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.
Scenarios we see often are: 1. Carpeting on outdoor decks that has caused dry rot of the deck boards. 2. Peeling paint due to excessive exposure to the sun on the southern side of the home. 3. Potential dry rot in the bathrooms around the tub or toilet.
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.
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.
Before you know what you can do, you need to know how much you qualify for. Try the free reverse mortgage calculator to quickly estimate how much money is available to you. There is also plenty of reverse mortgage information that will help you become educated before you make your decision.
