time.
It is illegal for lenders to “mark up” the cost of title insurance. Lenders can only pass on the actual bona fide cost of the title policy to the borrower.
If you’re financing a home you already live in (meaning this isn’t a purchase loan), you typically won’t have to pay title insurance out of pocket. Most lenders can just roll it into the new loan amount. If you’re purchasing a home with a HECM reverse mortgage, you’ll likely need to pay any title insurance fees out of pocket along with your down payment and any other closing costs.