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Texas Becomes Last State to Allow Reverse Home Mortgages

Texas voters have approved a measure that makes it easier for older homeowners to downsize their homes without getting hit twice on closing costs.

Texas voters have approved two to one a measure that makes it easier for older homeowners to downsize their homes without getting hit twice on closing costs.

With its passage, Proposition 5 brings the Lone Star State in line with the rest of the country in allowing reverse mortgages for the purchase of a home. A reverse home mortgage is available to homeowners 62 and older and is a transaction in which a creditor provides money to a borrower in exchange for a lien on the borrower's home. In most cases, the borrower does not have to repay the loan (or the interest) until the borrower dies, sells the home or moves out.

The ballot measure passed with a vote of 63 percent for and 37 percent against.

The measure was placed on this year’s ballot when the Texas legislature overwhelmingly passed a joint resolution calling for the constitutional amendment. State Sen. John Carona, who was also the lawmaker behind the 1999 constitutional amendment initially allowing reverse home mortgages in Texas, sponsored the new legislation. In a statement to Governing, Carona said that the measure will “provide seniors with additional flexibility in the financing of a new home, while also offering important consumer protections.”

Those protections include a 12-day disclosure period during which the homeowners learn about their contractual obligations (like paying property taxes) and the consequences of not meeting those obligations. Borrowers and their spouses are also required to complete financial counseling before signing the credit agreement.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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