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reverse mortgage appraisal requirements questions and answers

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Reverse Mortgage Appraisal Requirements

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Question From Gloria C.
Property values here have gone down. Who could do an acceptable appraisal to determine cost of my house to buy it from bank? Assessor’s office value it at 60% of original price.
Expert Answer

Hi Gloria,

I'm sorry, I don't know how to answer this. If it's your property and you have a loan on it, there is no need to buy it from the bank, they don't own it.  You do. 

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Question From Chuck C.
When is a second appraisal required, what dollar amount?
Expert Answer

Hi Chuck,

The HUD HECM program has no value at which a second appraisal is required.  Private or proprietary programs may set different guidelines and are subject to change based on program and secondary market requirements. 

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Question From Ruth F.
I'm 55 and my husband is 68 can we still get a reverse mortgage on our home now that the value of our home has increased? My name is not on the mortgage. We tried to get a RM over a year ago through 3 different companies, AAG was the last one and we were stilled denied. We were told basically I was to young and our house did not appraise high enough. Our house appraised at the time just over $500k but we only owe $253k we both work, self employed + my husband's SSI . It seems the value of homes has gone up over the last year and our home now seems to fall in the $600k value.
Expert Answer

Hello Ruth,

Values are often one of the areas where borrowers are the most unrealistic in their expectations. HUD has a system set up called Appraiser Independence where the originator doesn't even get to choose the individual appraiser, that is done by a third party Appraisal Management Company and the appraisal is downloaded into the HUD  system before it even goes back to the lender to be certain that the appraiser has no pressure from borrower or lender to come in at any particular value - high or low. 

Now having said that, you can look at the actual recent sales of similar homes in your neighborhood to get an idea if the values are up and what a likely appraised value would be.  You need to be honest with yourself when you look. If your home is 35 years old and has not been remodeled or renovated, is 2300 square feet and has 4 bedrooms and 2 bathrooms, don't compare your home to one that is 2700 square feet, completely remodeled/renovated at a cost if $200,000, 5 bedrooms and 3 bathrooms all new appliances, etc. and try to use this sale to support a higher value for your home.  Borrowers sometimes do this and then are disappointed after paying for an appraisal especially if there are other sales available of similar homes that support lower values that the borrower did not consider..

However, if you see homes that are very similar to your home that are selling for $600,000 now ( and not just listed but are actually selling for that amount) then you also have a good chance of receiving a similar value on your home's appraisal.  Give is a call and let us look at recent sales for you.  We can't promise you a value, only the appraisal can assess the value for the loan but we can certainly let you know if public records show sales of similar homes and what they tend to indicate.  You may now be at a value that supports what you need to complete the loan without having to come in with cash to close the loan.

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Question From Kenneth S.
If my reverse mortgage had already gone far enough that an appraisal had been done. A realtor in our area told me he had really low balled my home according to the sales she has been involved in by as much as $45,000. Do I have any recourse.
Expert Answer

Hello Kenneth,

The Realtor may be able to help if she has some comparable sales that are more similar, sold more recently and are better than the ones the appraiser used that indicate a higher value.  You certainly have the right to send in a rebuttal using those sales and request an adjustment to the value based on better information the appraiser did not consider.  However, if the sales the Realtor is considering are not the same age, (your home is older than the higher priced sales) larger or are more renovated and it is her opinion that the appraised value is lower than it should be and the appraiser used current sales of homes that are more like yours, the rebuttal will not be very successful if at all.  

Read more on this here: https://reverse.mortgage/appraisal-process-laws-appeals

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Question From Ronald D.
Who pays for the appraisal on a reverse mortgage and what is the fee?
Expert Answer

Hi Ronald,

Unless some arrangement can be made with the lender, the cost is borne by the borrower.  The appraisal is an FHA full appraisal and so the cost typically runs between $500 and $650 depending on the property location.  However, some areas that are particularly remote do not have FHA-approved appraisers available in the immediate area and then appraisers have to travel from other areas to perform the appraisal.  In this case, many times they have to incur additional costs to access data that they do not already receive and they will often charge time and travel premiums for the reports.  The appraisal management company from whom the lender orders the appraisal would be notified of this at the time of the order though and you would have the opportunity to accept or deny the appraiser’s stated charges for your home before you incurred any expenses.

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Question From John N.
My home was appraised at x-amount when I applied and received a reverse mortgage three years ago. This amount was based on property tax records. Recently this appraisal was recalculated(?) to be (2X)x-amount. Go figure, but that's not a bad thing other than what I have to pay in taxes.Now, I assume I can renegotiate my reverse mortgage such that I can increase the amount available to borrow. If so, how to I go about doing this?Thanks.
Expert Answer

Hello John,

I'm not sure what you mean by "this amount was based on property tax records".  An FHA appraisal does not even take into consideration the property tax assessment when determining the value for lending purposes.  You should have gotten a copy of the appraisal done at the time and the appraiser would have to include the comparable sales that he/she used to determine the value of your home.  The appraiser does not determine his/her value based on the taxes you pay, but rather by what homes of similar size, condition, age and utility actually sold for in your market area and then adjust for minor differences. 

The reason I say minor differences is because if the differences are too vast, the home is not considered comparable and the appraiser cannot use it under HUD rules to set a value for your home.  You cannot compare a 4 bedroom 3 bathroom 3,000 square foot home to a 2 bedroom 1 bath 1500 square foot house and then just "adjust" to a value.  The houses should have the same bedroom count and as close to the same square footage as possible. 

There is no "renegotiation" available for existing loans however, you may be able to refinance your loan with a new reverse mortgage as long as a new loan would give you ample benefits.  All you would need to do in order to determine if a refinance would work in your circumstances is to contact a lender with your most recent statement and have them run the numbers based on the current HUD program parameters.

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Question From John N.
I have a reverse mortgage on my home which sits on three acres of land. Portions of that land is suitable for home building lots. Can I sell these lots and if I can how do I do so?
Expert Answer

Hi John,

If the land is also encumbered by the reverse mortgage (or any loan for that matter), it was considered and used as collateral for that loan.  If you wish to have a portion of the land released from an existing loan, whether it be a reverse mortgage or any loan, it would take a partial reconveyance from the lender to release a specific portion of the lot.  Most lenders would be unwilling to do this unless the portion of the land was such that it was never considered in the first place (as in a very large parcel on which the lender may have only valued a certain number of acres) or a portion of the loan was paid down at the time or the reconveyance.  To determine if this is possible or what you may have to pay down on the existing mortgage you would have to contact your servicer.

As a side note, if you have a parcel with excess land that does not add any value to the homestead on which you are considering obtaining a loan, you may want to think about any lot splits before you place a mortgage encumbering the entire lot.  Especially if the additional land will not get you additional funds in the loan, the split may be easier to complete if it is just you and the city/county before there is a third party like a lender involved.

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Question From Sally
Had a fha/hud approved appraisal in May 2017. Able to use it?
Expert Answer

If it was for a reverse mortgage case, then yes it is still valid and the lender could still use that appraisal.  The case number would have to be transferred to the new lender if you were not going through the existing lender but they would still use the same appraisal as well with the transfer.  

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Question From Sandra H.
How much does an appraiser cost
Expert Answer

Hi Sandra,

Appraisals vary by location, property characteristics and scope of the project.  Most FHA appraisals for single family properties in areas that are considered urban or suburban are typically between $500 - and $650, depending on where you live.  If the property is located in a rural area and appraisers must travel great distances just to get to the property and the comparable sales, it could be higher and we do not know that amount until the company tells us what the assignment would cost.

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Question From Raymond G.
Can the home be appraised before signing a reverse mortgage loan and if yes, do you have a list of approved appraisers for the 22701 area? When I read on-line issues with the reverse home mortgage program, the one that seems to be repeated are those who had signed prior to the appraisal and found it much lower than anticipated and felt trapped.
Expert Answer

Hi Raymond,

HUD does not allow any services to be performed in conjunction with a reverse mortgage until after a borrower has been counseled, an application has been taken by a lender and a Case Number has been assigned by HUD.  Any appraisal that you had completed would not be valid for the purpose of the reverse mortgage.  And since market data changes and the appraised value is an opinion of value based on the current sales data, a new appraiser could uncover more recent sales that indicated a higher or lower value that would render a previous opinion of value worthless anyway.  An appraisal is a snapshot in time and paying for a second appraisal is not the best way to go since it does not insure anything.

However, no one should ever feel "trapped" after the appraisal phase of the loan.  There is no cancellation fee for a reverse mortgage and if you are planning on paying for an appraisal anyway, why pay for two?  You can always cancel the transaction with no charge to you other than the appraisal and any counseling costs you paid (usually $125 or less but I've never seen it higher than $150 for counseling).  If your plan was to pay for an appraisal that you can't use anyway and then a second appraisal with the loan, it is much more cost effective to begin the loan and cancel the transaction if you do not wish to proceed.

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Question From Rhys
I am thinking of adding on to my home prior to obtaining a reverse mortgage. This would hopefully substantially increase the appraisal value. Other sites indicate this is not allowed by reverse mortgage lenders. Is this true?
Expert Answer

I don't know what they would be referring to as "not allowed".  It would all depend on the type of improvements you intended to make, whether or not they were done with permits and what that did to the property.  A good example would be a 1200 square foot home in a neighborhood of 2500 square foot homes.  You could add a permitted addition of 1300 square feet that added functional space and upgraded the home so that it was very similar to the other properties selling in the area.  This is absolutely allowed and would not be an issue provided the work was complete and the certificate of occupancy had been issued by the city/county where the property is located. 

However, if the work is not done is a quality manner, does not conform to the neighborhood or there are no sales to support the new improvements, that could actually hurt the owner's chances of obtaining a reverse mortgage.  Another example of this would be a borrower who added a second unit without permits to a property that was zoned for only one unit and therefore the new improvements did not conform to the local zoning laws. 

Even having made this distinction, remember that improvements rarely bring a dollar for dollar value to a home.  The best way to get an idea of what your planned improvements might actually bring you in an appraisal is to find houses in your immediate area that have sold in the past 3 - 4 months that are similar to what your house would be with the planned improvements.  These are the sale comparables that an appraiser would have to consider when appraising your home.  If houses with the improvements you are contemplating bring $40,000 more on the market but your cost would be $60,000, you would not realize the full value of the cost of the improvements.  The times when this does not seem to be the case is like in the first example above, when the improvements put the home into a whole new category of property that commands a much higher price.  But keep in mind that there is such a thing as an over-improvement for the neighborhood and you need to make sure that your improvements are common with the properties in your immediate area and sales with similar amenities are available or once again, you would not realize the cost of the improvements in an appraisal.

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