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.
Examples of common repairs:
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.
Any of the problems that do not involve safety or health concerns can be completed after the loan closes. Problems like not having adequate water to the property would be an example of a problem that can’t wait, but dry rot and roofing repairs can almost always be completed after the loan closes.
Who actually pays the contractor?
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.
Can you do the repairs yourself?
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.
Let’s summarize what you just learned: The proceeds of your loan can be used to do the repairs, making a reverse mortgage a unique loan. The escrow holdback will be required even if you choose to do the repairs yourself.
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’s a lot of reverse mortgage information that is helpful in becoming, educated before you make your decision.