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I was denied an appraisal for a reverse mortgage because of non-permitted work in my house, and the creation of a basement apartment with a kitchen and bath. Because of this, I couldn't complete the process. Is there any way I can qualify for a reverse mortgage despite this issue of not having gotten permits for the addition to my home?

By Mimi M. on 11.08.2018

Hello Mimi,

I’m a little puzzled.  No one can really “deny” you an appraisal.  I don’t know your circumstances, but what I think may have happened is that someone, the appraiser or the originator, looked at the situation and determined that the property would not meet HUD eligibility guidelines and to keep you from paying for an appraisal on a property that would not be eligible anyway, they stopped the process before you incurred a cost. 

HUD will not insure the mortgage on a property that has an addition with a kitchen in the basement under some circumstances.  The property is not eligible under the HUD guidelines if the local zoning does not allow the basement apartment.  If your home is a duplex with an unpermitted accessory dwelling addition, it will not qualify for the reverse mortgage.  In either of these cases, the appraiser or lender was trying to help you by not making you pay hundreds of dollars for an appraisal, knowing in advance that your home would not meet eligibility requirements.

But let’s also talk about what you might be able to do.  Suppose your home is single-family, and your local zoning does not prohibit the basement apartment, and all the work was done to code and skillfully. In that case, you can talk to the municipality that approves additions in your area about what it would take to permit the expansion now.  Owners often do not like to do this because it sometimes requires the inspector to open a wall to inspect plumbing and electrical. Still, we have had borrowers do this, and the permitted addition raised their property value.  In one specific instance, the cost of the entire repair to drywall the area the inspector made them open and have the addition permitted was less than $1,000. 

If getting the addition permitted now is not an option, we have also had borrowers remove the kitchen from an unpermitted addition.  If you remove the stove and there is no kitchen, then the appraiser will give the space no value, and if this space does not violate local zoning ordinances, this is also acceptable. You might not be so lucky, though, and would undoubtedly want to get bids before you started to do anything in your basement. 

First, you would want to check with your local zoning to determine what is and is not allowed under the zoning.  If the addition is not permitted per the zoning ordinance, the only option you must get the loan would be to remove the kitchen so that the basement qualifies as a finished basement.  If your zoning municipality would allow you to permit the addition post-completion, then you would have to determine the work and expense to do so now and then decide whether you wanted to go through that.