California Reverse Mortgage Guide

How a Reverse Mortgage Works in California

Picture the equity in the house as money the family cannot spend without selling. A reverse mortgage turns part of it into cash the lender pays out, while the borrower stays put.

Federal law sets out how a HECM can pay. Under 12 U.S.C. § 1715z-20(d)(9), the borrower picks a method: a line of credit; monthly payments over a chosen term; term payments combined with a line of credit; monthly payments for as long as the borrower lives in the home (called tenure payments); tenure payments combined with a line of credit; or any other basis HUD considers appropriate. Paragraph (d)(10) generally lets the borrower switch methods later, though HUD may limit this for fixed-rate loans. The FTC notes that the money can also be paid in one lump sum. California's Civil Code section 1923.2(d) adds that if a loan provides periodic advances, they cannot be reduced in amount or number because the interest rate changes.

Every dollar paid out, plus interest and charges, joins the balance, which is why it grows over time.

The repayment trigger is the end of the borrower's time in the home: death of the last borrower, a sale, or the home ceasing to be a principal residence. Until then, the ownership duties covered later in this guide continue.

When the loan comes due, the balance must be repaid. For a HECM, 12 U.S.C. § 1715z-20(d)(7) provides that the homeowner is not liable for any shortfall between the debt and the net sale proceeds or the FHA insurance benefits paid to the lender. That limits what is owed. It does not protect a borrower who falls behind on taxes, insurance or upkeep.

Who May Be Eligible for a Reverse Mortgage in California

Eligibility starts with age. Federal law defines an eligible homeowner in 12 U.S.C. § 1715z-20(b)(1) as one who is, or whose spouse is, at least 62, or an older age if HUD sets one, and HUD's rule at 24 C.F.R. § 206.33 says the youngest borrower must be 62 or older at closing. HUD's page adds that the amount available depends on 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.

The home must be where the borrower lives. Under 24 C.F.R. § 206.39(a), it must be the principal residence of each borrower, and any eligible non-borrowing spouse, at closing. California's Civil Code section 1923.4 confirms a home held in a trust still counts as owner-occupied if the person living there is a beneficiary of the trust.

Property type matters, and not every home qualifies. The federal statute, at 12 U.S.C. § 1715z-20(d)(3), requires a dwelling designed principally for a one- to four-family residence in which the borrower occupies one of the units. So a rental property, a vacation home, or a building the owner does not live in does not qualify. Whether a particular condominium, manufactured home or other property meets FHA standards is a question a lender answers for that specific home.

Two more steps usually apply. Any existing mortgage must be paid off at closing, with the borrower's own money or the reverse mortgage. A lender generally also looks at whether the borrower can keep up the ongoing costs of the home. And before any of that, a HECM borrower must complete independent counseling, covered next.

The Mandatory Counseling Requirement

A family about to sign papers on the house deserves one conversation with someone who is not selling anything. Both federal and California law build that conversation in.

For a HECM, 12 U.S.C. § 1715z-20(d)(2)(B) requires counseling from an independent third party not associated with or paid by anyone who originates, services or funds the loan, or who sells annuities, investments, long-term care insurance or other financial or insurance products. Under subsection (f), the counselor discusses topics including options other than a HECM, other home equity conversion options such as property tax deferral, the financial implications, and a disclosure that the loan may have tax consequences, affect eligibility for federal and state programs, and affect the estate and heirs.

California adds its own notice. Civil Code section 1923.5(a) bars a lender from taking a reverse mortgage application unless the applicant has first received a printed notice in 16-point type or larger that begins:

"A REVERSE MORTGAGE IS A COMPLEX FINANCIAL TRANSACTION. IF YOU DECIDE TO OBTAIN A REVERSE MORTGAGE LOAN, YOU WILL SIGN BINDING LEGAL DOCUMENTS THAT WILL HAVE IMPORTANT LEGAL AND FINANCIAL IMPLICATIONS FOR YOU AND YOUR ESTATE."

Section 1923.5(b) also requires a reverse mortgage worksheet guide, given before counseling, with questions about who else lives in the home and how taxes, insurance and maintenance will be paid. Separately, Civil Code section 1923.2(i) bars a lender from requiring an annuity purchase as a condition of the loan.

California also sets the order of the steps. Before accepting a final and complete application, the lender must give the borrower a list of not fewer than 10 counseling agencies approved by HUD to engage in reverse mortgage counseling (Civil Code section 1923.2(j)). The lender may not accept a final and complete application, or charge the applicant any fees, until seven days have passed from the date of counseling, as shown by the counseling certification, and until it has the applicant's certification that the counseling took place, in person unless the applicant chose another way (Civil Code section 1923.2(k)).

For anyone asking who to talk to first, the federal program's answer is a HUD-approved counselor. HUD points readers to its HECM Counselor Roster or (800) 569-4287. On the lending side, the California Department of Financial Protection and Innovation states that anyone in the business of making or servicing residential mortgage loans in California must hold a license under the California Residential Mortgage Lending Act, with exemptions including banks, trust companies, licensed real estate brokers and California finance lenders.

Costs, Fees, and Why the Loan Balance Grows

Cost is where advertising tends to go quiet. A HECM typically carries an origination fee (the lender's charge for making the loan), an upfront FHA mortgage insurance premium, a monthly mortgage insurance premium, and third-party closing costs such as the appraisal and title work. Most can be paid from the loan itself, which means they join the balance and accrue interest.

Federal law requires HUD to set limits on the origination fee, and the fee may be fully financed into the loan (12 U.S.C. § 1715z-20(r)). A limit is a ceiling, not the amount any borrower pays. Before signing, the borrower must receive full disclosure of all costs charged, including which charges are required to get the loan and which are not (12 U.S.C. § 1715z-20(d)(2)(C)).

The maximum claim amount is the value figure used to size a HECM: the lesser of the home's appraised value, the sales price, or the FHA limit. HUD publishes the current limit on hud.gov.

Federal law also requires disclosures, including, under 12 U.S.C. § 1715z-20(e)(4), a statement before closing of the projected total cost of the loan for at least two loan terms. Under subsection (e)(3), the lender sends a yearly statement, by January 31, showing what was paid out, interest added, and the balance.

California's Civil Code section 1923.2(c) allows a reverse mortgage to include costs and fees charged by the lender, or its designee, originator or servicer, at closing, periodically or at maturity.

What the Borrower Must Keep Doing for the Life of the Loan

This is the part that keeps a parent in the house, or doesn't. A reverse mortgage removes the monthly loan payment, not the costs of owning a home. Three duties continue for the life of the loan.

Property taxes. These must be paid on time. Under 24 C.F.R. § 206.27(c)(2)(iii), the loan can become due, with HUD's approval, if the borrower does not provide for paying property charges as HUD's rules require.

Homeowners insurance. The policy must stay in force. The CFPB lists insurance alongside taxes as a requirement.

Upkeep. The house must be kept in good condition, and the federal statute lets HUD set loan terms on repairs, insurance, taxes and a default reserve. California's worksheet guide states it bluntly: failing to keep up insurance, property taxes and home maintenance leads to default, and uncured defaults lead to foreclosure.

Occupancy is the fourth thread. Under 24 C.F.R. § 206.27(c)(2)(ii), a HECM can become due, with HUD's approval, if a borrower is away for more than 12 consecutive months because of physical or mental illness and no other borrower lives there. California's Civil Code section 1923.2(g) says absences up to 60 consecutive days do not make the loan due, and absences over 60 days but under a year do not either if the borrower has secured and protected the home as the loan documents specify.

A lender can explain whether part of the proceeds would be held back to cover future taxes and insurance.

Alternatives to a Reverse Mortgage

Whether something else fits better depends on the need behind the search. A short gap in the budget, a single repair, years of care at home and a move closer to family each point in different directions. HECM counseling, as noted above, must cover alternatives.

A budget and benefits check. Unclaimed benefits or lower bills can close a gap without touching equity. In California, the homeowners' exemption under Revenue and Taxation Code section 218 cuts $7,000 from the taxable value of an owner-occupied home; the Board of Equalization says it is a one-time filing with the county assessor.

Property tax postponement. The State Controller's Office runs a program that lets seniors, blind or disabled homeowners defer current-year property taxes on a principal residence if they meet criteria including at least 40 percent equity in the home and an annual household income of $57,002 or less, among other requirements. The program's 2026-27 filing period runs from October 1, 2026 to February 10, 2027. The deferred taxes are a lien that must be repaid. Its fact sheet adds that the program charges 5 percent simple interest a year, funding is limited, and the property must not have a reverse mortgage.

Help from family. This keeps debt off the house but depends on relationships and resources.

Selling or downsizing. This frees equity but ends ownership of that home. The Board of Equalization explains that owners 55 and older may transfer their property tax base to a replacement home, filing with the county assessor within three years of buying it.

A home equity loan, HELOC or cash-out refinance. These require monthly payments the budget must carry.

A reverse mortgage. It avoids monthly payments, but the balance grows, the ownership duties continue, and the debt is repaid from the home in the end.

What Happens to the Home After the Borrower Dies or Moves Out

For an adult child, this is often the question underneath all the others. Once the loan comes due, the family decides what to do with the house.

The balance must then be repaid: the family can sell the home and pay the loan from the proceeds, or repay it from other money to keep the house. Because a HECM is nonrecourse, the FTC explains that the borrower or the estate cannot owe more than the value of the home when the loan becomes due and the home is sold. Proprietary loans set their own terms, so the documents matter. Any home with a reverse mortgage can also be sold to an outside buyer: the balance is paid from the sale at closing, as with any mortgage lien.

A surviving spouse who was not on the loan is a special case. Under 24 C.F.R. § 206.27(c)(3), HECM documents must defer the due date for an eligible non-borrowing spouse until that spouse's death, so long as the deferral requirements continue to be met. Federal law at 12 U.S.C. § 1715z-20(j) likewise defers repayment until death, sale, or other events in HUD's rules.

California's Department of Real Estate warns in a 2026 consumer alert about reverse mortgage scams with misleading terms or fees, and advises never signing a home loan agreement that is not understood or contains blank spaces.