When Repairs Are Required On A Reverse Mortgage Appraisal

After the reverse mortgage counseling is completed and the application is signed, it’s time to order the FHA appraisal.  This can be a very stressful time for borrowers, as the amount they qualify for will be based off the value of the property.  In addition to worrying about the appraised value, some borrowers may also require property repairs in order to meet FHA requirements.

Schew, that’s a lot to worry about, isn’t it??

It’s really not.  The value is the value and there’s not a lot you (or anyone else) can do to change it.  The appraiser will be using comparable sales in your neighborhood to determine the value of your home.

And in reference to the repairs…..on a reverse mortgage, FHA allows most of them to be completed AFTER settlement.

Here comes a little education on “appraisal terms”….

When the appraisal is completed, the best case scenario is to have it come back “as-is”.  Now, when you hear the term “as-is” it might make you think that’s not good, but in appraisal world that’s music to your ears.

“As-is” means the property meets FHA guidelines and the value given is with the property exactly the way it is.  To put it simply, there are no repairs required.

Repairs can be done after closing with a reverse mortgage

Unfortunately, there are sometimes issues with the condition of the property.  In these situations, the appraiser will complete the appraisal “subject to”.  Subject to means the value is “subject to” the completion of repairs (whatever they list in the report).

FHA requires major repairs to be done prior to closing a reverse mortgage

Here’s the GREAT news about the reverse mortgage….

Are you ready for it??????

FHA will allow what’s called a “repair set aside” for most repairs.  This means the borrower goes to settlement, and funds from the loan are “set aside” to cover the expense of the repairs.

See?  I told you not to worry.

These repairs MUST be completed within 6 months of going to settlement.  Failure to complete the repairs within this time frame will jeopardize compliance of FHA guidelines, so it’s critical the repairs are completed as soon as possible following settlement.

Now, there are some stipulations for the repair set aside. Most importantly, the set aside can only be established for repairs that are cosmetic in nature.  It can not be used for repairs that are safety and/or health hazards.  Examples of repairs that would NOT allow a repair set aside:

-Foundation and/or structural issues.Health and safety hazards must be corrected before doing a HECM

-Electrical problems.

-Presence of mold.

-Standing water in the basement.

-Broken windows.

These are just a few examples, but it’s basically any issue that could cause you (or someone else) harm.  These types of repairs would need to be completed PRIOR to settlement.

Part of my initial meeting when coming out to the borrowers home to discuss the reverse mortgage is a quick walk through of the property to look for potential repairs.  Locating these upfront saves you lot’s of time and also puts your mind at ease.

See???  I told you there was nothing to worry about.   🙂

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