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4 types of fees for a reverse mortgage

Reverse mortgage in the simplest of terms is a loan that any above 62-year-old homeowner with a substantial home equity can borrow against the total value of their homes. By doing so, the homeowner gets entitled to receive funds in a lump sum, line of credit, or fixed monthly manner. Quite unlike forward mortgages, a reverse mortgage does not require the homeowners to make loan payments. In case of a reverse mortgage, the whole amount of loan balance is due to and becomes payable when the borrower either sells the home, moves away forever, or dies.

Reserve mortgage is designed to greatly help seniors who are in a cash crunch but have their own homes. These also help provide a simpler alternative to traditional loans that are not only very costly but also extremely complex. The reason these mortgages are termed so is simply that in such a setup, you do not make payments to the lender but receive money from them instead. The money received is subject to some interest that is charged on the loan. This tends to increase with the balance of the loan on a monthly basis. The total amount of money that a borrower is required to pay is often capped and finances as reverse mortgage fees. Here are some of the common types of fees for a reverse mortgage that you may have to pay for.

Origination fee
This type of fee is known to cover the lender’s operating expenses that are generally associated with an originating reverse mortgage. In case of the origination fee, a lender may charge anything greater than $2500 or a total of 2% of the first $200,000 of the home’s value along with 1% of the amount exceeding $200,000. Most origination fees are capped at a total of $6000. While some lenders may reduce or waive the origination fees for a reverse mortgage, this may depend on the lender’s prerogative.

Mortgage insurance premium
Another type of fees for a reverse mortgage is the Mortgage Insurance Premium or MIP that is paid by the borrower to the Federal Housing Administration or FHA. This is a federal government agency that helps provide several benefits for both the borrower and the lender in a reverse mortgage set up. In case the company that services the loan cannot meet the obligations, the agency becomes responsible for the loan and extends to the borrower uninterrupted access to all reverse mortgage proceeds. In situations when the proceeds from the sale of a home are insufficient to pay back the reverse mortgage, insurance covers the borrower or the estate from owning the selling price by covering the losses that the lender has incurred. One may also be charged one of these fees for reverse mortgage annually.

Appraisal fee
An appraisal fee is nothing but a sum that assigns a current market value to one’s home. An appraisal fee is one of those fees for a reverse mortgage that is subject to vary based on the value of the home, type, region, etc. is responsible for assigning a current market value to your homes. Appraisal fees for a reverse mortgage are typically paid in cash way before the loan is made. Before an appraiser places a value on the home, it is recommended that they check for defects, leafy roof, termite damage, structural damage, faulty foundation, and more. It is also essential that the property is not only structurally sound but also complies with safety and local construction codes. If the appraiser is known to uncover defects, one may have to hire a contracture to ensure all the repair works have been completed. After the repairs get accomplished, the appraiser is required to go for a second visit and conduct a follow up examination that may cost about $125.

Other closing costs
This is a combination of various types of fees for reverse a mortgage that a borrower is charged. The first in the list is the credit report fees for reverse mortgage, which is paid as a verification fee for any federal tax lines that may be passed on against the borrower. This may cost anywhere between $20 and $50. Another essential fee for a reverse mortgage is the flood certification charge to ensure that the property lies on a federally designated flood plain. This fee may cost about $20. Similarly, one has to pay the Escrow fees for a reverse mortgage that is an essential part of the closing of settling the deal. The cost of this fee may range anywhere between $150 and $800 based on the location of the property. This type of settlement may include services like title search and several other closing obligations. Document preparation fee is another common fee that is charged for the preparation of final documents that may cost $75-$150. Other fees for reverse mortgage include recording fee, courier fee, title insurance, pest inspection, and survey fees.

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