Securing a Texas Reverse Mortgage

The Texas reverse mortgage loan option provides retirees, seniors, and the elderly in Texas with secure, reliable income during the best years of their lives.  Anyone over the age of 62 who owns a home with equity can qualify for this mortgage.  No credit scoring or income eligibility is required, and you don’t have to pay this loan back.  The money is sourced directly from your own home equity, allowing you to remain financially independent for the rest of your life.

What is a reverse mortgage?

With reverse mortgages in Texas, your lender purchases ownership of your home equity from you.  You keep your home and your lender pays you cash for the equity.  All that you are giving up is the investment aspect of your home, which is less important for seniors and retirees than spendable income.

How can reverse mortgage funds be used?

You can spend the money you receive as payment for your equity on anything you need.  You can buy a new car with it, take a vacation, set it aside for medical costs, or simply pay for daily living expenses during retirement.

What types of reverse mortgages exist?

Reverse mortgages have three forms:

• Goverment-insured: FHA HECM (Home Equity Conversion Mortgage).
• Single-purpose: backed by nonprofits or state or local government agencies. 
• Proprietary: backed by private entities.

The most common source is the FHA HECM reverse mortgage, which is insured by the Department of Housing and Urban Development (HUD). This article will focus on HECM reverse mortgages.

Who can get a reverse mortgage?

Homeowners aged 62 and older who own their home outright and have most of their mortgage paid off. If the current mortgage is not paid off, the initial reverse funds or some combination with out-of-pocket cash must be used to deplete the remaining balance. Credit score is not a qualifying factor. 

What costs are associated with a reverse mortgage?

There are several costs associated with securing an HECM reverse mortgage in Texas, including but not limited to:

• Upfront fees: include the lender's fees, and can be paid from the reverse mortgage funds. This means, however, that the money taken cannot be borrowed back. So a $200,000 reverse mortgage with $16,000 in fees paid via the reverse mortgage funds will leave the homeowner with $184,000. 
• Closing fees: include all the same fees required of a traditional mortgage closing. 
• Reverse mortgage counseling fees: HUD mandates all reverse mortgage homeowners attend reverse mortgage counseling. Fees are in the $100 range but can be waived for lower income seniors. 
• Mortgage insurance: an upfront mortgage insurance premium (MIP) must be paid for reverse mortgage borrowers. It can be as low as 0.5% and as high as 2.5% of the appraised home value, unless the home is over $625,500, in which case the upfront mortgage insurance is calculated by the lender. 

How will I receive my funds, and for how long?

You can arrange to receive the money from your lender in any of the following ways.

• As a lump sum at the start of the loan.  This sum will equal the full equity amount minus loan origination expenses.
• In monthly payments until the full amount of equity is depleted.  These monthly payments will last longer if you have more equity.
• As a credit line that you can access at any time.  You don’t have to pay this credit back.

You can combine any of these options to create a new, unique payout program.  The choice is up to you.

During and after a reverse mortgage, your lender owns the equity of your home but not the home itself.  Many seniors are skeptical of reverse mortgages because they’re concerned that taking out reverse mortgages will place their homes at risk.  This is not the case.  Your lender does not gain any ownership rights to your home in a reverse mortgage.

Does the equity need to be repaid?

You can continue living in your home until the day you pass away or move out, and you aren’t even required to pay back anything to your lender.  When you pass away, your heirs will receive ownership of the home and the reverse mortgage loan amount will become due.  Most of the time, your heir will sell the home to pay back the loan.  If the home value has decreased and the sale amount is not sufficient to cover the loan amount, don’t worry.  Lenders can collect only as much as the home sells for.  The rest of the debt must be written off.  This is a federal reverse mortgage regulation.

Texas Reverse Mortgage Lenders

Texas is one of the top three reverse mortgage states in the nation.  Many lenders in the state are eager and willing to provide reverse mortgages, but these loans, as with all others, come at a price.  You’ll have to pay origination fees and closing costs, and these fees can add up swiftly when your equity is at stake.

Do some research.  Find the lender who charges the lowest fees and offers the lowest mortgage rates.  Contact at least four or five lenders in your part of the state and ask them for quotes on the prices they charge.  This is the best way to get an idea of what costs are associated with reverse mortgages in your area.

To learn more about the costs and steps involved in applying for one of these loans, read our reverse mortgage checklist and following the outline provided there.

Texas Senior Resources

Texas's Department of Aging and Disability Services (DADS) has a number of resources available to help seniors living at home preserve their independence. Programs include help for the ill or disabled. To find a center near you, consult the DADS website. 

Lenders in: Texas.