Texas’ substantial homestead protections in the state constitution provide a big safety net for homeowners. But they also cause the Lone Star State to be a little behind its peers when it comes to using home equity to the homeowner’s advantage.
A proposition on this week’s ballot in the state seeks to rectify at least part of that dilemma by making Texas the 50th state to allow 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 he dies, sells the home or moves out.
Proposition 5, which is widely supported, would essentially allow older homeowners to downsize their house without getting hit twice with expensive closing costs.
“Combining the two transactions into one, this method of finance allows homeowners to save on closing costs and retain a portion of equity from the sale of their current homes to apply toward everyday living expenses, thus providing flexibility in the purchase of a new home,” said State Sen. John Carona, who sponsored the legislation that got the issue on this year’s ballot. In his statement to Governing, Carona added that the proposition is unique among the 50 states in that it has increased consumer protections. In Texas, reverse home mortgages would include a 12-day disclosure period during which the homeowner is made aware of his or her contractual obligations (like paying property taxes) and the consequences of not meeting those obligations.
Carona introduced the legislation to amend the constitution after being approached by a wide swath of those interested in the change, including AARP and members of real estate industry. The senator from Dallas, who owns a business that services homeowners’ associations, was also the lawmaker behind the 1999 constitutional amendment that initally allowed reverse home mortgages in Texas.
In fact, the homestead provisions in the state’s constitution are so expansive that home equity loans weren’t even available until 1998. Additionally, the loans have more restrictions and requirements than in other states.
Voting begins at 7 a.m. in Texas and polls close at 7 p.m.