“We’ve never bought a home before and I heard it’s a good idea to get a homestead on the house. Can you explain what a homestead is?”
A homestead exemption protects some or all of your equity from unsecured creditors.
There are two kinds of homestead exemptions: automatic and declared. Both have similar protections, but the declared one has a few extra features. The exemption amounts are: 50,000 for a single person, $75,000 for a head of household and $150,000 for Senior citizens.
Let’s say you’re a single person with $30,000 equity (the value of the home less the loans against it) and someone filed an unsecured lien against you for an unpaid medical bill or a judgment, etc. The homestead protects up to $50,000 of your equity. The homestead provision would protect you from having to sell the home to satisfy the judgment. In some cases, it even allows you to take that up to $50,000 in equity and buy another home in 6 months.
It does not protect against voluntary liens (like the loans on your home), tax liens and child support liens.
Please verify this information with your favorite attorney.