Key Takeaways
- Title insurance is a mandatory closing cost for a reverse mortgage.
- The borrower pays for the lender's title insurance policy.
- The cost is based on the loan amount and varies significantly by state.
\n\nWhen setting up a reverse mortgage, you will notice a line item on your closing disclosure for Title Insurance. Many borrowers are surprised by this, especially if they have lived in their home for 30 years and know exactly who owns it. However, title insurance is a non-negotiable requirement for obtaining a Home Equity Conversion Mortgage (HECM).
Why is Title Insurance Required?
A reverse mortgage is a new loan secured against your property. Before a lender will issue hundreds of thousands of dollars in a line of credit or lump sum, they must guarantee that they have the primary lien position on the house.
Title insurance protects the lender against any pre-existing issues with the property's title that were not discovered during the initial title search. This could include: - Unpaid contractor liens (mechanic's liens). - Unknown heir disputes from previous owners. - Errors in public records or forged documents.
If a long-lost heir suddenly appears claiming they own half the property, the title insurance policy protects the lender's investment.
Who Pays for It?
In a reverse mortgage transaction, the borrower is responsible for paying the lender's title insurance policy.
While you are the one paying for it, this specific policy protects the lender, not you. (You likely already purchased an owner's title insurance policy when you first bought the house decades ago, which still protects you).
How Much Does it Cost?
The cost of title insurance is not set by the lender or by HUD; it is regulated by your state's Department of Insurance.
The premium is calculated based on the maximum claim amount of the reverse mortgage (usually the appraised value of the home). Depending on your state, this fee can range anywhere from $500 to over $2,500.
Can You Finance Title Insurance?
Yes. Just like the Initial Mortgage Insurance Premium and the origination fee, the cost of title insurance can be rolled into the reverse mortgage loan balance. You do not need to bring cash to the closing table to pay for it, though doing so will reduce the total amount of funds available to you.\n