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Friday, December 26, 2008
I wish there were such a thing as a perfect mortgage product. People always ask me, "what is the down side to getting a reverse mortgage? It looks too good to be true".
The truth is HUD backed insured mortgages have higher closing costs than forward mortgages. I always make a point of telling this to my customers as soon as I can.
FHA insured mortgage upfront costs are high for 3 reasons: First, the lender performs an appraisal on the home and charges costs on the value of that appraisal, not the money the borrower is qualified to receive.
Also, the lender charges a fee for originating the loan called (no surprise) an origination fee. this can be 1% higher than forward mortgages. Finally, FHA's mortgage insurance premium is 2% of valuation, up to $417,000.
One doesn't need to have a degree in advanced calculus to quickly figure out that closing costs are fairly expensive.
One could argue the origination fee is not really higher than a typical mortgage, because forward mortgages simply build the fee into the rate. That's another subject for another day.
When it comes down to it, the FHA mortgage insurance is the culprit when determining why reverse closing costs are as high as they are. The thing is without this pricey mortgage insurance premium most seniors would be stuck with a second rate reverse mortgage and many with none at all.
To illustrate this point a 70 year old client with a 200 thousand $ mortgage, getting a HUD backed reverse mortgage, is entitled to receive somewhere in the neighborhood of $130,000.
Non-FHA products are not really in existence anymore. However, Fannie Mae had one prior to dumping it in the fall of '08. Here is one of the reasons why it's gone. The same customer would have been eligible to receive less than one hundred thousand dollars.
The HUD backed product is far more potent than the other products because the insurance covers lender losses. With their bets hedged reverse mortgage lenders could simply lend more money.
The insurance covers the lender in the event that one day more is owed on the home than the home is worth. This is the lender's biggest fear.
The basic fact about the high cost to get a FHA reverse mortgage is you gotta pay to play. People have real financial issues that the cheaper, proprietary reverse mortgages simply couldn't solve.
The truth is HUD backed insured mortgages have higher closing costs than forward mortgages. I always make a point of telling this to my customers as soon as I can.
FHA insured mortgage upfront costs are high for 3 reasons: First, the lender performs an appraisal on the home and charges costs on the value of that appraisal, not the money the borrower is qualified to receive.
Also, the lender charges a fee for originating the loan called (no surprise) an origination fee. this can be 1% higher than forward mortgages. Finally, FHA's mortgage insurance premium is 2% of valuation, up to $417,000.
One doesn't need to have a degree in advanced calculus to quickly figure out that closing costs are fairly expensive.
One could argue the origination fee is not really higher than a typical mortgage, because forward mortgages simply build the fee into the rate. That's another subject for another day.
When it comes down to it, the FHA mortgage insurance is the culprit when determining why reverse closing costs are as high as they are. The thing is without this pricey mortgage insurance premium most seniors would be stuck with a second rate reverse mortgage and many with none at all.
To illustrate this point a 70 year old client with a 200 thousand $ mortgage, getting a HUD backed reverse mortgage, is entitled to receive somewhere in the neighborhood of $130,000.
Non-FHA products are not really in existence anymore. However, Fannie Mae had one prior to dumping it in the fall of '08. Here is one of the reasons why it's gone. The same customer would have been eligible to receive less than one hundred thousand dollars.
The HUD backed product is far more potent than the other products because the insurance covers lender losses. With their bets hedged reverse mortgage lenders could simply lend more money.
The insurance covers the lender in the event that one day more is owed on the home than the home is worth. This is the lender's biggest fear.
The basic fact about the high cost to get a FHA reverse mortgage is you gotta pay to play. People have real financial issues that the cheaper, proprietary reverse mortgages simply couldn't solve.
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2 great locations to aid possible reverse mortgage candidates in Texas gage whether the reverse mortgage in Texas or elsewhere is the right way to go click on either of the 2 links in this section.
posted by Credit Counseling at
10:48 PM
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