A reverse mortgage can be beneficial to seniors who are struggling during the current economic conditions. An important part of the reverse mortgage process is the appraisal. With the current pandemic, there have been concerns that seniors, who have been most affected by COVID-19, may not want to risk exposure by allowing someone to come into their home to conduct the appraisal.
What is an Appraisal?
An appraisal determines the current market value of a home. For a reverse mortgage, the appraisal is used to determine property’s eligibility and estimated worth to calculate the funds available for the loan. The appraisal process frequently includes an appraiser coming to the home of the borrower, doing a detailed inspection of the exterior and interior of the property so as to sufficiently determine the home’s value.
What’s different due to COVID-19?
The Federal Housing Authority (FHA) and the Housing and the Department of Urban Development (HUD) released a Mortgagee letter1 at the end of March 2020, offering guidelines allowing companies to continue to offer reverse mortgages while ensuring the safety of those most at risk. In accordance with this letter, the FHA and HUD are temporarily allowing exterior only and desktop appraisals during the pandemic. The following explain what these are:
Exterior-Only Appraisal
An ‘exterior only’ appraisal involves the appraiser looking only at the exterior of the home and documenting their observations by taking clear and descriptive photographs of the property and using comparable sales in the neighborhood to determine the market value of the home.
Desktop Appraisal
A ‘desktop appraisal’ is where an appraisal is performed without the appraiser making any physical inspection of the home. The appraiser relies on third-party resources by using information about the borrower’s property, such as relevant physical characteristics, researching public records or other available sources in order to establish the market value of the home.
A reverse mortgage allows senior homeowners who are 62 years and older, to turn a portion of their home’s equity into cash, monthly payments or a line of credit. Many borrowers use a reverse mortgage to pay off their current mortgage loan which eliminates their monthly mortgage payment.2
If you have questions about the reverse mortgage appraisal process or about a reverse mortgage in general, call 1-800-976-6211 to speak with a licensed loan advisor.
Important Disclosures
1 https://www.hud.gov/sites/dfiles/OCHCO/documents/20-05hsgml.pdf
2 The funds available to the borrower may be restricted for the first 12 months after loan closing, due to HECM reverse mortgage requirements. In addition, the borrower may need to set aside additional funds from the loan proceeds to pay for taxes and insurance. The borrower must live in the home as their primary residence, continue to pay required property taxes, homeowners insurance, and maintain the home according to FHA requirements. Failure to meet these requirements can trigger a loan default that may result in foreclosure.