How Does a Reverse Mortgage Work in Texas: Costs, Heirs, and Rules

A reverse mortgage in Texas lets a homeowner age 62 or older borrow against the equity in their primary residence without making monthly loan payments, with the balance growing as interest accrues and becoming due only when the last borrower dies, sells the home, or moves out for more than 12 months. The most common version is the Home Equity Conversion Mortgage (HECM), insured by the Federal Housing Administration. Texas layers its own constitutional protections on top of the federal rules, and those protections shape everything from who can sign to how quickly the loan can close.

Who Qualifies

The Texas Constitution, Article XVI, Section 50(a)(7), sets the ground rules. Every borrower on the title, or their spouse, must be at least 62 years old.¹ The property must be your primary residence and carry a Texas homestead designation. Eligible properties generally include single-family homes and FHA-approved condominiums.²

The home itself has to meet FHA’s minimum safety and structural standards. If the appraiser flags problems like a leaking roof or faulty wiring, the lender can hold back part of your proceeds in a repair set-aside to cover the fixes after closing.³ The lender also runs a financial assessment to verify you have enough residual income to cover property taxes, homeowners insurance, and upkeep. Many applications stall here, so having income documentation and a picture of your monthly expenses ready from the start saves weeks.

The Required HUD Counseling Session

Before a lender can accept your application, you have to complete a session with a counselor approved by the U.S. Department of Housing and Urban Development.⁴ The counselor walks through the financial consequences of taking the loan, lays out alternatives, and confirms you understand how the balance grows over time. You leave with a certificate the lender needs before processing your file.

Agencies may charge a reasonable fee for counseling, but it cannot create a hardship. If your household income sits at or below 200 percent of the federal poverty level, the agency should consider waiving or reducing that fee.⁴

How Much You Can Borrow

Three variables drive your borrowing capacity: the age of the youngest borrower (or eligible non-borrowing spouse), current interest rates, and your home’s appraised value or the HECM lending limit, whichever is lower.² HUD calls the result your principal limit. Older borrowers and lower rates yield more available equity.

For 2026, the HECM maximum claim amount is $1,249,125, up from $1,209,750 in 2025.⁵ A home appraised above that ceiling is calculated using $1,249,125, not the full appraised value. Any existing mortgage or lien has to be paid off first out of the proceeds, which reduces what actually reaches you. Rolling a remaining conventional-mortgage balance into the new loan is one of the most common uses.

How You Receive the Money

Once the loan closes, you pick from several payout options:

Lump sum at closing, available only with a fixed interest rate.
Line of credit you draw against as needed, up to your available limit.
Monthly term payments in equal installments over a set number of months.
Monthly tenure payments in equal installments for as long as you live in the home.
A combination of a line of credit with monthly payments.

The line of credit has an underappreciated feature. The unused portion grows over time at a rate tied to your loan’s interest rate plus 1.25 percent, divided monthly. That growth is not interest and is not taxable; it simply raises the amount you can draw later. For borrowers who don’t need cash right now, that makes the line of credit more valuable the longer it sits.

Interest accrues only on funds you have actually received, not on your total approved limit. Each month’s interest gets added to the loan balance, so what you owe rises while your remaining equity falls. Because no monthly payments are required, that is the core tradeoff: cash flow now in exchange for equity later.

What It Costs

Reverse mortgages carry several layers of fees. Most can be rolled into the loan itself, which is convenient but reduces the equity available to you and your heirs.

Origination fee: the greater of $2,500 or 2 percent of the first $200,000 of the maximum claim amount, plus 1 percent of any amount above $200,000, capped at $6,000.⁶
Upfront mortgage insurance premium: 2 percent of the appraised value or the HECM maximum claim amount, whichever is less, paid to FHA to insure the loan.⁷
Annual mortgage insurance premium: 0.5 percent of the outstanding loan balance, charged monthly and added to what you owe. Over a long-lived loan, this compounds.
Appraisal fee: typically $450 to $900, depending on the property.⁷
Servicing fee: up to $30 per month for fixed-rate or annually adjusting loans, and up to $35 per month for monthly adjusting rates.
Third-party closing costs: title insurance, recording fees, and similar charges, varying by county.

All of these except the ongoing annual premium and monthly servicing fee can be financed into the loan, so you generally don’t need cash to close. You pay for that convenience with lower equity going forward.

Applying and Closing in Texas

After counseling, you gather your documents (identification, Social Security cards, property tax statements, insurance declarations, and any existing mortgage statements) and submit the application to a Texas-licensed lender. The lender orders an FHA-certified appraisal that covers both market value and physical condition, and underwriters then confirm the file meets constitutional and federal requirements, including a title search for conflicting liens.

Closing happens at a title company or attorney’s office. After you sign, you have a three-business-day right of rescission, a cooling-off window during which you can cancel for any reason.¹ Once that period passes without cancellation, the lender disburses funds under the payout option you chose and files the deed of trust with the county clerk.

One point trips up Texas borrowers regularly: the state’s 12-day waiting period before closing applies only to home equity loans under Section 50(a)(6). It does not apply to reverse mortgages under Section 50(a)(7).

When the Loan Comes Due

The loan becomes due and payable when the last surviving borrower dies, sells the home, or moves out for more than 12 consecutive months.¹ Falling behind on property taxes or homeowners insurance can also trigger default, as can letting the home deteriorate enough to threaten the lender’s collateral.

The property tax default path is more involved than most borrowers expect. If you fall behind, the servicer advances its own funds to pay the taxes and protect the property from tax liens, then seeks HUD approval to declare the loan due and payable. You receive a demand letter with a deadline to resolve the situation, and you may qualify for a repayment plan of up to five years with HUD approval. As long as you sign the plan, make every payment on time, and stay current on future tax bills, the loan will not be referred to foreclosure. If no plan is reached, the servicer must begin foreclosure within six months of the due-and-payable date.

If Your Spouse Isn’t on the Loan

If only one spouse signs the reverse mortgage and that borrower dies first, the surviving non-borrowing spouse may be able to stay in the home without immediately repaying the loan. Federal rules provide a deferral period that postpones due-and-payable status, but the conditions are strict.⁸

Within 90 days of the borrower’s death, the surviving spouse has to establish legal ownership of the property or another legal right to remain there for life. The spouse must continue paying property taxes and insurance, maintain the home, and live in it as a primary residence. The lender collects certifications within 30 days of the death and at least annually afterward.⁸ During the deferral period, no additional loan advances go out; the line of credit and monthly payments stop. Miss any requirement and the deferral ends, making the full balance due.

What Heirs Face

Texas reverse mortgages are non-recourse loans, which is the single most important protection for families. The lender cannot pursue the borrower’s other assets or go after heirs personally for any shortfall.¹ The debt is settled entirely through the property. If the home sells for more than the balance, the remaining equity belongs to the estate. If the balance exceeds the home’s value, FHA mortgage insurance covers the difference.

The timeline is tight. Once heirs receive a due-and-payable notice after the last borrower’s death, they have 30 days to decide whether to buy, sell, or turn the home over to satisfy the debt. Extensions of up to six months are available to allow time for a sale or refinance. Heirs who want to keep the home can pay off the full balance, or, if that balance exceeds the current appraised value, settle the debt for 95 percent of the appraised value.⁹ The mortgage insurance paid over the life of the loan covers the rest.

Taxes and Government Benefits

Reverse mortgage proceeds are not taxable income. The IRS treats them as loan advances, not earnings, so a lump sum or monthly payments do not raise your tax bill. Interest that accrues on the loan is not deductible in the year it accrues; you can only deduct it when it is actually paid, which for most borrowers happens when the loan is paid off in full. Even then, the deduction may be limited, because reverse mortgage interest generally falls under home equity debt rules and is only deductible when the proceeds were used to buy, build, or substantially improve the home securing the loan.¹⁰

Government benefits require more care. Social Security retirement and Medicare are not affected by reverse mortgage proceeds. Means-tested programs like Medicaid and Supplemental Security Income are a different story: they have asset limits of $2,000 for an individual and $3,000 for a couple under federal rules, and reverse mortgage funds sitting unspent in your bank account count as assets. Borrowers who take a lump sum face the highest risk of pushing countable assets above the threshold and losing eligibility. Choosing a line of credit or monthly payments over a lump sum, and spending the funds in the same calendar month you receive them, reduces that risk considerably.

1
Justia Law. Texas Constitution Art 16 – Sec 50
2
U.S. Department of Housing and Urban Development (HUD). HUD FHA Reverse Mortgage for Seniors (HECM)
3
GovInfo. Office of Assistant Secretary for Housing, HUD 206.36 – 206.40
4
Department of Housing and Urban Development. Housing Counseling Program Handbook 7610.1
5
U.S. Department of Housing and Urban Development (HUD). HUD FHA Reverse Mortgage for Seniors – 2026 Loan Limits
6
eCFR. 24 CFR 206.31 – Allowable Charges and Fees
7
Consumer Financial Protection Bureau. How Much Does a Reverse Mortgage Loan Cost
8
eCFR. 24 CFR Part 206, Subpart B – Eligibility; Endorsement
9
Consumer Financial Protection Bureau. With a Reverse Mortgage Loan, Can My Heirs Keep or Sell My Home After I Die
10
Internal Revenue Service. For Senior Taxpayers