What is Cash to Close?
Cash to close is the amount of money that the borrower must bring to the closing table in order to complete the reverse mortgage transaction. This amount includes all the fees and charges associated with the loan, such as origination fees, mortgage insurance premiums, and appraisal fees.
The cash to close amount will vary depending on several factors, including the value of the home, the amount of the loan, and the interest rate. In general, the higher the loan amount and interest rate, the more cash the borrower will need to bring to closing.
It's important to note that the cash to close amount can be paid with funds from the borrower's savings, investments, or other sources. In some cases, the borrower may be able to use the funds from the reverse mortgage itself to pay the cash to close amount.
Understanding the Cash to Close for a Reverse Mortgage
Now that we have a basic understanding of what Cash to Close means in the context of a Reverse Mortgage, let's take a closer look at the specific costs and fees that are typically included in this amount.
Origination Fees:
This fee is charged by the lender for processing the loan application and is typically based on a percentage of the total loan amount.
Appraisal Fees:
An appraisal is required to determine the current value of the home and ensure that it meets the eligibility requirements for a Reverse Mortgage. The cost of the appraisal can vary depending on the size and location of the property.
Title Insurance:
This is insurance that protects the lender (and sometimes the borrower) against any losses due to defects in the property title. The cost of title insurance can vary depending on the value of the property and the location of the home.
Closing Costs:
These are the various fees associated with finalizing the loan transaction, such as document preparation fees, credit report fees, and attorney fees.
Mortgage Insurance Premium (MIP):
A Reverse Mortgage requires the borrower to pay mortgage insurance to protect the lender in case the borrower defaults on the loan. The MIP is typically a percentage of the loan amount and is paid upfront as part of the Cash to Close amount.
As you can see, the Cash to Close amount for a Reverse Mortgage can include a variety of fees and costs, and it's important for borrowers to understand exactly what they're paying for and why.
Reducing Your Cash to Close Amount
While the Cash to Close amount for a Reverse Mortgage can be substantial, there are some strategies that borrowers can use to reduce this amount and make the loan more affordable.
One option is to look for lenders who offer low or no origination fees. Some lenders may be willing to waive or reduce these fees in order to attract more business, so it's worth shopping around and comparing offers from multiple lenders.
Another strategy is to opt for a lower-cost appraisal. While an accurate appraisal is essential for securing a Reverse Mortgage, borrowers may be able to save money by choosing a more basic appraisal option that doesn't include additional features or services.
Finally, borrowers may be able to negotiate with their lender to roll some or all of the Cash to Close costs into the loan amount. While this will increase the overall amount of interest paid over the life of the loan, it can help make the loan more affordable in the short term.
If you're considering a Reverse Mortgage, it's important to understand the Cash to Close amount and the specific fees and costs that are included in this amount. By working with a reputable lender and carefully reviewing the loan terms and costs, you can make an informed decision about whether a Reverse Mortgage is right for you.