Orange County Reverse Mortgage Guide

What Living in Orange County Means for Your Costs

The rules for a reverse mortgage are the same in Orange County as anywhere else. Federal rules apply across the country, and California rules apply across the state. What is local is the set of county offices you deal with as a homeowner, starting with the property tax bill.

That bill matters because it is one of the ownership costs a reverse mortgage borrower keeps carrying. The Orange County Treasurer-Tax Collector's important dates page says December 10 is the last day to pay the first installment of secured property taxes. April 10 is the last day for the second. Late first-installment payments incur a 10% penalty. Late second-installment payments incur a 10% penalty plus a $23.00 collection fee. If a due date falls on a weekend or holiday, it moves to the next business day.

The Tax Collector's new home buyers page adds that penalties are not waived because a bill was not received.

For the loan itself, the amount a lender may make available depends partly on the home's value, up to a national maximum claim amount. HUD sets that limit and publishes the current figure. A higher-value home does not change the basic trade: interest still builds on whatever is borrowed.

Who May Qualify for a HECM in California

Eligibility starts with age. Federal law defines an eligible homeowner as one who is, or whose spouse is, at least 62 years of age, or a higher age HUD may set, in 12 U.S.C. § 1715z-20(b). The regulation at 24 C.F.R. § 206.33 says the youngest borrower must be 62 or older at loan closing.

The home must be where you live. Under 24 C.F.R. § 206.39, the property must be the principal residence of each borrower, and of any Eligible Non-Borrowing Spouse, at closing.

The type of home matters too. Under 12 U.S.C. § 1715z-20(d), the home must be designed principally for a one- to four-family residence, with the borrower living in one of the units. The statute's list of eligibility conditions also includes counseling, full disclosure of costs and an FHA-approved lender, and continues with other requirements.

A HECM must be a first mortgage, so an existing loan on the home generally has to be dealt with as part of the transaction.

How much may be available is never fixed in advance. HUD's page lists factors including the age of the youngest borrower or eligible non-borrowing spouse and the lesser of the appraised value, the HECM FHA mortgage limit or the sales price.

A spouse who is not on the loan can have federal protections, explained in the last section of this guide.

The Required HUD Counseling Step

A HECM requires counseling with an independent counselor before the loan. Federal law, 12 U.S.C. § 1715z-20(d), requires counseling by a third party not connected to anyone who originates the loan, funds it or sells annuities or other financial products.

That counseling has a set agenda. Under 12 U.S.C. § 1715z-20(f), it includes options other than a HECM, such as other housing, social service, health and financial options. It also covers other home equity conversion options, such as property tax deferral, and the financial implications of the loan.

California adds steps of its own. Under Civil Code section 1923.5, the lender must give you a printed notice about counseling and a worksheet guide to bring to your session. Under Civil Code section 1923.2, the lender must give you a list of at least 10 HUD-approved counseling agencies. The lender also cannot accept a final application or charge fees until seven days after counseling.

Orange County residents find counselors the same way as anyone else. HUD says to search the HECM Counselor Roster or call (800) 569-4287. Golden Roof Equity does not provide counseling. More detail is in HUD reverse mortgage counseling.

That counseling session is also a chance to ask every question you have been carrying, with someone who has no stake in the outcome.

How You Can Choose to Receive the Money

A HECM can pay out in different ways. Under 12 U.S.C. § 1715z-20(d)(9), the borrower selects a method, and a lender may pay based on accumulated equity minus fees and charges:

• A line of credit. You draw money as needed, up to the available amount.
• Monthly payments for a set term. The borrower chooses the number of months.
• Term payments with a line of credit. This combines the two methods above.
• Monthly payments over the borrower's tenure. Tenure means for as long as the borrower lives in the home as a principal residence and the loan stays in good standing.
• Tenure payments with a line of credit. This combines tenure payments with a credit line.
• Any other basis HUD considers appropriate. A single lump sum is one example.

Each method remains subject to lender approval, the loan's terms and the borrower's obligations. Under paragraph (10) of the statute, a borrower may generally switch methods during the loan. For a fixed-rate loan, however, HUD may limit that by regulation.

Under Civil Code section 1923.2, periodic advances cannot be reduced because the interest rate changes. Whatever the method, every dollar received adds to the balance that grows.

Costs, Fees, and the Growing Loan Balance

The costs are the part of the picture advertising tends to skip. Upfront charges generally include an origination fee, which is the lender's charge for making the loan. They also include an upfront mortgage insurance premium (MIP), which is FHA's charge for insuring the loan, plus appraisal, title and other closing costs. An annual MIP follows. FHA sets the MIP, and HUD publishes the current rates.

Federal rules limit the origination fee. Under 12 U.S.C. § 1715z-20(r), it may be fully financed with the mortgage. The lender discloses the actual amount.

Disclosure is built into the law. Federal law requires a written estimate of the projected total cost before closing, and a yearly statement by January 31 of what was paid out and owed. California's Civil Code section 1923.2 permits fixed, adjustable or combined interest rates. It also allows fees charged at closing, periodically or when the loan ends.

Financing costs into the loan means paying no cash up front. It also means the balance starts higher and grows from there. In budget terms, removing the monthly mortgage payment does not remove the household's other housing costs: the tax bills on the county schedule above, the insurance premium and the cost of repairs all still come out of the borrower's own pocket. For more on how this works, see reverse mortgage costs and fees in California and reverse mortgage interest and balance growth.

Alternatives Worth Knowing About Before Deciding

A homeowner in Orange County who needs more room in the budget has several paths. Each one trades something different.

• A budget and benefits check. This reviews spending and the programs you may be eligible for. The Orange County Office on Aging is the county's Area Agency on Aging. Its programs include information and assistance, Medicare counseling, health insurance counseling, housing information and in-home care assistance. Information and referrals are free, though some services it funds or refers you to may charge.
• Property tax relief. The Orange County Assessor's homeowners' exemptions page says the exemption removes $7,000 of value from taxation for a principal residence you own. The deadline for the full amount is February 15. The Assessor's property tax assistance page describes the State Controller's Property Tax Postponement for low-income blind, disabled or senior homeowners. Postponed taxes create a lien on the home. Under Revenue and Taxation Code section 20583, the owners need at least 40 percent equity each time they file.
• Help from family. A loan or gift from relatives keeps the home free of new debt to a lender, but it shifts the burden to family members.
• Selling or downsizing. This frees equity with no loan to repay, but you leave the home. The Assessor's base year value page explains that eligible owners aged 55 or older may transfer their taxable value to a replacement home anywhere in California, subject to conditions.
• A home equity loan or line of credit. Either one lets you borrow against equity, but you make monthly payments.
• A cash-out refinance. This replaces your mortgage with a larger one, which also comes with monthly payments.
• A reverse mortgage. You make no monthly loan payment, but the balance grows and the ownership costs described above continue.

See reverse mortgage vs home equity loan and reverse mortgage vs selling.

What Happens to the Home — and the Family — Later

The question many families ask is what happens when a parent is gone. The federal regulation spells out the triggers in more detail than the short summary at the top of this guide. Under 24 C.F.R. § 206.27, the balance comes due when a borrower dies and the home is not the principal residence of at least one surviving borrower, or when the borrowers convey title to the home. With HUD's approval, the loan can also come due in these situations:

• the home stops being a borrower's principal residence;
• a borrower is away for more than 12 consecutive months because of illness;
• property charges, such as taxes and insurance, go unpaid; or
• another obligation under the loan is not met.

In each case, this applies only if no other borrower still lives there. Under Civil Code section 1923.2, absences of up to 60 consecutive days do not make the loan due.

The HECM is nonrecourse. Under 12 U.S.C. § 1715z-20(d)(7), the homeowner is not liable for any shortfall between the debt and the net sales proceeds of the home. That limits what is owed. It does not protect the home if the borrower falls behind on the ownership costs the loan requires.

An Eligible Non-Borrowing Spouse may have the due date deferred until that spouse's death, as long as the Deferral Period requirements continue to be met. Families can talk this through together before signing. An attorney or tax professional can address estate and tax questions. Golden Roof Equity does not provide legal or tax advice.