Key Takeaways
- Reverse mortgage appraisals must strictly follow FHA guidelines, which are more rigorous.
- Appraisers must check for safety, security, and structural soundness, not just market value.
- Fees generally range from $450 to $700 and must be paid upfront.
\n\nIf you've bought or sold a home recently, you might expect an appraisal to cost around $300 to $400. However, when you apply for a reverse mortgage, you might be surprised to find the appraisal fee quoted at $500, $600, or even $700.
Why the sudden markup? Are lenders just price-gouging seniors? The answer lies in the strict federal requirements governing Home Equity Conversion Mortgages (HECMs).
The FHA Appraisal Standard
Almost all reverse mortgages are insured by the Federal Housing Administration (FHA). Because the FHA is taking on the risk of guaranteeing the loan, they require a specific type of appraisal known as an FHA Appraisal.
A conventional appraisal simply determines the current market value of your property so the lender knows how much collateral they have.
An FHA appraisal does that, plus it serves as a rigorous health and safety inspection. The appraiser is required to ensure the property meets the HUD Minimum Property Standards (MPS).
What Extra Things Does the Appraiser Check?
Because they must act as both an appraiser and a quasi-inspector, FHA-approved appraisers spend more time on the property and have more liability, hence the higher fee. They will look closely at:
- The Roof: Does it have at least three years of remaining economic life? Are there active leaks?
- The Foundation: Are there severe cracks or water damage?
- Systems: Do the heating, plumbing, and electrical systems function properly and safely?
- Paint: For homes built before 1978, is there any chipping or peeling paint that could be a lead-based paint hazard?
- Safety: Are there handrails on staircases? Is there safe egress from bedrooms?
What Happens if the House Fails?
If the appraiser notes that the house does not meet FHA standards, the reverse mortgage can still proceed, but with conditions.
The lender will require that the necessary repairs be made. If the repairs are relatively minor (like installing a handrail or fixing a broken window), the lender might allow the cost of those repairs to be paid out of the reverse mortgage proceeds after closing. This is known as a "repair set-aside."
If the repairs are major (like a failing foundation), you may be required to fix them out of pocket before the loan can be approved.
Who Pays for the Appraisal?
The appraisal is one of the few closing costs that you must typically pay out of pocket, upfront, directly to the appraisal management company. It generally cannot be rolled into the loan balance, though if your loan successfully closes, some lenders offer promotions where they will credit the cost back to you.\n