Reverse Mortgage Appraisal: What It Is, How It Works

Your home’s current market value is a key factor in how much you can borrow

Fact checked by Timothy Li
Reviewed by Lea D. Uradu

What Is a Reverse Mortgage Appraisal?

Reverse mortgages allow homeowners age 62 and older to get a loan by tapping into their home equity. A reverse mortgage can provide a steady income stream in retirement. However, you must have an independent appraiser assess the property’s value when applying for a reverse mortgage.

The appraisal process involves determining the home’s value by inspecting the home’s condition. The reverse mortgage appraisal is essential in helping the mortgage lender determine how much money to extend as a loan to the borrower. The independent appraisal helps protect the borrower and lender by ensuring a fair assessment of the property.

The appraisal includes evaluating the home’s age, location, square footage, and features, including the number of bathrooms and bedrooms. The process also involves comparing the home to similar homes in the neighborhood that have recently sold. The appraisal will highlight any deficiencies and needed repairs, particularly health and safety concerns, such as electrical or structural issues.

From there, the appraiser creates a report for the mortgage lender, who uses the evaluation when calculating the loan amount to the borrower. Discover what you need to know about the reverse mortgage appraisal process.

Key Takeaways

• If you apply for a reverse mortgage, the lender will arrange a professional appraisal.
• The appraisal process helps determine the home’s value by evaluating the condition of the home and its features, such as the number of bathrooms and bedrooms.
• A reverse mortgage appraisal involves comparing the home to properties in the neighborhood with similar features.
• The appraisal value is a major factor in determining the amount a borrower can get approved for with a reverse mortgage loan.
• If you disagree with the appraisal, you can challenge it.

How a Reverse Mortgage Appraisal Works

A reverse mortgage is a type of loan that allows homeowners to access the equity accumulated in their home. They can receive the money as a lump sum, monthly payments, a line of credit, or some combination. Borrowers (or their estate) don’t have to pay off the loan until they die, sell the home, or move out.

The Federal Housing Administration (FHA), part of the United States Department of Housing and Urban Development (HUD), insures reverse mortgages issued by FHA-approved lenders. These loans are formally known as home equity conversion mortgages (HECMs).

Some private lenders offer their own versions of reverse mortgages as well. Those loans, often referred to as proprietary reverse mortgages, are not government-insured and can have different qualification requirements and lending limits.

In addition, some state and local agencies and nonprofit organizations offer single-purpose reverse mortgages, typically for low- and moderate-income homeowners. As their name implies, the money must be used for a particular purpose, such as home repairs or to pay property taxes.

 Who Qualifies for a Reverse Mortgage?

To qualify for a reverse mortgage insured by the FHA, you must be at least age 62. Among other requirements, you must also:

• Occupy the property as your principal residence
• Own the property outright or have paid off a “considerable” portion of any debt on it
• Have adequate financial resources to keep up with the home’s property taxes, insurance, and other fees

As part of the loan application process, the mortgage lender will review your credit history and verify your income, assets, and monthly living expenses. It will also check whether you have paid your real estate taxes and homeowners insurance premiums on a timely basis. That also includes flood insurance if you have it.

What Homes Can Qualify for a Reverse Mortgage?

The home itself must also meet certain requirements. For example, it must be either a single-family home or a two- to four-unit home with one unit occupied by the borrower, a HUD-approved condominium project, an individual condominium unit that meets the relevant FHA requirements, or a manufactured home that meets the requirements.

Important

Before you can take out an FHA-sponsored reverse mortgage, you must participate in an information session with a HUD-approved HECM counselor.

How Much Can You Borrow?

The amount that you will be able to borrow will depend on your age, current interest rates, and the appraised value of your home. The 2024 maximum FHA-insured HECM is $1,149,825.

Proprietary reverse mortgages with higher limits are also available and are commonly referred to as jumbo reverse mortgages.

How the Appraisal Process Works

To determine how large of a loan you could be eligible for, your lender will require a professional appraisal of your home. For a government-insured reverse mortgage, the lender must use an FHA-approved appraiser.  

Compare to Similar Homes

The appraiser will compare the home to similar homes in the area, including homes that have sold recently, to determine the home’s market value. The appraiser will review homes in the area with features similar to those of the home being appraised. The appraiser also evaluates the neighborhood and will check the local multiple listings service (MLS) to determine the value of homes that have recently sold when determining the property value.

Review the Property Inside and Out

The appraisal process for reverse mortgages follows the same steps as a typical home appraisal. The appraiser will evaluate the home’s exterior, interior, and surrounding neighborhood. Areas of concern for an appraiser might be any structural and safety issues, such as plumbing and electrical. The appraiser may make measurements, take photographs, and review relevant legal documents.

Note Needed Repairs that Affect Property Value

The appraiser will also make note of any repairs or other work necessary to bring the home up to HUD’s minimum property standards. If substantial repairs are required, the homeowner may have to complete them before receiving the loan. If repairs cost less than 15% of the maximum claim amount—essentially, the most for which HUD would be responsible if the borrower defaults—the lender may issue the loan and allow the homeowner to complete the repairs afterward.

Appraisal Fee

While the appraiser works for the lender, the borrower has to pay their fee. That typically will be several hundred dollars. Sometimes, the lender or HUD may require a second appraisal.

Appraisal Reporting

The appraiser should provide copies of their appraisal to the mortgage lender or financial institution, who will forward a copy to the homeowner. The Equal Credit Opportunity Act (ECOA) requires creditors to automatically send a free copy of home appraisals and all other written valuations on the property after completion, regardless of whether credit is extended, denied, incomplete, or withdrawn.

If the homeowner disagrees with the appraisal, they can challenge it by filing a request for reconsideration of value with the appraiser, along with comparables that they believe more fairly represent the home’s value. The appraiser is required to review that information, but it’s up to them whether to make any changes as a result.   

Important

Appraisal bias is when an appraiser uses a homeowner’s race or ethnicity or the ethnic demographics of the neighborhood when calculating a home’s value. Discrimination during the appraisal process is prohibited under the Fair Housing Act and Equal Credit Opportunity Act.

If you believe you have experienced discrimination, call the Appraisal Complaint National Hotline at 1-(877) 739-0096.

How Long Is an Appraisal Good For?

An appraisal is typically good for 180 days, but in some cases an extension may be available.

Can I Hire My Own Appraiser?

You can hire an appraiser, but the verdict of the lender’s appraiser will be the one that counts in obtaining a reverse mortgage and determining its amount.

What Are the Fees for a Reverse Mortgage?

In addition to the appraisal fee, borrowers can expect to pay an origination fee to the lender (not to exceed $6,000 in the case of a government-insured mortgage) and a variety of closing costs. Those can include inspection, title search, and recording fees, as well as an initial insurance premium equal to 2% of the loan balance if the mortgage is government-insured.

Aside from the insurance, fees can vary from lender to lender, making comparison shopping worthwhile. Collectively, these fees can add up to a considerable sum, which is one of the downsides of a reverse mortgage to consider.

The Bottom Line

Reverse mortgages are based, in part, on a home’s appraised value. If you’re applying for a reverse mortgage, your lender will arrange for a professional home appraisal. If you disagree with your home’s appraisal value, you can dispute it.