Breaks down the typical costs: an origination fee, an upfront FHA mortgage insurance premium, third-party closing costs (appraisal, title, recording), and ongoing servicing and mortgage insurance. Many of these costs can be financed into the loan, but it is important to understand them up front so there are no surprises.
Video transcript
Hi everybody, this is Miguel Vazquez, bringing you another video on reverse mortgages. Today we're going to talk about the fees and costs associated with a reverse mortgage, so you can get an idea of how much it costs to get one. The figures below are approximate examples — your actual costs depend on your home's value, the lender, and the program.
First, there are two main types of reverse mortgage:
• The FHA reverse mortgage (the HECM).
• The non-FHA reverse mortgage, also called a jumbo or proprietary reverse mortgage.
FHA (HECM) reverse mortgage costs
As a ballpark, an FHA reverse mortgage might total somewhere around $22,000 in this example (on a higher-value home). Here's how that breaks down into three parts:
1. Third-party / miscellaneous fees: about $2,500–$3,000. This is escrow, appraisal, notary, title, the HUD counseling fee, and recording the documents at the county recorder's office. Added together, those typically come to roughly $2,500–$3,000. (These aren't exact, but it's a good estimate.)
2. Origination fee: up to $6,000. This is what the reverse mortgage loan officer charges, and it's capped — an FHA reverse mortgage origination fee can't exceed $6,000. It's also negotiable: a loan officer can charge less, or even $0. So those first two parts together run about $8,500–$9,000.
3. FHA mortgage insurance: the largest piece. The upfront premium is calculated as 2% of your home's value. For example, on a $400,000 home, 2% is $8,000; on a higher-value home it's more. In the ~$22,000 total example above, the home value was high enough that the 2% insurance premium made up roughly $12,000–$14,000 of the total.
So on a $400,000 home, a rough total might be about $8,000 (FHA insurance) + $6,000 (max origination) + $2,500 (miscellaneous) = about $16,000.
What does the FHA mortgage insurance cover? It protects against any loss the lender might incur — and protects you and your heirs. For example: say you had a reverse mortgage for many years, never made payments, and the balance grew to $700,000. You pass away and leave the home to your heirs. Suppose a recession dropped the home's value to $300,000. Your heirs can sell it for fair-market value ($300,000) and pay that toward the balance — and the remaining shortfall is covered by the FHA mortgage insurance, not your family. Because it's a non-recourse loan, your heirs never have to pay more than the home is worth.
Non-FHA (jumbo / proprietary) reverse mortgage costs
The non-FHA closing costs are generally much lower, because there is no FHA mortgage insurance premium (it isn't an FHA-insured loan). You'll still have:
• The same miscellaneous third-party costs — roughly $2,500–$3,000 (appraisal, notary, title, etc.).
• An origination fee — which varies; if it were, say, $6,000, you'd be looking at roughly $8,000–$9,000 total.
So without the FHA mortgage insurance, the jumbo/proprietary option can cost roughly half of the FHA total. And remember the origination fee is negotiable with me or any loan officer, which can reduce those costs further.
I hope that clears up the fees and costs of a reverse mortgage. If you have any questions, feel free to call or text me at 562-881-9811 — I've been doing reverse mortgages for over 15 years. I work weekends, evenings, and holidays, and for my clients I'm also happy to do an in-home visit to walk you and your family through a proposal, with no obligation. Thank you and have a good day.