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Skyline view of Los Angeles, one of the cities discussed on reverse mortgages in California.

Reverse Mortgage in California

With its hospitable weather, beautiful scenery, and lively culture, California remains a favorite retirement spot for both native residents and out-of-state visitors alike. However, people who decide to make this state their home during their retirements often face the same dilemma of senior citizens everywhere when it comes to stretching their savings and pensions. Retired Californians who own their homes may now get access to a line of home equity financing that will allow them to live comfortably without having to move out of state or into the homes of their relatives. As they consider whether or not to apply for and receive a reverse mortgage, retirees in California can benefit by knowing some of the more common questions and concerns that surround reverse mortgages.

Laws for Reverse Mortgages

This line of home equity financing is closely regulated throughout the country. However, each state is allowed to develop its own laws if lawmakers wish to protect senior citizens more thoroughly. California, for example, passed the Reverse Mortgage Elder Protection Act in 2009 that now protects seniors who decide to pursue this type of loan.

In fact, the law focuses on the unique type of payments that hallmark reverse mortgages. Because lenders pay borrowers the money for the home equity, lawmakers argued that the opportunity for fraud and negligence existed in this transaction. As such, the law mandates that lenders maintain a uniform payment amount each month for borrowers, regardless of whether or not the interest rate fluctuates throughout the life of the loan.

If the interest rate goes down, for example, the lender cannot adjust the payment amount by lowering it to an amount than what was originally agreed upon when the contract was signed. Of course, the act was passed especially for Californians who want to receive their reverse mortgages in monthly payments rather than a lump sum.

California Reverse Mortgage Home Criteria

However, just as lenders are held to tight regulations regarding the manner in which they disperse these loans, retirees in this state also can expect to be held to certain standards as well. For example, people must own a certain kind of house before they can be considered for this financing. Ideally, lenders prefer to accept houses that are:

  • Single family residences
  • Town homes
  • Duplexes
  • FHA-approved manufactured houses built after 1976
  • Condominiums

Recreational vehicles, cooperatives, vacation homes, and rental properties cannot be considered on a reverse mortgage application.

Lender Requirements

In addition to having a house that meets the application qualifications, people also are expected to abide by certain rules after they receive their reverse mortgages. Primarily, borrowers must agree to keep their house in good repair and to safeguard it against depreciation. If the house depreciates in value, borrowers may leave a financial obligation for their next of kin to pay or for their estate to address after the borrowers are deceased.

Likewise, borrowers also are required to pay the taxes on the house every year and to keep it insured with an active homeowner’s insurance policy. If either of these requirements lapse, people could have their houses foreclosed on by their lender. As long as people take care of their houses as they typically would even without the loan in place, they can live in their home, avoid having to make payments each month on the mortgage, and enjoy having money to pad their retirement savings and pensions.

Regardless of which city, Los Angeles, San Diego, San Francisco, Sacramento, Long Beach, Anaheim or San Jose, retiring in California is the dream of native residents and visitors alike. Senior citizens age 62 and older can use the biggest asset that they have in their possession to secure a more comfortable retirement. They can get extra money and enjoy this new phase of their lives by applying for and receiving a reverse mortgage.

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