Texas Reverse Mortgages: Constitutional Restrictions Explained
Key Takeaways
- The Texas Constitution heavily regulates all home equity loans.
- Texas prohibits the use of reverse mortgages to purchase a new home (HECM for Purchase).
- Line of credit advances have strict minimum withdrawal limits.
Texas takes the concept of a "homestead" more seriously than almost any other state. For decades, the Texas Constitution completely prohibited homeowners from borrowing against the equity in their homes. While laws have modernized, Texas still heavily regulates reverse mortgages, resulting in rules you won't find anywhere else in the country.
No "HECM for Purchase" in Texas
Nationwide, a popular program is the HECM for Purchase. This allows a senior to buy a new home and take out a reverse mortgage on it in a single transaction, requiring them to only bring about 50% of the purchase price in cash, with the reverse mortgage covering the rest.
This program is illegal in Texas.
Under the Texas Constitution, a reverse mortgage can only be placed on an established homestead. You cannot use a reverse mortgage to acquire a new property. If a Texas senior wants to downsize using a reverse mortgage, they must buy the new home with cash or a traditional mortgage, establish it as their legal homestead, and then apply for a reverse mortgage.
Minimum Withdrawal Rules for Lines of Credit
If you choose an adjustable-rate reverse mortgage with a line of credit in Texas, you have less flexibility than borrowers in other states regarding how you access your cash.
To prevent lenders from being nickel-and-dimed with tiny administrative requests, Texas law dictates that any advance from a reverse mortgage line of credit must be at least $1,000.
If you need $400 to fix a washing machine, you cannot withdraw $400. You must withdraw $1,000, incurring interest on the full thousand dollars. (Exceptions exist if your available line of credit is less than $1,000).
Strict Spousal Protections
The Texas Constitution is incredibly protective of spouses. If you are married, your spouse must consent to the reverse mortgage and sign the legal documents, even if they are not on the deed to the home and even if it is considered your separate property.
Furthermore, if a spouse is under the age of 62, Texas enforces strict rules to ensure they cannot be evicted from the homestead if the older borrowing spouse passes away, aligning with (and sometimes exceeding) federal Non-Borrowing Spouse protections.
Because of these constitutional quirks, it is vital to work with a reverse mortgage lender who has specific, extensive experience closing loans within the state of Texas.