Reverse Mortgages in Texas: An Overview January 11, 2017
This article provides an explanation of reverse mortgages in Texas, how they work, and the eligibility requirements — it will also discuss the pros and cons of a reverse mortgage.
Reverse Mortgages in Texas — An Explanation
Many homeowners have accumulated equity in their home and consider encumbering their home with a reverse mortgage.
A reverse mortgage is a loan against home equity. In other words, it allows the borrower to convert equity in the home into income or a line of credit that can be used for any purpose.
The borrower is not required to make scheduled payments to the lender or pay off the loan until the borrower no longer uses the home as a principal residence or the borrower fails to meet the obligations of the mortgage.
The Federal Housing Administration (FHA) administers reverse mortgages.
Reverse Mortgages in Texas — How They Work
A borrower can apply for a reverse mortgage in Texas primarily through a reverse mortgage lender. The borrower must consult with a reverse mortgage counselor, who will charge a fee that is then rolled into the loan.
The proceeds can be taken in monthly payments, as a line of credit, or in a lump sum.
Fixed or adjustable interest rates are also available.
If a borrower elects a fixed interest rate, then all proceeds must be taken in a lump-sum payment — the signatures of both spouses are required.
To be eligible for reverse mortgages in Texas, the borrower must:
- Be 62 years of age or older
- Own the home outright or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan
- Must live in the home
The borrower must have the financial resources to pay ongoing property charges, including taxes and insurance. The borrower is also required to receive consumer information from a reverse mortgage counselor prior to obtaining the loan.
A reverse mortgage is an expensive form of credit.
There are substantial up-front fees, such as:
- Loan origination fees
- Mortgage insurance premiums
- Closing costs
There are also significant ongoing fees, such as:
- Servicing fees
- Mortgage premiums
The fees and interest are often high. The borrower should not be surprised if the amount of the loan is lower than expected after deducting these fees.
As with any loan, the borrower should ensure the availability of sufficient funds to cover these expenses.
Effects on Inheritance
Reverse mortgages in Texas limit the amount of money passed on to heirs and could put a spouse out of their home.
When the home is sold or no longer used as a primary residence, the cash, interest, and other reverse mortgage finance charges must be repaid.
All proceeds from the sale beyond the amount owed belong to your spouse or estate.
Accordingly, the amount paid for the home determines whether proceeds remain to transfer to heirs.
No debt is passed along to the estate or heirs, but the heirs will not get the house unless they pay off the reverse mortgage.
The money used to pay off the house is usually taken from the estate, thus reducing the amount heirs can receive.
If a borrower takes out an adjustable interest rate reverse mortgage, the borrower should also note the possibility of unexpectedly diminished proceeds upon the sale of the home.
Astute borrowers will note that death is not the only event that triggers repayment.
If only one spouse moves into a nursing home, the reverse mortgage must be paid off, usually by selling the home.
This could create a serious problem if the other spouse remains at the home because the reverse mortgage is typically paid off through selling the home.
Reverse Mortgages in Texas — How to Find a Lender
Despite these disadvantages, reverse mortgages will convert home equity into cash that can be used to pay necessary expenses.
Borrowers should also be aware that some services charge a fee for referring a borrower to an FHA‑approved lender.
Borrowers should avoid these services because FHA‑approved lenders are available online at www.hud.gov.
Reverse Mortgages in Texas — Be Cautious
“Even when dealing with legitimate lenders, seniors should carefully consider more than one reverse mortgage offer because terms of varying offers can differ significantly.
“Homeowners should NEVER sign any paperwork that affects their home unless they clearly understand the impact of what they are signing.
“Seniors should walk away from any lender who tries to pressure them into making a quick, spur-of-the-moment decision.”
We’re Here to Help
If you are considering taking out a reverse mortgage in Texas, we recommend getting professional guidance before making any decisions or signing any contracts.
Our attorneys will help you determine eligibility, identify the pros and cons, make sure your family is protected, and help protect you against unscrupulous lenders.
Click the link to set up an appointment with our attorneys to learn more about reverse mortgages in Texas.
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