California Reverse Mortgage

Securing a California Reverse Mortgage

A California reverse mortgage allow retirees and the elderly to remain financially independent with a steady and reliable income stream throughout the best years of their lives. This mortgage option taps into the equity you’ve built up in your home and converts it into cash you can put toward living expenses and other purposes.

What is a reverse mortgage?

There are no mortgages on the market that function the same way reverse mortgages do. These loans are entirely unique and limited exclusively to senior homeowners. In a reverse mortgage, your lender provides you money on a monthly basis or as a lump sum until the equity of your home is depleted. You don’t have to make payments on this mortgage - it pays you.

How can reverse mortgage funds be used?

The money you receive from your reverse mortgage lender can be spent on whatever you need, including medical expenses, debt payoffs, a nice vacation, or even the down payment on a new home. 

What types of reverse mortgages exist?

Reverse mortgages have three forms:

• Goverment-insured: FHA HECM (Home Equity Conversion Mortgage).
• Single-purpose: backed by nonprofits or state or local government agencies. 
• Proprietary: backed by private entities.

The most common source is the FHA HECM reverse mortgage, which is insured by the Department of Housing and Urban Development (HUD). This article will focus on HECM reverse mortgages.

Who can get a reverse mortgage?

Homeowners aged 62 and older who own their home outright and have most of their mortgage paid off. If the current mortgage is not paid off, the initial reverse funds or some combination with out-of-pocket cash must be used to deplete the remaining balance. Credit score is not a qualifying factor. 

What costs are associated with a reverse mortgage?

There are several costs associated with securing an HECM reverse mortgage in California, including but not limited to:

• Upfront fees: include the lender's fees, and can be paid from the reverse mortgage funds. This means, however, that the money taken cannot be borrowed back. So a $200,000 reverse mortgage with $16,000 in fees paid via the reverse mortgage funds will leave the homeowner with $184,000. 
• Closing fees: include all the same fees required of a traditional mortgage closing. 
• Reverse mortgage counseling fees: HUD mandates all reverse mortgage homeowners attend reverse mortgage counseling. Fees are in the $100 range but can be waived for lower income seniors. 
• Mortgage insurance: an upfront mortgage insurance premium (MIP) must be paid for reverse mortgage borrowers. It can be as low as 0.5% and as high as 2.5% of the appraised home value, unless the home is over $625,500, in which case the upfront mortgage insurance is calculated by the lender. 

How will I receive my funds, and for how long?

To receive funds from your lender, you can arrange virtually any payment method you like. Each of the following options is available to you:

• You can get the money all at once as a lump sum. This is helpful if you plan to use the money to purchase a new home or if you wish to invest it elsewhere.
• You can access it as you need it through a line of credit secured by your home. This is best if you have variable expenses that come and go.
• You can receive a payment of a set amount each month for as long as the equity lasts. This is the most common method used by seniors and the elderly.
• You can combine any of the above methods to create a flexible payment plan that meets your needs.

When your lender provides you money each month or as a lump sum, the lender takes over ownership of an equivalent portion of the value of your home. But you don’t need to worry about losing your home.  The lender only owns the equity, not the home itself. The title or deed remains in your possession, with your name on it, at all times.

Does the equity need to be repaid?

Equity does not need to be repaid unless the reverse mortgage homeowner moves, sells the home, or passes away. In the event the homeowner passes away, the loan amount becomes due and the responsibility of paying off equity transfers to whoever receives ownership of your home. This is commonly children or other heirs. Heirs may then sell the home in order to pay back the debt owed from the reverse mortgage. Federal law protects heirs from paying back more than what the home is worth.

California Reverse Mortgage Lenders

Before you can take out a reverse mortgage, you need to find a lender to work with. This is an important step in the process. Each lender you contact will offer you a different rate. This rate is important, as it will directly influence how much of your own money you’ll be able to take advantage of. Find the lender who offers the lowest rates.

The most important consideration, though, is the cost of taking out the loan itself. Every lender will charges you fees and closing costs on your reverse mortgage. But you should try to find the lender who will charge the lowest fees on your loan. Read through our Reverse Mortgage Checklist to get more information.

California Senior Resources

The California Department of Aging website provides a number of resources for senior residents who want to maintain their independence while continuing to live at home. Nutrition and wellness, caregiver support, and medical assistance is available statewide, including popular cities like Los Angeles, San Jose, San Francisco, Sacramento, and San Diego. Find out more about services in your county by visiting the Area Agencies list on the Department of Aging's official site. 

Lenders in: California.