Reverse mortgage loans allow older homeowners to access their home equity while postponing repayment of the loan balance well into the future, typically until the last homeowner passes away or moves out permanently. While monthly mortgage payments aren’t mandatory, remaining current on essential property charges, such as taxes and insurance, is crucial.
The top preference for reverse mortgage seekers is the Home Equity Conversion Mortgage (HECM), the only reverse mortgage backed by the Federal Housing Administration (FHA). These loans provide financial flexibility, helping homeowners to cover various expenses, including healthcare costs and home repairs.
What if, while going through the HECM application process, you discover that your home requires repairs? Let’s delve into the process and examine the options available to you to ensure your home’s long-term safety and security.
The Home Appraisal: A Crucial Step
A home appraisal plays a key role in obtaining a reverse mortgage. Conducted by a qualified appraiser, this assessment determines your home’s fair market value and verifies its compliance with the U.S. Department of Housing and Urban Development (HUD)’s minimum property standards. Additionally, the appraiser identifies any necessary repairs required to meet these standards.
The appraised home value, the age of the youngest borrower (or eligible non-borrowing spouse, if applicable) and the prevailing interest rate collectively determine the loan proceeds you may qualify for.
During underwriting, the underwriter assesses whether essential repairs noted in the appraiser’s report must be completed before loan closure, independent of loan funds, or can be addressed post-closure with loan proceeds.
Repairs Before Loan Closing
Generally, structural defects and disrepair that raise health and safety concerns must be remedied before closing, including leaky roofs, black mold and foundation concerns. Funding these repairs upfront can be achieved through various means, such as personal funds or external borrowing (e.g., borrowing from a family member with a promise to pay them back after HECM loan proceeds are available).
Once the work is completed, a thorough inspection by the original appraiser ensures compliance with HUD standards.
Repair Set-Asides: Planning for Post-Closing Work
For non-immediate repairs, lenders can set aside loan proceeds, provided the estimated repair costs don’t exceed 15% of the lesser of the home value or $1,149,825. This repair set-aside, outlined in the loan agreement, comes with specific deadlines mandated by HUD, emphasizing timely completion of the repairs (after closing on the loan) to avoid default.
