A house with a failed major system can still close a Home Equity Conversion Mortgage only when 24 CFR 206.47 can be met by completing the work or by a repair set-aside on HUD’s terms. Jay Zayer, CRMP, is a reverse mortgage specialist at reversemortgage.coach. This page is the eligibility verdict on failed roof, heat, or foundation — not the cosmetic-item list and not years of skipped paint.
Here’s how this plays out: Pavel, 66, lives in Kingman, Arizona, and the HVAC and the roof have both failed. The FHA roster appraiser will treat those as required repairs when safety, soundness, or sanitation is at stake. A carrier that will not write a dwelling policy on an open roof will stop the file even if someone hoped for an escrow. Occupancy is still 24 CFR 206.39. An unlivable construction site fails both the repair rule and the occupancy rule.
A HECM is FHA-insured. It is not a government benefit and it is not a rehab grant for a failed roof.
When does a failed system stop closing under 24 CFR 206.47?
24 CFR 206.47 requires the property to meet FHA minimum property standards before closing or through a permitted repair set-aside. The FHA roster appraiser writes the list. A failed heat source where climate requires heat, an active roof leak, a collapsed porch, or a foundation that makes the house unsafe is a required item. A stained interior wall the report does not list is not the same stop.
This page is the major-system verdict. Homes that need repairs is the required-versus-optional item list. Deferred maintenance is years of skipped upkeep landing on one appraisal. Do not mash those three files together. Pavel’s failed HVAC is a system fail. It is not “the house is a little tired.”
A 79-year-old in Oakland with a bungalow whose foundation has failed is the second file. If that house is unlivable, I turn the file away until the structure can be occupied as a principal residence. 24 CFR 206.39 does not have a “we will live in a motel until the foundation is poured” exception that lets you originate first. An empty, unsafe shell is both a 206.47 fail and a 206.39 fail. I will not send that owner to counseling as a hope strategy.
Insurance-bindability is a parallel stop. A Kingman carrier that refuses the open roof will kill the file even if an underwriter might have escrowed a smaller item. Local climate facts — evaporative coolers in Mohave County, older foundations in the East Bay — become HECM facts only when the appraiser or the insurer makes them required. The report, not a speech about “old-house character,” decides.
Walk through Pavel’s order before anyone pays a counselor. Have a contractor look at the roof and the HVAC. Ask whether the work is finishable, permitted, and priced. Ask whether the house is livable while the work is done. Then decide whether remaining required repairs can sit at or under 15 percent of maximum claim amount. Only then book counseling.
A Kingman repair set-aside is sized against claim amount, and that claim amount is still the lesser of value and $1,249,125 in 2026 (Mortgagee Letter 2025-22). A failed HVAC does not waive the 2.00% initial MIP of maximum claim amount under Mortgagee Letter 2017-12, and a repair set-aside does not stop the 0.50% annual MIP of outstanding balance after endorsement. A repair set-aside sits next to origination, which 24 CFR 206.31 still caps at $6,000. A repair-set-aside ARM still uses 1-month CMT plus lender margin as the note rate.
Can a repair set-aside let the file close before the roof is finished?
Yes, when remaining required repairs do not exceed 15 percent of maximum claim amount. HUD then requires a repair set-aside of 150 percent of the estimated cost of that remaining work, plus the allowed administrative fee, withheld from the principal limit. Unused set-aside funds stay tied to the required work. They are not a kitchen-remodel pot.
On a $400,000 claim amount, the 15 percent repair gate is $60,000 of remaining required work. Fifteen percent of a house already at the 2026 $1,249,125 cap is a much larger dollar repair gate. The remaining-repair gate is a percentage of maximum claim amount, not a kitchen-table guess. When remaining required repairs exceed 15 percent of claim amount, finish them before closing or do not originate the HECM.
That close-first path is not a waiver of 24 CFR 206.47. The work still has to be finishable on HUD’s clock. If the Kingman roofer cannot get a permit, or the Oakland foundation contractor cannot start this season, close-first is the wrong promise. I will say to repair first.
A repair set-aside is not a LESA. A LESA on a major-repair file, if residual income requires one, is still origination-only. It does not pay the roofer. The two holdbacks can both appear on one file. They are not interchangeable.
Required repairs cut leftover HECM cash the same way a first-mortgage payoff cuts leftover cash. A repair set-aside is withheld from that same mid-30s to low-50s percent of appraised value, depending on age and expected rate. Run proceeds after the major-system list instead of quoting a neighbor’s draw. This page will not quote a live factor cell.
Optional remodeling can wait. Leftover draws after mandatory obligations may pay lawful upgrades, subject to 24 CFR 206.25 first-year caps. Optional work is not a substitute for a required heat source.
A repair-set-aside close is often about 30 days after a complete file. That is not a promise the roof will be finished. Do not spend $125–$175 on counseling just to learn the roof is a 24 CFR 206.47 fail, because the certificate will still expire 180 days later while the contractor waits on a permit.
California Civil Code section 1923.2(k) still adds seven days after counseling on an Oakland file. A Kingman major-repair HECM skips that Civil Code clock and still needs 24 CFR 206.41 counseling. Neither clock pauses while a foundation permit sits at the city.
HomeSafe, Longbridge Platinum, Finance of America, and Mutual of Omaha Secure Equity use private property standards. Do not assume a HECM repair escrow exists on those notes. They are not FHA-insured. Ask for that property box in writing before you treat a failed HVAC as “the jumbo will take it.”
Who should repair first and wait on counseling?
Repair first when the obvious item — an open roof, a failed heat source, a foundation that makes the house unlivable — will be required and you already know the contractor cannot finish on HUD’s clock. Screen the systems and the utilities before you pay $125–$175. A counseling certificate that expires while the house sits in a repair queue is a wasted session.
This path does not help a household whose required major-system work plus the first-mortgage payoff exceeds the principal limit. I will say to sell, to bring cash, or to complete the work from other funds rather than originate a repair race. It does not help an Oakland bungalow that cannot be occupied. An uninhabitable house fails 24 CFR 206.39 occupancy, not only the repair list. I turn that file away until the house is a home again.
It does not help a household whose plan is to hide a failed HVAC until after closing. The FHA roster appraiser opens the attic and tests the heat. Utilities must work. A vacant house with the water shut off can fail both the repair list and occupancy in the same appraisal.
What can go wrong: remaining repairs exceed 15 percent of claim amount and someone still promised a close-first repair escrow. Or the 180-day certificate dies while the Oakland contractor waits on a foundation permit. Or the family treats a failed roof as “deferred maintenance” and expects the cosmetic-item page to save them. Or someone spends leftover cash on a kitchen while the required heat source is still on the list.
Heirs later pay the outstanding balance to keep a repaired house under 24 CFR 206.125(a)(2)(i), not 95 percent of value. Finish the work. A failed system that was escrowed and then abandoned is how endorsement or servicing fails.
A follow-up: can leftover HECM cash finish cosmetic work the FHA appraiser did not require? Yes, if the draw is otherwise allowed. Required major systems are closing conditions. Optional upgrades are a use-of-proceeds question after the loan is open. Do not mix those two lists on Pavel’s Kingman file or on the Oakland foundation file.