What if you want to do a loan on your home, but you know the home needs repairs to qualify?
Under the traditional loan requirements, you need to fix the deficient aspects of the property and then you can do a loan. What makes a reverse mortgage unique is the ability to do a loan first and then, after it closes, do the repairs. This allows you to get the money needed to do the repairs from the equity of your home.
Let’s look at some very common scenarios: 1. You have a deck that has had indoor outdoor carpet on it (you know, the green carpet that looks like grass), and the boards under it have dry rot. 2. Or maybe the southern exposed side of the home has very little, if any paint on it. 3. Sometimes, a tub or toilet area has a squishy floor indicating dry rot.
The required repairs for these problems can be completed after the loan is closed. In fact, any repairs that do not involve safety or health concerns can be done after you loan closes. Your property not having adequate water is an example of a repair that can’t wait, but roofing and dry rot repairs are common and should not be a problem.
How does the lender handle these repairs to make sure they get done? I am glad you asked. You will have to get a contractor’s bid for the repairs and then add 50% to that bid. The extra 50% is to cover any miscalculations to make sure that there is enough money to cover the costs and that you don’t run short. That amount of money is held in escrow, commonly called an “escrow hold back”. Once the repairs are completed, the lender will pay the contractor and refund the remaining money to you.
I know what you are thinking, what if you want to do the repairs yourself? That is OK. You can do it, but you will need to still have the contractor quotes. There needs to be a number that dictates the amount of escrow hold back.
A summary of what you learned: You can do the repairs with the proceeds of your loan, and that makes it unique when compared to other loans. Even if you want to do the repairs yourself, the escrow holdback will be required.
One of the first steps in knowing what you can do, is knowing how much you qualify for. Try the free reverse mortgage calculator for a quick estimate of what is available to you. There is also plenty of reverse mortgage information that will help you become educated before you make your decision.
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