Reverse mortgages in California

How a reverse mortgage works

A traditional mortgage is paid down over time. A reverse mortgage does the opposite: instead of you making payments to the lender, the lender advances money to you, and the balance grows over time. Nothing is due until the last borrower sells the home, moves out for good or passes away. At that point the home is usually sold and the loan is repaid from the proceeds, with any remaining equity going to you or your heirs.

Most reverse mortgages are Home Equity Conversion Mortgages, or HECMs, insured by the Federal Housing Administration. That insurance is what makes the program non-recourse and protects your heirs from owing more than the home is worth.

Ways to receive the money

• A lump sum at closing, often used to pay off an existing mortgage so you have no monthly payment at all.
• Monthly income for a set number of years or for as long as you live in the home.
• A line of credit you draw from when you need it. The unused portion of a HECM line grows over time, so your available credit increases the longer you leave it.
• A combination of these, tailored to your plans.

Who qualifies

• The youngest borrower is at least 62.
• The home is your primary residence: a single-family home, a two- to four-unit home you live in, or an FHA-approved condo.
• You have substantial equity. Any existing mortgage is paid off from the reverse mortgage proceeds.
• You complete HUD-approved counseling before applying, with an independent counselor.
• You can keep paying property taxes, homeowners insurance and upkeep. The lender reviews your income and credit to confirm it, and can set aside funds for taxes and insurance if needed.

How much you can receive

The amount depends on the age of the youngest borrower, current interest rates and your home’s value up to the FHA HECM limit, which is the same nationwide and updated each year. Older borrowers and lower rates mean more available. For homes worth well above the HECM limit, common in Ventura County, the Westside and the Bay Area, proprietary “jumbo” reverse mortgages can unlock more of the equity.

HECM for Purchase

A HECM for Purchase lets you buy a new primary home with a reverse mortgage instead of paying all cash or taking on a monthly payment. You put down a large share of the price, often from the sale of your current home, and the reverse mortgage covers the rest. It is a practical way to downsize to a single-story home, move near family or relocate within California while keeping more of your savings in the bank.

Costs and responsibilities

HECMs carry an upfront FHA mortgage insurance premium of 2% of the home’s value or the HECM limit, whichever is less, an annual premium of 0.5% of the balance, plus origination and normal closing costs, most of which can be paid from the loan. Interest is added to the balance rather than paid monthly. You remain responsible for taxes, insurance and maintenance, and the loan becomes due if those are not kept up. We go through every number with you, and we encourage you to include your family in the conversation.

Is a reverse mortgage right for you?

A reverse mortgage tends to fit best when you plan to stay in the home for many years, want to eliminate a monthly mortgage payment, and would rather keep your savings invested than spend them down. It fits less well if you expect to move within a few years, because the upfront costs are spread over a shorter time, or if leaving the home itself to heirs free and clear is your top priority. Your counselor and Mike will go through those trade-offs with you before anything is signed.