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Effective: January 1, 2007 |
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19.55.20ar1 - Calculating Home Equity (Archive) |
Archived: September 1, 2008 |
This section provides information on determining the home equity value for the Home Equity Limit. This limit is only applied to clients applying for MA payment of LTC services.
Equity is determined by subtracting all encumbrances from the fair market value of the home. Proof of fair market value and encumbrances are required.
Fair market value proof includes:
l A real estate tax statement.
l A statement from the county property tax appraiser.
l An estimate of value from a licensed real estate appraiser.
Encumbrances include:
l Mortgages.
l Contracts for deed.
l Mechanic’s liens.
l Home equity loans.
l Other legally binding debts that are secured on the home.
The calculation used to determine equity is different when:
l The client is a sole owner versus a joint owner.
l The home is in life estate.
To calculate the home equity amount:
1. Determine the fair market value (FMV) of the home.
2. Subtract all encumbrances from the FMV.
Example:
Kelly is applying for MA payment of LTC services on October 8. She owns the home in which she has been living for the past 10 years. Kelly verifies the FMV of the home is $700,000, and an existing mortgage of $300,000.
Action:
Kelly has $400,000 in equity in her home ($700,000 - $300,000). Her home equity is below the home equity limit. If Kelly meets all other eligibility requirements she is eligible for MA payment of LTC services.
When two or more unmarried individuals have ownership interest in a home, consider each person to own equal shares, unless the client documents that they have a greater or lesser share of ownership.
To calculate the client’s portion of the home equity amount:
1. Verify the client’s share of ownership in the fair market value (FMV).
2. Divide the FMV by the number of joint owners proportional to the client’s interest in the home.
3. Subtract all encumbrances attributable to the client’s interest in the home.
Example:
Lola, Herda and Irwin are siblings who own a home together. Herda is applying for MA payment of LTC services on October 19. The home’s FMV is verified to be $600,000 with each sibling owning equal shares. The house was paid in full 10 years ago, and there are no outstanding encumbrances.
Action:
Herda’s ownership interest in the home equity value is $200,000 ($600,000 divided by 3). Her home equity value is less than the home equity limit. If Herda meets all other eligibility requirements she is eligible for MA payment of LTC services.
Example:
Ronald and Wayne are brothers who purchased a home together 10 years ago. Wayne is applying for MA payment of LTC services.
Wayne verifies owning 70% interest in the home and that the FMV is $800,000. He also verifies he owes $100,000 on the home and his brother owns $200,000.
Action:
Wayne’s ownership interest in the home equity value is calculated as follows:
1. Wayne owns 70% of the property value which is $800,000.
2. His ownership interest equals $800,000 X .70 = $560,000.
3. His equity value is $560,000 - $100,000 of encumbrances = $460,000.
Wayne’s home equity value is less than the home equity limit. If he meets all other eligibility criteria, he is eligible for MA payment of LTC services.
The equity value a client owns in a home with a life estate is the client’s life estate interest. To determine the client’s life estate interest follow the steps provided in Life Estates, Determining Life Estate Interest.