What is a Repair Rider in a Reverse Mortgage?
A reverse mortgage can be a great way for senior homeowners to use the equity in their homes to improve their financial status by paying off other debts, supplementing retirement income, funding the cost of in-home medical care, or paying for anything else they need. However, there are certain requirements that must be met in order for a reverse mortgage borrower to fully benefit from the program and avoid going into default. A repair rider is one requirement that, while not applicable in all reverse mortgages, could be added in select cases.
In simplest terms, a repair rider is an agreement between the reverse mortgage client and the lender in which the client agrees to have certain repairs and/or improvements made to the home within a specified time frame. Although it is not required for all reverse mortgage borrowers, a repair rider may be added to the reverse mortgage as a condition of the loan closing. In other words, if the borrower fails to complete the repairs listed in the repair rider, the loan may fail to close, payments may be suspended, or the loan could be called due, since failure to comply with the repair rider agreement is considered a default on the loan. This is why industry experts strongly recommend that reverse mortgage borrowers take repair riders seriously and that they complete all repairs within the allotted time frame.
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How are the repairs paid for?
Reverse mortgage borrowers with a repair rider will also have what’s called a repair set-aside. The set-aside is the portion of available reverse mortgage funds that are reserved specifically for the purpose of funding the home repairs. The set-aside amount does not actually count as part of the reverse mortgage balance until the funds are dispersed. However, if you are entering into a reverse mortgage agreement with a repair rider, you should keep in mind that those funds will more than likely be dispersed for the repair requirements unless you plan to make other funding arrangements outside of the mortgage agreement.
Will an inspection be required?
After the repairs have been completed, or at the repair deadline, the reverse mortgage loan servicer will make arrangements for a certified inspector to come to the home and verify that the repairs have been made and that they meet the necessary safety standards. In some cases, interim inspections may be allowed in order for the lender to disperse partial repair completion payments.
Remember that a reverse mortgage is a legal contract, just like in a regular mortgage. Any riders or additions to the contract are treated as legally binding and the mortgage borrower will be legally obligated to hold up their end of the agreement – so always make sure you understand what you are signing and don’t hesitate to ask your lender questions about anything that is not clear to you.
For more information on repair riders or reverse mortgage requirements in general, contact a reverse mortgage loan specialist serving your area.