How Does a Reverse Mortgage Work in California?

A reverse mortgage in California lets a homeowner aged 62 or older convert home equity into cash with no monthly loan payments, and the balance becomes due only when the last borrower dies, sells the home, or permanently moves out. The most common version is the federally insured Home Equity Conversion Mortgage (HECM), which carries a 2026 lending cap of $1,249,125.¹ California layers its own rules on top of the federal framework, most notably a mandatory seven-day cooling-off period between counseling and application, and a state law that classifies every reverse mortgage as nonrecourse, meaning the debt can never exceed the home’s value at the time of repayment.²

Who Qualifies

At least one borrower on the title must be 62 or older, and the home must be your principal residence, meaning you live there for most of the year.³ You need substantial equity, and any existing mortgage must be small enough to pay off with the reverse mortgage proceeds. Eligible properties include single-family homes, two-to-four-unit buildings where you occupy one unit, HUD-approved condominiums, and manufactured homes that meet FHA foundation and construction standards.

Lenders also run a Financial Assessment that reviews your credit, income, debts, and whether you have enough residual income to keep paying property taxes and homeowners insurance after closing.⁴ If the assessment shows a shortfall, the lender can require a Life Expectancy Set-Aside (LESA): a portion of your loan proceeds held back to pay those bills automatically. The set-aside reduces the cash you actually receive.

How Much You Can Borrow

Your available funds, called the Principal Limit, depend on three things: the age of the youngest borrower (or eligible non-borrowing spouse), your home’s appraised value (capped at $1,249,125 in 2026), and current interest rates.¹ Older borrowers and lower rates mean more equity you can tap. At age 62 with typical rates, expect to access roughly 38% of eligible value. By 80, that climbs to around 51%, and by 90 it can reach roughly 64%.

Those percentages are gross figures. Upfront fees, any existing mortgage payoff, and a LESA all come out before you see a dollar. On a $700,000 home with a 72-year-old borrower and moderate rates, the gross principal limit might land near $315,000, but after closing costs and an existing $80,000 mortgage, the net cash is considerably less. Ask the lender for both numbers early.

How You Receive the Money

Once the net is calculated, you pick a disbursement method. The choice affects how fast interest piles up on your balance.

Tenure payments: equal monthly installments for as long as you live in the home. Steady and lifelong, but each month’s check is modest.
Term payments: fixed monthly installments for a set number of years. Higher per month than tenure, but they stop when the term ends.
Line of credit: draw as needed up to your limit. The unused portion grows over time at the same rate the loan accrues interest, which increases your available borrowing the longer you wait. This is the most popular option.
Lump sum: a single upfront payment. Only available with a fixed rate, and capped at 60% of the principal limit in the first year.
Combination: mix a line of credit with tenure or term payments to balance steady income with flexible access.

Where a LESA is required, the lender uses it to pay your property charges directly before bills become delinquent.⁵ A partially funded LESA covers only the gap identified in your income analysis, so you still pay part of the taxes and insurance yourself. You can also elect a fully funded LESA voluntarily even if the lender doesn’t require one.

What a Reverse Mortgage Costs

Fees run higher than most homeowners expect, and nearly all can be financed into the loan rather than paid at closing. The convenience has a price: every financed dollar accrues interest for the life of the loan.

Initial mortgage insurance premium (MIP): 2% of appraised value or the HECM lending limit, whichever is less, paid to FHA at closing. On a $600,000 home, that’s $12,000.
Annual MIP: 0.5% of your outstanding loan balance each year, accruing monthly. The charge grows as your balance grows.
Origination fee: capped by FHA at $6,000, calculated as the greater of $2,500 or 2% of the first $200,000 of home value plus 1% of the value above that.⁵
Appraisal: an FHA-compliant appraisal is required. In California, several hundred dollars is typical, depending on property size and location.
Counseling: the mandatory HUD session usually runs $125 to $200, and some agencies waive the fee for borrowers who can’t afford it.
Closing costs: title insurance, escrow, recording, and related charges vary by county.

The annual MIP compounds. On a $200,000 starting balance, 0.5% adds $1,000 the first year. As the balance grows with accrued interest and more MIP, the annual charge accelerates, and over 15 years it can add tens of thousands to the debt.

Counseling and the California Seven-Day Waiting Period

California Civil Code Section 1923.2 requires a counseling session with a HUD-approved agency before any lender can accept your application.⁶ The counselor walks through how a reverse mortgage affects your finances, your estate, your eligibility for government benefits, and your ongoing obligations for taxes and insurance. Bring income documentation, a list of debts, property tax bills, and proof of homeowners insurance.

The counselor issues a certificate valid for 180 days. California then imposes a seven-day cooling-off period between the day you receive counseling and the earliest date a lender can accept your application or charge any fees.⁷ This is a California-specific protection, and no lender can ask you to sign anything or pay anything during those seven days. Use that week to talk with family or a financial advisor.

From Application to Closing

After the seven days pass, you submit the counseling certificate and formal application to a California-licensed lender. The lender orders an appraisal to confirm market value and verify FHA health and safety standards. Problems like peeling paint, structural issues, or missing handrails must be fixed before the loan can close. The file moves to underwriting, which reviews the Financial Assessment, title, and property documentation.

At closing you sign the deed of trust and loan disclosures. Federal law then gives you a three-business-day right of rescission, during which you can cancel for any reason and owe nothing.⁸ The clock starts after you’ve signed the promissory note, received the Truth in Lending disclosure, and received two copies of the rescission notice. For this count, business days include Saturdays but not Sundays or federal holidays. Funds are released only after the rescission window closes without a cancellation.

When the Loan Comes Due

There are no monthly payments, but the full balance becomes due when any of the following happens:

Death of the last surviving borrower. Heirs receive a due-and-payable notice and have 30 days to decide whether to sell, buy the home themselves, or turn it over to the lender. Extensions of up to six months are available to allow time for a sale.⁹
Sale of the home. The loan balance is paid out of the sale proceeds at closing.
Extended absence. If you’re away from the home for more than 12 consecutive months because of a hospital stay, nursing home, or assisted living, and no co-borrower remains in the home, the loan becomes due.¹⁰
Failure to maintain obligations. Falling behind on property taxes, letting insurance lapse, or neglecting the property can trigger default and eventually make the loan due.

You must also certify annually that the home is still your principal residence. Missing that certification can start the due-and-payable process even if you still live there, so respond to the occupancy notice your servicer sends each year.

Non-Recourse Protection and What Heirs Owe

California’s classification of reverse mortgages as nonrecourse loans is the single most important protection in the arrangement.² Neither you nor your heirs can ever owe more than the home is worth at repayment, no matter how large the balance has grown. If the balance has climbed to $450,000 but the home is worth $400,000, the most anyone owes is $400,000. FHA mortgage insurance covers the lender’s shortfall.

Heirs who want to keep the home have an additional option: they can satisfy the debt by paying 95% of the current appraised value, even if the loan balance exceeds that figure.⁵ The initial 30-day window after the due-and-payable notice is tight, but extensions up to six months give heirs enough time to arrange financing or list the property.⁹

If One Spouse Isn’t on the Loan

When one spouse is on the reverse mortgage and the other is not, the non-borrowing spouse can lose the home when the borrowing spouse dies or enters long-term care. HUD addressed this for HECMs with case numbers assigned on or after August 4, 2014 by creating the Deferral Period, which lets an eligible non-borrowing spouse stay in the home after the last borrower dies or permanently leaves.¹¹

To qualify, the non-borrowing spouse must meet all of these conditions:

Be legally married to the borrower at the time of loan closing and remain married for the borrower’s lifetime. Marrying the borrower after closing disqualifies you.
Be specifically named as a non-borrowing spouse in the HECM documents.
Occupy the home as a principal residence before, during, and after the borrower’s death.
Have the borrower’s annual certification on file identifying you as the eligible non-borrowing spouse.
After the borrower’s death, obtain ownership of the property or another legal right to remain there for life.

During a Deferral Period the spouse can stay but cannot draw additional loan funds, and must continue paying property taxes, keeping insurance in force, and maintaining the home.⁴ Failing any of these obligations ends the deferral and makes the loan due. For HECMs taken out before August 4, 2014, the protections are weaker and depend on servicer discretion.

Taxes, SSI, and Medi-Cal

Reverse mortgage proceeds are loan advances, not income, so the money you receive is not taxable and does not appear on your return.¹² Interest that accrues on the balance is generally not deductible as it builds; it becomes deductible only in the year it is actually paid, which usually happens when the loan is repaid at sale or settlement.

Draws don’t count as income for Supplemental Security Income (SSI), but any unspent proceeds sitting in your bank account at month’s end count as a resource. The 2026 SSI resource limit is $2,000 for an individual and $3,000 for a couple.¹³ A $50,000 lump sum parked in checking will blow past that immediately. If you rely on SSI, a line of credit with small, regular draws spent within the same month is far safer than a lump sum.

California’s Medi-Cal program uses a much higher asset threshold. For the groups still subject to asset testing (people 65 and older, people with disabilities, and nursing home residents), the limit is $130,000 for one person, plus $65,000 per additional household member.¹⁴ Unspent reverse mortgage funds count toward that total. Most borrowers won’t hit the limit with normal draws, but a large lump sum combined with existing savings could.

Jumbo Options for High-Value California Homes

California’s real estate values often sit well above the $1,249,125 HECM cap, and that’s where proprietary reverse mortgages come in. These privately insured products carry no FHA lending limit and can work on homes valued at $4 million or more. They don’t charge FHA mortgage insurance premiums, which eliminates the 2% upfront MIP and the 0.5% annual MIP. Some programs lower the minimum age to 55, though terms vary by lender.

The tradeoffs are real. Proprietary loans lack the FHA insurance backstop that covers lender losses on HECMs, and interest rates tend to run higher. They don’t carry the same federal non-recourse rules, but California’s Civil Code treats all reverse mortgages in the state as nonrecourse, HECM or not.² HUD counseling is still required under California law, and the state’s seven-day cooling-off period applies regardless of loan type.⁶ For owners of high-value properties in the Bay Area or coastal Southern California, a proprietary product can unlock substantially more equity than a HECM. Compare the total cost of borrowing carefully before choosing one.

1
U.S. Department of Housing and Urban Development. HUD Federal Housing Administration Announces 2026 Lending Limits
2
California Legislative Information. California Civil Code 1923
3
Consumer Financial Protection Bureau. Can Anyone Take Out a Reverse Mortgage Loan
4
eCFR. 24 CFR Part 206 Subpart B – Eligible Borrowers
5
eCFR. 24 CFR Part 206 – Home Equity Conversion Mortgage Insurance
6
California Legislative Information. California Civil Code 1923.2
7
California Legislative Information. AB 1700 Bill Analysis
8
Consumer Financial Protection Bureau. How Long Do I Have to Rescind
9
Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die
10
Consumer Financial Protection Bureau. Reverse Mortgage – Your Rights and Responsibilities
11
U.S. Department of Housing and Urban Development. Can I Stay in My Home if My Spouse Had a Reverse Mortgage and Has Passed Away
12
Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
13
Social Security Administration. 2026 Cost-of-Living Adjustment Fact Sheet
14
California Department of Health Care Services. Asset Limits FAQs – Medi-Cal