Reverse Mortgages

Reverse Mortgage Topics Covered

What is a Reverse Mortgage?

A reverse mortgage lets a Texas homeowner access part of their home equity without making monthly payments. The loan is not repaid until the homeowner moves out, sells the home, or passes away.

Instead of the borrower paying the lender, the lender sends funds to the homeowner. The homeowner can decide how they want to receive those funds, and interest is charged only on the amount used. That interest is added to the loan balance, so there are no upfront payments. The homeowner also keeps full ownership and title to the property throughout the process.

How to Qualify for a Reverse Mortgage

To qualify, the primary homeowner must be at least 62 years old. If you’re younger than 62, you may still be eligible as a non-borrowing spouse or under certain program guidelines, as long as all other requirements are met. These include:

- You must own the home outright or have a single primary mortgage you want to borrow

against.

- Any existing mortgage must be paid off with the reverse mortgage funds.

- The property must be your primary residence.

- Property taxes, homeowner’s insurance, and any required dues (such as HOA fees) must

stay current.

- You must complete a counseling session with a HUD-approved advisor.

- The home must be properly maintained and kept in good condition.

- Eligible property types include single-family homes, multi-unit properties with up to four

units, manufactured homes built after June 1976, condominiums, and townhouses.

Types of Reverse Mortgages

- Proprietary reverse mortgages are private loans that are not backed by the government.

They often allow homeowners with higher-value properties to access a larger amount of

equity.

- Single-purpose reverse mortgages are less common and are typically offered by nonprofit

organizations or certain state and local agencies. These loans can only be used for one

designated purpose determined by the lender.

- Home Equity Conversion Mortgages (HECMs) are the most widely used option and are

insured by the U.S. Department of Housing and Urban Development. They generally come

with higher upfront costs, but the funds can be used for any need. All borrowers must

complete a counseling session with a HUD-approved advisor before closing to ensure they

fully understand how the loan works.

Ways to Receive Proceeds from a Reverse Mortgage

- Lump sum: You receive all of your loan proceeds at closing. This is the only payout option

that offers a fixed interest rate. All other options use an adjustable rate.

- Equal monthly payments (annuity): The lender sends you steady monthly payments for as

long as at least one borrower continues living in the home as a primary residence. This is

often called a tenure plan.

- Term payments: You receive equal monthly payments for a specific period you choose, such

as ten years.

- Line of credit: Funds are available for you to draw from whenever you need them, and you

only pay interest on the amount you actually use.

- Equal monthly payments plus a line of credit: You receive steady monthly payments for as

long as at least one borrower lives in the home, and you can access additional funds from

the credit line if needed.

- Term payments plus a line of credit: You receive equal monthly payments for a set period of

time, such as ten years, and you also have access to a line of credit if you need extra funds

during or after that term.

Benefits of a Reverse Mortgage

- The borrower is not required to make monthly payments toward the loan balance.

- Proceeds may be used for living costs, paying down debt, covering medical expenses, and

other needs.

- The funds can help homeowners enhance their quality of life during retirement.

- A non-borrowing spouse is allowed to remain in the home after the borrower passes away,

as long as program requirements are met.

- Homeowners at risk of foreclosure may be able to use a reverse mortgage to pay off their

existing mortgage and potentially avoid losing the home.

The Reverse Mortgage Process

If you decide a reverse mortgage is the right choice, the application process works much like applying for a traditional home equity loan. Once you meet the eligibility requirements, you can begin comparing lenders to find the best option.

During the review process, the Texas lender will look at your financial profile, including your credit history, your current mortgage balance, and whether your property qualifies. You will also need to show that you can keep up with ongoing housing costs, and an appraisal will be required to determine your home’s value and how much you can borrow.

After the loan closes, you are given a three-business-day right of rescission, which allows you to cancel the loan without penalty. To do this, you must notify your lender in writing within that three-day period.

Keep copies of everything you send and mail your notice using certified mail with a return receipt so you have proof it was delivered. Once your cancellation is received, the lender has 20 days to refund any fees you paid.

Frequently Asked Questions

How much can I qualify for?

The amount you can access through a reverse mortgage depends on the age of the youngest borrower and the appraised value of your home. In most cases, the loan-to-value ratio falls between 40 and 70 percent of the home’s appraised value, with older borrowers typically qualifying for a higher percentage.

When does the reverse mortgage need to be repaid?

The loan becomes due when the home is sold, when it is no longer your primary residence for 12 months or longer, or if property taxes and homeowners insurance are not maintained. If the last surviving borrower passes away, the loan must be paid off. Your heirs or estate generally have up to six months to refinance the home if they want to keep it, or up to 12 months to sell it.

Can I make payments back?

Yes. Although no monthly payments are required, borrowers may make voluntary partial or full payments at any time without penalty. For fixed-rate reverse mortgages, any prepaid funds cannot be re-borrowed, and the revolving credit feature does not apply.

If my credit score is low, how can I raise it?

Paying bills on time, lowering credit balances, and limiting new credit inquiries can all help improve your FICO score.

Reverse mortgages can offer helpful access to cash for Texas homeowners whose wealth is largely tied to their home. However, they are not suitable for everyone. If you struggle to cover the ongoing costs of homeownership, even without a monthly mortgage payment, this option may not be the best fit. The loan also becomes due when the borrower no longer lives in the home for more than 12 months or upon death, which means the balance must be repaid or the home may need to be sold.

Even when offered by reputable lenders, reverse mortgages are complex. Homeowners should take the time to fully understand how they work to ensure they make the best decision for their financial goals.

1st Alliance Mortgage LLC - NMLS 1407 | 4438 State Highway 6 S, Ste. 201, College Station, TX 77845

Notice To Texas Loan Applicants: Consumers wishing to file a complaint against a mortgage banker, or a licensed mortgage banker residential mortgage loan originator, should complete and send a complaint form to the Texas Department of Savings and Mortgage Lending, 2601 North Lamar, Suite 201, Austin, TX 78705. Complaint forms and instructions may be obtained from the department’s website at www.sml.texas.gov

A toll-free consumer hotline is available at 1-877-276-5550. The department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed mortgage banker residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the department prior to the payment of a claim. For more information about the recovery fund, please consult the department’s website at www.sml.texas.gov