FHA Reverse Mortgage Terms and Fees

June 2, 2009

FHA reverse mortgages allow borrowers age 62 and older to get a loan for the cash equivalent of the equity in their homes. These loans are made based on a variety of factors including credit report, the appraised value of the property, and current interest rates. When you apply for an FHA reverse mortgage, also known as a HECM loan, you apply for the loan with the understanding that you won't be required to make FHA mortgage payments unless you stop using the home as your primary residence.

HOW DOES THE BANK GET PAID BACK?

Under the terms of an FHA reverse mortgage, the loan's principal plus interest is paid back once the house is sold. If there is any remaining equity left in the home after the FHA reverse mortgage is paid back, borrowers are entitled to get that money back just like any other sale.

One important detail to consider with an FHA reverse mortgage or FHA HECM loan; you will never owe more than the value of the home. The benefits of an FHA reverse mortgage includes an insurance policy to protect the homeowner. If your home sells for an amount less than what is owed to the bank, the FHA makes up the rest--not the homeowner. You (or your heirs) won't go into debt as a result of an FHA reverse mortgage home loan.

IS MORTGAGE INSURANCE REQUIRED WITH AN FHA REVERSE MORTGAGE?

Yes. A mortgage insurance premium is one of the fees associated with an FHA HECM loan or reverse mortgage. Other fees include servicing charges, an origination fee and the usual costs associated with closing the loan.

HOW MUCH DO I PAY IN FEES?

Much depends on your individual circumstances, but origination fees are limited to no more than $6000. FHA Reverse mortgage origination fees depend on the value of your home. Your fee may be up to $2500 if the value of your home is less than $125,000, but if your home is worth more you can be charged 2% of the first $200,000 in value plus 1% of the value above $200,000. See your lender for the amounts of other fees including mortgage insurance and servicing fees.

HOW CAN I OFFSET THE FEES ASSOCIATED WITH AN FHA REVERSE MORTGAGE?

Borrowers are allowed to finance FHA reverse mortgage fees and build them into the cost of the HECM loan. By financing these costs, you aren't required to pay them out of your current bank account, but financing these costs does reduce the final amount of the loan money coming to you. If you were approved for a loan of one hundred thousand dollars, for example, the amount coming to you would be one hundred thousand minus the closing costs and other fees.