Hello All Reverse,
My mom’s house is in Martinsville, IN. During a healthy economy, the house was worth around $200,000. It requires some repair.
- Who pays for the appraisal to determine the home value?
- And, are there arrangements where if repairs are required as a condition of the loan approval, can proceeds from the loan be placed towards the repair?
In other words, we don’t have the funds readily available to make the repair. Are there steps in the process that will tell us if we really should not go forward with a reverse mortgage (meaning, the disadvantages outweigh the advantages)?
Good questions. You would pay for the appraisal, so a little investigation first does not hurt. If you live in an area where there have been recent sales of house like yours, see what they are selling for.
Sometimes local real estate professionals can really be of help, but you want to look only at closed sales of similar properties. If they are all selling around $150,000, that will give you an idea of where your value will be.
HUD guidelines will allow for repair set-asides under certain circumstances.
In other words, some things will be called out in the appraisal as needing attention, but they will not be required to be done at all and the value will be adjusted accordingly.
Some things are required by the lender to be repaired, but then they will allow you to set aside 1.5 times the cost of the repair, to be released when the work is completed.
Some items are considered health and safety hazards or important enough to the value that they must be completed prior to the close of the escrow.
Having said that, there are many companies familiar with reverse mortgages that will do the work prior to the close of escrow knowing they will not be paid until after the loan closes.
They wait until after the appraisal is done and the borrower has a firm loan approval, then they do any required work, and this allows borrowers who do not have the funds for the repairs to close their loans as well.
You need to decide if the loan is right for you and then check values. From there, if we all do a good job of research, the hurdle of the appraisal is not as great.
The tough time is when the comparable sales just aren’t available and then sometimes the only way to know for sure is to order the appraisal.
Before you do that though, you should have a good idea of the worst-case scenario and the best case and then make your decision to pay for an appraisal or not an informed one.
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