Surviving Spouse Home Equity Options in California

What the Home's Equity Actually Means for You

Equity is easier to weigh once it has a plain definition. Home equity is the difference between what the home is worth and what is still owed on any mortgage or lien against it. A lien is a legal claim on the property that secures a debt.

Here is a hypothetical illustration. A home worth $600,000 with $100,000 left on a mortgage has $500,000 of equity. A paid-off home of the same value has $600,000 of equity. These numbers are examples only and do not describe any real home or loan.

For a surviving spouse on a fixed income, that equity may be most of the household's wealth. A household that once had two Social Security checks may now have one. The property tax bill, the insurance and the repairs stay the same. That gap between monthly income and monthly costs often brings the question of equity to the kitchen table. The pages on high home equity and low income and on home equity for a surviving spouse explore that gap more broadly.

It is normal not to know the options yet. They are rarely explained until someone needs them. Each one below is described as if you are meeting it for the first time.

Every way of drawing on equity trades something. Money taken now, or interest owed later, means less equity remains for future care, a later move or the heirs. No single option fits every household. Understanding what each one involves comes before deciding anything.

Property Tax Relief You May Already Be Entitled To

Before borrowing anything, a surviving spouse may look at ways to lower or delay the property tax bill. These programs are not loans in the usual sense. They involve their own rules.

The homeowners' exemption. The California State Board of Equalization explains that the California Constitution provides a $7,000 reduction in the taxable value of a qualifying owner-occupied home. The home must have been the owner's principal place of residence on the lien date, January 1. Revenue and Taxation Code section 218 sets this amount. The claim form, BOE-266, comes from the county assessor. A first-time filer receives the full exemption for that year by filing no later than February 15. A surviving spouse who becomes the owner may check with the county assessor about whether a new claim is needed.

Property tax postponement. The State Controller's Property Tax Postponement Program lets homeowners who are seniors, blind or disabled defer current-year property taxes on their principal residence if they meet certain criteria. The State Controller's Office publishes the full list of criteria, the income limit and each year's application dates. One criterion is equity. Under Revenue and Taxation Code section 20583, the owners generally must hold equity of at least 40 percent of the property's full value. That requirement must be met each time a claim is filed. According to the program fact sheet, postponed taxes are secured by a lien and must eventually be repaid. Interest accrues at 5 percent per year, computed monthly on a simple interest basis. The fact sheet also says the property must not have a reverse mortgage. Funding is limited and given out first come, first served, so not everyone who qualifies may be approved.

The interspousal exclusion. This rule, described above, can keep a surviving spouse's tax base from resetting.

County assessor offices handle the local side of these programs. The Los Angeles County Assessor, at assessor.lacounty.gov, is one example. Homeowners in Orange, Riverside or San Diego County, or in the Bay Area, have their own county assessors.

Ways to Access Home Equity Without Selling

When tax relief is not enough, a surviving spouse who wants to stay in the home has several borrowing options. Each one below is a type of loan, not a particular company's product. Each trades something.

Home equity loan. This is a lump sum borrowed against the home and repaid in fixed monthly installments. The owner keeps title and must make every payment. Approval depends on the lender's review of income and credit.

Home equity line of credit (HELOC). This is a revolving credit line secured by the home. The owner draws money as needed and makes payments on what is drawn. The CFPB notes that a home equity loan or line of credit might be a cheaper way to borrow. It adds that these loans carry their own risks, usually have monthly payments, and depend on income and credit.

Cash-out refinance. This replaces the existing mortgage with a new, larger one and pays the difference in cash. Monthly payments continue on the new loan, often for many years.

Reverse mortgage. A reverse mortgage lets a homeowner borrow against the home without making monthly mortgage payments. The CFPB explains that the title stays in the homeowner's name. Interest and fees are added to the loan balance each month, so the amount owed grows over time. The borrower must live in the home as a principal residence, pay property taxes and homeowners insurance, and keep the house in good condition. The loan generally comes due when the last borrower dies, sells or moves out. A reverse mortgage is a loan. It is not income, a gift or a government benefit.

Other paths deserve the same attention. Selling and moving to a smaller or less costly home can release equity with no new debt. Help from family is another path, as is a review of the household budget and any benefits the surviving spouse may be entitled to. The California home equity options for seniors compare these side by side.

The HECM Reverse Mortgage and the Non-Borrowing Spouse Rule

A reverse mortgage raises a particular worry for surviving spouses: what happens to the spouse whose name was never on the loan.

What a HECM is. The Home Equity Conversion Mortgage, or HECM, is the reverse mortgage that the federal government insures. The program rests on 12 U.S.C. § 1715z-20. The HUD program page explains that a HECM is available only through a lender approved by the Federal Housing Administration (FHA). Under 12 U.S.C. § 1715z-20(b)(1), an "elderly homeowner" is a homeowner who is, or whose spouse is, at least 62 years of age, or a higher age if HUD sets one. HUD's lender guide lists borrower requirements that include being 62 or older and occupying the property as a primary residence.

HUD's page says the amount available depends on the age of the youngest borrower or eligible non-borrowing spouse, the current interest rate, and the lesser of the appraised value, the HECM FHA mortgage limit or the sales price. The reverse mortgage obligations and the rule that the balance grows, described above, apply fully to a HECM. Federal rules also limit the origination fee, and the lender discloses it. Under 12 U.S.C. § 1715z-20(d)(7), the homeowner is not liable for any shortfall between the loan balance and what the lender recovers from the net sale proceeds or the insurance benefits.

When the loan comes due. The CFPB explains that a HECM must be paid off when the last surviving borrower or Eligible Non-Borrowing Spouse dies, or no longer lives in the home as a principal residence. It may come due sooner if property taxes or insurance go unpaid or the home is not kept in good repair. California's Civil Code section 1923.2(f) also lists events that can make a reverse mortgage due, including a sale or transfer of title and all borrowers ceasing to occupy the home as a principal residence.

The non-borrowing spouse rule. Under 24 C.F.R. § 206.55, if the last surviving borrower dies before an Eligible Non-Borrowing Spouse, the loan's due-and-payable status can be deferred for as long as that spouse keeps meeting the rule's conditions. To qualify, the spouse must:

• have been married to the borrower at closing and for the rest of the borrower's lifetime;
• have been disclosed to the lender at origination and named as an Eligible Non-Borrowing Spouse in the loan documents;
• have occupied, and continue to occupy, the home as a principal residence; and
• meet any other requirement HUD prescribes by Federal Register notice.

A spouse who did not meet these conditions at origination cannot become eligible later. The CFPB adds that an Eligible Non-Borrowing Spouse will not get any money from the reverse mortgage. Qualifying may be difficult, and an attorney or a HUD-approved housing counseling agency can help. A non-borrowing spouse may also stay by paying off the loan.

Counseling is required. Under 12 U.S.C. § 1715z-20(d)(2)(B), a HECM borrower must receive counseling from an independent third party before the loan can be insured. In California, Civil Code section 1923.2(j) and (k) require the lender to provide a list of at least 10 HUD-approved counseling agencies. The lender generally may not accept a final application or charge fees until seven days after counseling. HUD's counselor roster is reachable at (800) 569-4287.

What Comes Next: Steps Before Making Any Decision

The order of steps matters as much as the choice of option. A family dealing with a death usually takes these steps, roughly in this order:

1. Find the deed and confirm title. The deed shows whether the home passed by survivorship, a transfer-on-death deed, or needs a court process. The California Courts self-help site at selfhelp.courts.ca.gov covers these procedures.
2. Gather the loan papers. Any existing mortgage, line of credit or reverse mortgage has a servicer, the company that collects payments. The servicer can confirm the balance and what it needs from a surviving spouse. If the loan is a reverse mortgage, the loan documents show whether the spouse was named as an Eligible Non-Borrowing Spouse.
3. Check tax relief first. The State Controller's Office and the county assessor can confirm the homeowners' exemption, postponement and the interspousal exclusion.
4. Complete counseling before any HECM. The federal counseling requirement described above applies before the loan closes.
5. Bring in the right professional. An estate planning or real estate attorney handles title and probate questions. A HUD-approved housing counselor explains how a reverse mortgage works and what it costs. A tax professional or financial adviser can look at the broader picture, including how any option fits with taxes and benefits.

The guide to paying for long-term care may also help if a move to a care facility is part of the picture. This page is general information, not legal, financial or tax advice.