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Texas Reverse Mortgage Guide

Reverse mortgage in texas

Are you a Texas homeowner looking for other income sources as you head into retirement? 

According to a recent survey, more than 50 percent of Americans have acknowledged that they are currently falling behind when it comes to retirement savings. Americans who aren’t prepared for retirement wonder if they will even be able to retire at all.  

One potential source of income may come from most Americans’ most significant investment — their home.  

A reverse mortgage is a valuable financial resource for homeowners as it enables them to use their home as a source of revenue. However, what does a reverse mortgage entail, and how does it function? 

In this guide, we will walk you through the basics of reverse mortgages in Texas so that you can decide whether it is the right option for you. 

Get Your Free Reverse Mortgage Guide Here!

A reverse mortgage is a type of loan that allows homeowners who are 62 years or older to convert a portion of their home’s equity into cash.  

The most common type of reverse mortgage that homeowners use is called the home equity conversion mortgage (HECM). It is also known as a HECM loan and HECM reverse mortgage.  

The loans are insured by the Federal Housing Administration (FHA), and they can only be obtained through lenders approved by the FHA. The federal government also regulates them through the U.S. Department of Housing and Urban Development (HUD).  

With a reverse mortgage, the borrower receives payments from the lender based on the equity available in their home instead of making monthly payments to the lender. 

This is why it is known as a ‘reverse’ mortgage.  

These payments can be a lump sum, line of credit, monthly payments, or by combining these methods. 

Repayment of the loan is required only if the borrower’s permanent relocation from the home, the sale of the house, or when the borrower dies. 

reverse mortgage requirements

To be eligible for a reverse mortgage in Texas, you must satisfy specific requirements, including the following:

  • Be at least 62 years old.
  • Own your home and live in it as your primary residence.
  • Have a considerable amount of equity in your home.
  • Participate in counseling with a HUD-approved counselor before applying for the loan.
  • Be up to date on property taxes and homeowners’ insurance.
  • The owner must maintain and keep the property in good condition.
  • The borrower must have the financial capacity to cover ongoing expenses such as property taxes, homeowners’ insurance premiums, and the costs of maintaining the home.

There are several potential benefits to obtaining a reverse mortgage in Texas, including: 

Tax-Free Income 

The money received from a reverse mortgage is a loan, not income, which means it is not subject to income tax. This makes a reverse mortgage a helpful source of tax-free income for homeowners on a fixed income. 

Flexibility 

As mentioned earlier, borrowers can receive payments in various forms, giving them flexibility in using the funds. They can receive a lump sum payment to pay off existing debts, a line of credit for future expenses, or monthly payments. They can combine these methods to best meet their financial needs and goals.  

Borrowers also have ultimate flexibility regarding how they spend the money because there are no rules or restrictions on how the funds have to be used. This allows homeowners to use the money for whatever they deem necessary, such as home renovations, medical expenses, or simply supplementing their retirement income. 

No Monthly Mortgage Payments 

One of the main advantages of a reverse mortgage is that borrowers are not required to make monthly mortgage payments. The borrowers repay the loan when the borrower no longer lives in the home or decides to sell it. This can provide much-needed financial relief for homeowners struggling to make ends meet. 

Stay in Your Home 

A reverse mortgage allows homeowners to stay in their home and maintain ownership as long as they continue paying property taxes and homeowners insurance and keep the property in good condition. This is especially beneficial for elderly homeowners who may not have the means to move or do not want to leave their long-established homes and community.   

Texas residents have various reverse mortgage solutions at their disposal, each designed to cater to their distinct financial circumstances and personal preferences. These include the following:  

Home Equity Conversion Mortgage (HECM)

The Home Equity Conversion Mortgage (HECM) represents the most widespread form of reverse mortgage used. Governed by HUD and safeguarded by the FHA, HECMs have no fund utilization constraints. However, it’s noteworthy that these mortgages are subject to an FHA lending limit, which, as of 2024, is set at a maximum of $1,149,825. 

Jumbo Reverse Mortgages

Jumbo Reverse Mortgages, also known as proprietary reverse mortgages, allow homeowners to borrow beyond the FHA’s lending limitations. Although they come with slightly elevated interest rates and lack FHA insurance, their high lending ceiling offers distinct advantages. Mutual of Omaha Mortgage offers a jumbo reverse mortgage called the HomeSafe loan. These specially tailored products allow eligible homeowners to secure loans up to $4 million, offering a significant financial resource for those who qualify. 

Reverse Mortgage for Purchase (HECM for Purchase)

The Reverse Mortgage for Purchase, also known as HECM for Purchase, offers homeowners a unique financial strategy to partially finance their new residence through a reverse mortgage. This allows retirees to buy a new home without monthly mortgage payments. It can also serve as a viable alternative for those contemplating a move to Texas in their golden years, allowing them to enjoy the comforts of a new home without the financial strain. 

Single-Purpose Reverse Mortgages

Single-purpose reverse Mortgages are less frequently used loans earmarked for specific uses approved by the lender, typically for home improvements. Occasionally referred to as tax deferral programs, these loan options are usually provided by state and local government bodies or non-profit organizations.  

One aspect of reverse mortgages that should give borrowers confidence is the extensive rights provided to borrowers through federal and state law. Here are some of the rights and protections that are built into the reverse mortgage program:  

  • Counseling Requirement. To ensure that you fully understand the terms of the reverse mortgage and the potential risks and benefits, you are required to attend counseling with a HUD-approved counselor before you can apply for the loan. Your counselor will review the costs and fees, explain the loan’s interest rates and terms, and discuss alternative options that may be available to you. This mandatory counseling helps to ensure that you make an informed decision and avoid scams or predatory lenders. 
  • Non-Recourse Protections. One of the most important borrower protections is the non-recourse feature of reverse mortgages. This means that the amount of the loan cannot exceed the value of the home at the time the loan is repaid. If, at the end of the loan, the home value has declined and the loan balance is higher than the home’s value, neither you nor your heirs will be responsible for the difference. This protects you from owing more than your home is worth. 
  • The Right to Repayment. You or your estate have the right to repay the reverse mortgage at any time, without penalties or fees. If you decide to sell your home, you can use the proceeds to repay the loan, and any remaining equity belongs to you or your heirs. Additionally, you can make partial payments toward the loan balance at any time, which can reduce the amount of interest that accrues on the loan. 

Texas also has its own rules and laws. These include the following: 

  • One unique move that Texas made is that it added reverse mortgage law to its own constitution.  
  • In Texas, both spouses have to be at least 62 to qualify for a reverse mortgage. 
  • Texas imposes a cap on how much lenders can charge for fees. This cap is at three percent of the loan amount.  
  • Texas limits the loan-to-value ratio to 80 percent of the appraised home value.  

[Source: Lone Star Reverse Mortgage

If you’re considering a reverse mortgage and are eager to get an estimate of your potential loan amount, our Texas Reverse Mortgage Calculator is an excellent first step.  

Please note that the figure provided by this tool should be seen as merely an estimate and is not a guarantee of how much you will receive. The actual approved loan amount may differ based on various factors.  

We strongly encourage you to arrange a consultation with one of our certified reverse mortgage loan specialists to gain a more precise assessment. 

Applying for a reverse mortgage involves several steps, but our reverse mortgage loan officers are here to help you through each one. Here’s a brief overview of the process: 

Step 1: Free Consultation

To begin, schedule a consultation with one of our knowledgeable reverse mortgage loan advisors. They will assess your circumstances, estimate potential benefits, and address any inquiries you may have. Rest assured, they are here to guide you every step of the way.

Step 2: Counseling

Before applying for a reverse mortgage, Texas homeowners are required to undergo counseling with an accredited reverse mortgage counselor. This session will cover all aspects of the loan and ensure you fully understand your rights and responsibilities. 

Step 3: Application Submission

Once you receive your counseling certificate from the counseling session, your reverse mortgage loan advisor will help you submit your application and all the required documentation. This usually entails providing a photo ID, a home insurance policy, and the most recent property tax bill. Collecting these documents now will help speed things up. 

Step 4: Appraisal

After submitting your application, an appraisal will be conducted to determine the value of your home. This is an essential step as it will determine how much you can borrow. 

Step 5: Underwriting and Approval

At this stage, our underwriters will review your application and documentation to ensure everything meets the requirements. The underwriter will then approve or deny the loan. Your loan officer will contact you if additional information or documentation is needed. 

Step 6: Closing

Once your loan is approved, there will be a closing meeting to sign the closing loan documents. This typically happens in person at the title company but can also happen at your home through a traveling notary. 

Step 7: Disbursement of Funds

After the closing, there is a mandatory three-day waiting period before funds can be disbursed. After the waiting period, you will receive the funds in one lump sum, a specified payment plan, or through a line of credit. The disbursement method is chosen when you submit your initial application.

Mutual of Omaha Mortgage is a licensed Reverse Mortgage lender in the state of Texas. You can get started by calling 800-578-0283 or filling out this form here.   

You can also locate a Texas Reverse Mortgage loan officer near you by using our convenient loan officer directory or through one of the links below: 

Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.    

This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.   

Get Your Free Reverse Mortgage Guide Here!