Can I Do A Reverse Mortgage If My Home Needs Repairs?

When you know your home needs repairs to qualify for a loan

, how do you get the loan done?

A traditional loan will require you to fix the problems before you get a loan, where a reverse mortgage is more lenient and will allow the repairs to be completed after the loan proceeds are received. This allows you to use the equity form your loan to do the repairs you may not have been able to afford otherwise.

Some of the more common scenarios are: 1. Decks covered with indoor outdoor carpet (the stuff that looks like fake grass), causing the deck board to rot. 2. The southern side of the home is peeling paint due to all the sun exposure. 3. Softer, squishy areas around the tub and toilet, 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.

You say you want to know how the lender ensures that the repairs get done. Well thank you for asking. A bid from a licensed contractor will be required, and then add 50% to that bid to cover any miscalculation or budget overages that might come up. The money for repairs, plus the extra amount, is held back in an escrow account called an "escrow holdback". Upon the repairs being completed the lender will pay the contractor, and you will be refunded any difference.

Are you thinking you want to the repairs yourself and save some money? It is allowed, but there will still need to be a licensed contractor that gives you the bids. It is the starting point to know how much money needs to be put in an escrowed holdback account.

Summarizing what you learned: What make a reverse mortgage unique is you can use the proceeds from your loan to do the repairs, and the escrow holdback is mandatory regardless of who does the repairs.

by: David Prulhiere

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