How would you characterize the average reverse mortgage lender’s maintenance requirements?  Do they tend to be stringent, moderate, or relatively lax?  I have read one account of a reverse mortgage lender requiring very burdensome maintenance requirements that the average retiree wouldn’t be much concerned with…such as those necessary for maximum resale value, but largely cosmetic (repaint the entire house inside and out) and not structural.

Lender Involvement After Closing

I don’t know what account you read, but I have never heard of stringent requirements for maintenance.  The only times I have heard of any lender even stepping in at all after a loan was closed were when the lender received word of the home violating health and safety standards.

Rare Cases of Maintenance Notices

For example, I am aware of just two instances in which a lender had to send a notice to a borrower.  The first instance occurred when the weeds and debris in a former borrower’s yard became so severe that the Homeowner’s Association began sending notices and placed a lien on his property, which then garnered the attention of the lender.  The second time I am aware of a lender stepping in was also the result of an outside agency becoming involved.

Health and Safety Violations

The borrowers allowed their swimming pool to become a swamp, and it was literally breeding mosquitoes!  The local insect vector control stepped in and alerted the lender to the unhealthful conditions, and the borrower was required to repair the pool equipment and clean up the pool.

I have never personally been told of other times when the lender stepped into an existing loan situation and required additional maintenance, and I would be happy to hear of any specific borrowers who have had such experiences and who those lenders were.

Property Standards at Loan Approval

It is true that the home must meet property requirements to place the loan and that includes no chipping or peeling paint, cabinets must have doors, all plumbing and electric must be in working order, etc., but I think that’s t be expected to receive a loan.

For big-ticket repairs needed, you can often do a “set aside” so that the repairs can be completed after the loan closes to ensure you have the funds for the work.

Line of Credit vs. Fixed Rate Considerations

If you choose this option, be sure to elect the line of credit, as the lender cannot refund any unused set-aside funds on the fixed-rate loan, and they must set aside 1.5 times the cost of the repairs.

With the line of credit option, the funds go back into the line for you to use, and with the fixed rate, you do not have use of the funds (you also don’t owe them because they are not considered borrowed, but you lose the use of the additional mortgage amount).

Using Repair Companies

For those with repairs that must be completed prior to funding but lack the resources to pay for them before the loan closes, there are also some companies that will complete the repairs and agree to wait to accept payment until after your loan closes.

I caution borrowers before accepting this arrangement because these companies often charge more than others.  You must be certain that your loan is completely approved and will close before you do any repairs at all for which you otherwise cannot pay.

Because of the extra steps involved and the completion of the repairs, it takes longer to close a loan with this type of arrangement, and the length of that increased time depends on the repairs to be done.  You want to be sure that the work can be completed before your appraisal and other documents are out of date, and you need another.

Contractors Paid After Closing

Also, remember, all work done is between you and your contractor.

Be sure you are happy with the company/person you choose to do the work because your lender is not a party to the work you have done and cannot become involved if you are not happy with their final product.

Check out all their references just as you would with any other service provider, and be sure you have a reputable contractor.

ARLO recommends these helpful resources: 

• What is a Reverse Mortgage Repair Set-aside
• Topic: Reverse Mortgage Property Requirements
• HUD HECM PROPERTY STANDARDS