Complete Guide to Reverse Mortgages in California & Washington [2026]

What Is a Reverse Mortgage (HECM)?

A Home Equity Conversion Mortgage (HECM) is an FHA-insured loan that allows homeowners 62 and older to access their home equity without selling their home or making monthly mortgage payments. The loan is repaid when the last borrower permanently leaves the home.

Key Features of HECM Loans

• No Monthly Payments Required: You can choose to make payments, but they're not required
• FHA-Insured: Government backing provides consumer protections
• Non-Recourse: You or your heirs will never owe more than the home's value
• Flexible Access: Receive funds as lump sum, line of credit, monthly payments, or combination
• Stay in Your Home: Retain ownership and can live in your home as long as you meet loan obligations

How It Differs from Traditional Mortgages

Who Qualifies for a Reverse Mortgage in 2026?

To qualify for a HECM reverse mortgage in 2026, borrowers must meet age, property, equity, and financial requirements. There is no minimum credit score, but HUD counseling is mandatory.

Age Requirements

• The youngest borrower must be at least 62 years old
• Younger spouses can be listed as Eligible Non-Borrowing Spouse for protection
• Higher age = higher loan amounts (more equity available)

Property Requirements

• Primary Residence: Must be your principal home
• Eligible Property Types: Single-family homes, 2-4 unit properties (owner-occupied), HUD-approved condos, manufactured homes meeting FHA standards
• Property Condition: Must meet FHA minimum property standards

Equity Requirements

You must have sufficient equity in your home. Generally, the more equity you have, the more you can access. If you have an existing mortgage, it must be paid off with the reverse mortgage proceeds at closing.

Financial Assessment

Lenders evaluate your ability to pay ongoing obligations:

• Property taxes
• Homeowner's insurance
• HOA fees (if applicable)
• Home maintenance

If there are concerns, a Life Expectancy Set-Aside (LESA) may be required to ensure these payments are covered.

HUD Counseling Requirement

Before applying for a reverse mortgage, you must complete counseling with a HUD-approved counselor. This session covers how reverse mortgages work, alternatives to consider, financial implications, and obligations you must maintain. The counseling typically costs around $125 and can be done by phone or in person.

California-Specific Requirements

• California DRE licensing requirements for lenders
• State-specific disclosure documents
• 7-day cooling-off period after counseling before closing

Washington-Specific Requirements

• Washington Department of Financial Institutions licensing
• State-specific disclosure requirements
• Additional consumer protection provisions

How Much Can You Get from a Reverse Mortgage?

The amount you can access depends on several factors combined into a Principal Limit Factor (PLF):

Factors Affecting Your Principal Limit

• Age of Youngest Borrower: Older = higher percentage available
• Home Value: Up to the FHA limit of $1,149,825 for 2026
• Current Interest Rates: Lower rates = higher principal limit
• Existing Mortgage Balance: Must be paid off from proceeds

2026 HECM Lending Limits

Reverse Mortgage Payout Options

HECM loans offer flexible ways to receive your funds:

1. Lump Sum (Fixed Rate)

• Receive entire available amount at closing
• Fixed interest rate locks in
• Best for paying off large existing mortgage
• No growth feature

2. Line of Credit (Adjustable Rate)

• Access funds as needed
• Unused portion grows over time at the same rate charged on the loan
• Most popular option
• Flexibility to use when needed

3. Monthly Tenure Payments

• Equal monthly payments for life
• Payments continue as long as you live in the home
• Provides income stability

4. Monthly Term Payments

• Equal monthly payments for a set period
• Higher monthly amounts than tenure
• Useful for bridge to other income sources

5. Combination Options

You can combine options, such as a line of credit plus monthly payments, providing both flexibility and stability.

Which Payout Option Is Best?

The line of credit is often recommended because of its growth feature. Even if you don't need funds immediately, setting up a line of credit lets the available amount grow over time, creating a larger financial safety net for the future.

The Reverse Mortgage Process: Step by Step

1. Initial Consultation

   Discuss your goals, eligibility, and whether a reverse mortgage fits your situation.

2. HUD Counseling (Required)

   Complete counseling with a HUD-approved counselor. You'll receive a counseling certificate required for your application.

3. Application Submission

   Provide documentation including ID, property deed, mortgage statements, tax returns, and bank statements.

4. Appraisal

   FHA-approved appraiser determines home value and identifies any required repairs.

5. Underwriting

   Lender reviews all documentation and verifies eligibility requirements.

6. Closing

   Sign final documents. You have a 3-day right of rescission after closing.

7. Disbursement

   After rescission period, existing mortgage is paid off and you receive remaining funds per your chosen payout method.

Reverse Mortgage Costs and Fees

Understanding the costs helps you evaluate whether a reverse mortgage makes financial sense:

Upfront Costs

• Origination Fee: Greater of $2,500 or 2% of first $200,000 + 1% of amount over $200,000 (capped at $6,000)
• Initial Mortgage Insurance Premium (MIP): 2% of home value (up to $1,149,825)
• Closing Costs: Appraisal, title insurance, recording fees, etc.
• Counseling Fee: Approximately $125

Ongoing Costs

• Annual MIP: 0.5% of outstanding loan balance
• Interest: Accrues on loan balance (fixed or adjustable)
• Servicing Fee: Up to $35/month (often waived)

Most costs can be financed into the loan, meaning no out-of-pocket expenses at closing.

Pros and Cons of Reverse Mortgages

Advantages

• No Monthly Mortgage Payments: Frees up cash flow for living expenses
• Stay in Your Home: Access equity without selling or moving
• Non-Recourse Protection: Never owe more than home's value
• Flexible Payout Options: Choose how you receive funds
• Line of Credit Growth: Unused funds grow over time
• Tax-Free Proceeds: Loan advances are not taxable income

Disadvantages

• Loan Balance Grows: Interest accrues over time
• Reduced Inheritance: Less equity remains for heirs
• Upfront Costs: Higher than traditional refinancing
• Must Maintain Property: Taxes, insurance, and upkeep required
• Affects Medicaid: May impact eligibility for need-based benefits
• Complexity: More complicated than traditional loans

When a Reverse Mortgage Makes Sense

• You plan to stay in your home long-term
• You need to supplement retirement income
• You want to eliminate existing mortgage payments
• You have significant home equity
• You don't plan to leave your home to heirs

When to Consider Alternatives

• You may move within a few years
• You want to preserve equity for heirs
• You can afford monthly payments on a HELOC
• You're not yet 62 years old

Reverse Mortgage vs Other Options

Reverse Mortgage vs HELOC

Learn more: Reverse Mortgage vs HELOC for Seniors

Reverse Mortgage vs Home Equity Loan

A home equity loan requires monthly payments and is best for those with stable income who prefer a fixed rate and lump sum. A reverse mortgage is better for seniors who need to eliminate payments.

Reverse Mortgage vs Selling Your Home

Selling provides full access to equity but requires moving. A reverse mortgage lets you access equity while staying in your home—often the preferred choice for those who want to age in place.

HECM for Purchase: Buying a Home with a Reverse Mortgage

The HECM for Purchase program allows seniors 62+ to buy a new home using a reverse mortgage. This is ideal for downsizing, relocating to be near family, or purchasing a more accessible home.

How It Works

• Make a down payment (typically 45-62% of purchase price)
• Finance the remainder with a reverse mortgage
• No monthly mortgage payments required
• Move into new home with no future payments

Benefits of HECM for Purchase

• Preserve more retirement savings
• Purchase a home that better fits your needs
• No monthly mortgage payments from day one
• Single transaction (no need to sell, then buy, then get reverse mortgage)

Learn more: HECM for Purchase Guide

Proprietary (Jumbo) Reverse Mortgages

For homes valued above the FHA limit of $1,149,825, proprietary reverse mortgages may be available. These are offered by private lenders and can provide access to more equity for high-value homes.

• No FHA lending limit
• May have different age requirements (some start at 60)
• Not FHA-insured
• Different fee structures

Learn more: Proprietary Reverse Mortgage Guide

What Happens When the Borrower Passes Away?

Understanding the inheritance implications helps families plan appropriately:

Non-Recourse Protection

The HECM is a non-recourse loan, meaning neither you nor your heirs will ever owe more than the home's value at the time of repayment. If the loan balance exceeds the home value, FHA insurance covers the difference.

Options for Heirs

1. Sell the Home: Proceeds pay off the loan; any excess goes to heirs
2. Refinance: Heirs can get a traditional mortgage to keep the home
3. Pay Off Loan: Pay the lesser of loan balance or 95% of appraised value
4. Deed in Lieu: Transfer property to lender with no further obligation

Timeline

Heirs typically have 6 months to decide what to do, with possible extensions up to 12 months. Communication with the servicer is essential during this period.

Frequently Asked Questions

Can I lose my home with a reverse mortgage?

You cannot lose your home simply for having a reverse mortgage. However, you must continue to pay property taxes, homeowner's insurance, and maintain the property. Failure to meet these obligations could result in foreclosure. As long as you meet these requirements and live in the home as your primary residence, you can stay indefinitely.

Do I still own my home with a reverse mortgage?

Yes, you retain full ownership of your home with a reverse mortgage. The lender has a lien on the property (just like a traditional mortgage), but the title remains in your name. You can sell or refinance at any time.

How does a reverse mortgage affect my taxes?

Reverse mortgage proceeds are not considered taxable income because they are loan advances, not income. However, consult with a tax advisor about your specific situation, as interest is not deductible until the loan is repaid.

Can I get a reverse mortgage if I still owe on my home?

Yes, you can get a reverse mortgage even with an existing mortgage. The existing mortgage must be paid off with the reverse mortgage proceeds at closing. Many borrowers use this strategy to eliminate their monthly mortgage payment.

What happens if I need to move to assisted living?

If you move out of your home for more than 12 consecutive months (including to assisted living), the reverse mortgage becomes due. You or your heirs would need to repay the loan, typically by selling the home or refinancing.

Can both spouses be on a reverse mortgage?

Yes, both spouses can be co-borrowers if both are 62 or older. If one spouse is younger than 62, they can be listed as an Eligible Non-Borrowing Spouse, which provides protections allowing them to remain in the home after the borrowing spouse passes away.

How long does the reverse mortgage process take?

The reverse mortgage process typically takes 30-45 days from application to closing. This includes the required HUD counseling session, appraisal, and underwriting.

Are reverse mortgage proceeds taxable?

No, reverse mortgage proceeds are not taxable income. They are considered loan advances. However, consult a tax professional for advice specific to your situation.

Can I pay off a reverse mortgage early?

Yes, you can pay off a reverse mortgage at any time without penalty. There are no prepayment penalties on HECM reverse mortgages.

What credit score do I need for a reverse mortgage?

There is no minimum credit score requirement for HECM reverse mortgages. However, lenders will review your credit history as part of the financial assessment.

Next Steps: Get Your Personalized Reverse Mortgage Assessment

If you're 62 or older and considering a reverse mortgage in California or Washington, a personalized consultation can help you understand your options. Mo Abdel at Lumin Lending provides expert guidance on HECM loans and can help determine if a reverse mortgage fits your retirement plan.