In order to obtain a reverse mortgage, a borrower must address any needed repairs to meet FHA standards. Here are some pointers from expert contractors fluent in this specific kind of compliant renovation.
MARIA SCHULZE
BAYSTATE INDEPENDENCE HOUSING GROUP
When an individual applies for a reverse mortgage, the application must be approved by the FHA, which requires the home to meet specific health, safety and soundness standards. This can be problematic, as most homeowners applying for reverse mortgages do so because they are short on funds and often lack the money to address essential home repairs. Furthermore, many homes may require repairs that exceed the 15 percent allowable for escrow. (If the repairs do not involve health and safety issues and are under 15 percent of the appraised value, they can be escrowed.) Many times, lenders will set aside 150 percent of the estimated repairs. But with values where they are, there is often not enough equity to make this happen.
The Right Contractor for FHA Compliance
In these situations, homeowners can seek help from general contractors who specialize in repairs for non-compliant FHA reverse mortgage properties. Such companies are familiar with the nuances of FHA-backed mortgage loans, educated in the reverse mortgage process and sensitive to the issues facing seniors as they go through the process of obtaining a reverse mortgage. They often provide general contracting, project management and bridge funding to facilitate noncompliant loans.
I have helped dozens of seniors complete the renovations their homes need in order to obtain a reverse mortgage. One loan that comes to mind involved a single woman whose home needed a large amount of work, including plumbing, wall repair, painting and deck work. Her grandchildren were coming over in less than a week, and she hadn’t seen them for a couple of years. We were able to come in and take care of all her repair needs in time. She called me, crying, to thank us for making her home safe and sound for her family. My experience illuminates how important it is for seniors in need to work with a specialized contractor who is willing to go the extra mile to ensure they can age comfortably in their homes.
Bridge Funding
These specialized contractors will not only renovate and repair the home, they will provide bridge funding to support the construction. This means that the homeowner will not incur any upfront, out-of-pocket expenses as they work
to achieve FHA approval, and won’t have to struggle to handle the cost of repairs. Instead, the contractor will cover the expense, and the homeowner will commit to repaying the cost when the reverse mortgage loan closes.
The Pricess
Here’s a rundown on the steps to achieving FHA compliance:
-A homeowner or the loan officer contacts the contractor to discuss the home’s repair needs to qualify for FHA loan approval.
-The contractor will present a proposal for repairs, typically within 48 hours. Once that proposal is approved, the repairs should be scheduled immediately so that construction can get under way.
-At this point, essential repairs are addressed. The most common repairs for noncompliant homes are often related to the structure’s foundation, mold and lead paint remediation, leaking roof and water damage, the absence of a heat source, inadequate electrical systems, local and state code violations, and inoperable doors or windows. Other renovations include retrofitting the home to address accessibility issues, such as grab bars, hand rails, ramps and wider doorways.
-Once the repairs are finished, the borrower must sign a completion report. Final documents are then sent to the loan officer and the lender’s title company to ensure that all documentation is properly processed and ready to take to closing.
-Once the home is determined to be FHA-compliant, the loan officer can finalize the application for the reverse mortgage and, ideally, obtain approval. When the mortgage funds come through, the contractor is paid for the home’s repairs at closing.
Tax Assessment
In some cases, homeowners who seek reverse mortgages are also saddled with excessively high property taxes. It’s important to note that a visit to the tax assessment office might help solve this issue. A reverse mortgage holder can often register as a senior property owner with limited income and potentially receive a credit toward his taxes that would alleviate the burden of this expense.
In Closing
I have helped many seniors through the renovation process so that they can obtain much-needed funds from a reverse mortgage. I have seen firsthand how many senior homeowners need our assistance. Each story is different; I listen to each one, find out how I can help and then—together with my crew—work to help that senior achieve his goal. I take great pride in knowing that each day I am making a difference in someone’s life. I am helping seniors all across the United States stay in their homes—their safe and comfortable homes.
FIDELITY HOMESTEAD ASSOCIATES
In today’s market, loan officers and mortgage companies are often licensed to do business in several states. Because of the physical distance between the parties involved, there is rarely an opportunity for the loan officer to personally visit the property at the beginning of the process. As a result, loan officers often overlook essential repairs that are required to close the loan. The need for renovation is sometimes not discovered until they receive an appraisal, at which point a significant amount of time and money has already been invested.
This disconnect is exactly what gave rise to contractors who address the need for home repairs so that loans can be efficiently executed. The companies assist loan officers so that they can successfully close “problem” loans and provide homeowners with a trusted and qualified team to handle the required home repairs and renovations.
In Need of Repair
Many seniors are turning to reverse mortgages as a much-needed source of income so they can keep their home. Seniors who?have not been in the financial position to upgrade and repair their homes for many years before this opportunity rarely know a trusted contractor to assist them.
In other cases, underinsured or uninsured seniors have been displaced by hurricanes or other natural disasters. In these instances, the repairs are significant and essential because of basic health and safety issues. Required repairs can sometimes exceed the amount allowable by a repair set-aside and must be completed before closing. We’ve heard many stories from loan officers about how helpless they felt because they were unable to get repairs done prior to closing and help restore normalcy and dignity to these people’s lives.
In any case, repairs to the property may be needed in order to close the loan. Generally, the responsibility to locate, research and schedule contractors to visit the property and provide an estimate for repair will fall on the loan officer or the processor. Sometimes loans are lost due to program or rate changes that occur while the loan officer is still working to obtain an estimate for repairs.
Other times, loans are shelved and forgotten because the loan officer is occupied closing “easier” loans that do not require the extra steps incurred by the need for repairs. Overseeing the repair of a property under consideration for a loan can be extremely time-consuming and frustrating for the loan officer and the homeowner. This valuable service enables loan officers to delegate the repair process to a renovation expert so they can concentrate their efforts on procuring and closing loans.
