Reverse Mortgage Appraisal Definition

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Reverse Mortgage Appraisal Definition

Before the lender can decide how big of a loan it could grant you if you’re asking for a reverse mortgage, your house must be carefully evaluated. What you should know about the reverse mortgage appraisal procedure is provided below.

Key Takeaways

  • The lender will arrange for a certified appraisal if you submit an application for a reverse mortgage.
  • The appraisal plays a significant role in establishing the size of the loan you may be qualified for.
  • You may contest the evaluation if you don’t agree with it.

What Is a Reverse Mortgage?

With the help of a reverse mortgage, homeowners may access the equity they have built up in their homes without having to sell them first. They may choose to get the funds in a flat amount, regular installments, a line of credit they can use whenever they need it, or a mix of these. Until they pass away, sell their house, or vacate, they (or their estate) are not required to pay back the loan.

Reverse mortgages provided by lenders who have been certified by the Federal Housing Administration (FHA), a division of the U.S. Department of Housing and Urban Development (HUD), are insured. The official name of these loans is “home equity conversion mortgages” (HECMs).

Reverse mortgages are also offered by several private lenders in their own variations. These loans, sometimes known as proprietary reverse mortgages, are not guaranteed by the government and may have various eligibility standards and loan amounts.

Additionally, several municipal, state, and charity organizations provide homeowners with low- and moderate-income homes with one-purpose reverse mortgages. As their name suggests, the funds have a specific function, such as house repairs or paying property taxes.

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Who Qualifies for a Reverse Mortgage?

You must be 62 years of age or older to be eligible for an FHA-insured reverse mortgage. You must, among other things, also

  • Use the home as your primary residence.
  • Have paid off a “substantial” percentage of any debt on the property or own it altogether.
  • Possess sufficient funds to pay the house’s property taxes, insurance, and other expenses.

The lender will examine your credit history as well as your income, assets, and monthly living costs as part of the loan application procedure. Additionally, it will verify that your real estate taxes and homeowner’s insurance payments were paid on time. If you have flood insurance, it also applies here.

What Homes Can Qualify for a Reverse Mortgage?

There are further standards for the house itself. It must be a single-family house, a two- to four-unit building with one unit inhabited by the borrower, a HUD-approved condominium project, a single condominium unit that satisfies the applicable FHA standards, or a manufactured home that satisfies the requirements, for instance.

Important

You must attend a HUD-approved HECM counselor’s informational session before applying for an FHA-sponsored reverse mortgage.

How Much Can You Borrow?

Age, current interest rates, and the assessed value of your property will all affect how much you are eligible to borrow. The current maximum HECM under FHA insurance is $970,800.

Jumbo reverse mortgages, which are proprietary reverse mortgages with greater restrictions, are also an option.

How the Appraisal Process Works

Your lender will demand a professional assessment of your house in order to evaluate the size of a loan you could be qualified for. An FHA-approved appraiser must be used by the lender for a reverse mortgage that is government-insured.

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The stages involved in a reverse mortgage appraisal are the same as those in a regular house appraisal. The appraiser will examine the house from the inside out as well as the community around it to establish its worth before looking for comparables (homes that are similar to the one being evaluated but have recently sold in the area). The appraiser has the right to take measurements, take pictures, and go through any pertinent legal records.

Any improvements or other tasks required to bring the house up to HUD’s minimal property requirements will also be noted by the appraiser. The homeowner may have to finish any necessary major repairs before getting the loan. The lender may grant the loan and let the property owner to finish the repairs later if the repairs would only cost 15% or less of the maximum claim amount (basically, the most that HUD would be accountable for in the event of a default).

The borrower is responsible for the appraiser’s charge even if they work for the lender. Usually, it will cost several hundred dollars. The lender or HUD may sometimes demand a second appraisal.

The lender will send a copy of the appraiser’s report to the homeowner when the lender receives it from the appraiser. Regardless of whether credit is provided, refused, unfinished, or withdrawn, the Equal Credit Opportunity Act (ECOA) mandates that creditors immediately transmit a free copy of all house assessments and other documented valuations on the property when they are finished. If the homeowner contests the assessment, they may do so by submitting to the appraiser a request for reconsideration of value along with comparables that, in their opinion, more accurately reflect the home’s worth. The appraiser must study such data, but it is up to them to decide whether to make any adjustments as a consequence.

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How Long Is an Appraisal Good for?

A standard evaluation is valid for 120 days, but in exceptional circumstances, a further 30-day extension may be possible.

Can I Hire My Own Appraiser?

You can if you want, but getting a reverse mortgage and figuring out how much it will cost will depend on the appraiser’s assessment hired by the lender.

What Are the Fees for a Reverse Mortgage?

Borrowers should anticipate paying an origination charge to the lender (not to exceed $6,000 in the event of a government-insured mortgage) in addition to the appraisal fee and a range of closing expenses. If the mortgage is government-insured, those may also include an initial insurance cost equivalent to 2% of the loan principal, inspection, title search, and recording expenses. Aside from the insurance, lenders might charge different costs, so it’s essential to compare them. One drawback of a reverse mortgage to consider is that these fees might add up to a sizable amount when added together.

The Bottom Line

The value of a home’s appraisal is the basis for certain reverse mortgages. Your lender will arrange for a qualified house appraisal if you’re submitting an application for a reverse mortgage. You have the right to contest the appraiser’s assessment of your home’s worth.

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