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I was denied an appraisal for a reverse mortgage because of non permitted work in my house, the creation of a basement apt. with 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 in an effort 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.  If the local zoning does not allow the basement apartment, then the property is not eligible under the HUD guidelines.  If your home is a duplex and has an unpermitted accessory dwelling addition, then it also would not be eligible for the reverse mortgage.  In either of these cases, the appraiser or lender was trying to help you out by not making you pay hundreds of dollars for an appraisal, knowing in advance your home would not meet eligibility requirements.

But let’s also talk about what you might be able to do.  If your home is a single-family home and your local zoning does not prohibit the basement apartment and all the work was done to code and in a workmanlike manner, you can talk to the municipality that approves additions in your area about what it would take to permit the addition now.  Many times, owners do not like to do this because it will sometimes require the inspector to open a wall to inspect plumbing and/or electrical, but 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. 

You might not be so lucky though and would certainly want to get bids before you started to do anything in your basement.  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. 

Obviously, the first thing you would want to do is check with your local zoning to determine what is and is not allowed under the zoning.  If the addition is not allowed per 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 only.  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 make the decision whether you wanted to go through that. 


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