Currently the only state that doesn't let seniors use reverse mortgages for purchasing homes, Texas could switch course if voters approve a constitutional amendment in the Nov. 5 election.
Proposition 5 would allow homeowners age 62 or older to buy a new house by paying about half of their costs out of pocket and then using funds from a reverse mortgage loan to pay the difference — all in one transaction and without having to sell their current home first. Proponents say that such a streamlined process would cut closing costs and could benefit hundreds of thousands of Texans. But some observers warn that if the amendment passes, seniors shouldn't assume that a reverse mortgage is their only option when buying a new home.
If voters back Prop 5, Texans could become part of the Home Equity Conversion Mortgage for Purchase program, which offers seniors reverse mortgages, insured by the federal government, specifically for purchasing new residences.
Unlike a traditional mortgage, reverse mortgages allow seniors to borrow money against the value of their homes. The homeowners are not expected to make payments on the loan; instead, when the borrower dies, the home could be sold by the lender or the borrower's heirs to cover the loan amount.
Texas, which began allowing home-equity lending in 1997, has allowed reverse mortgages since 2000. State lawmakers had resisted this type of home-equity lending because of the state's constitutional homestead protections, which are designed to prevent creditors from placing or enforcing liens on a property.