Texas Home Equity Loan Laws and Regulations
Here are the basic Texas Home Equity Loan laws and regulations concerning these types of mortgages
There still seems to be a lot of confusion concerning Texas Cash Out mortgage loans, so I thought I would post this on my blog. Here is what you need to know at a minimum, when applying for a Cash Out, HELOC, or Home Equity loan in Texas, be it a 1st or 2ndlien. The list below is for “Primary Residence” homesteads only.
Note: I use Texas Cash Out, Home Equity, and HELOC (Home Equity Line of Credit) interchangeably. For simplicity sake, I will just use the words “Cash Out”.
- You can only have “one” Texas Cash-Out / Equity loan on your homestead. This however does exclude a Home Improvement loan, where money is NOT given directly to the borrower, but to the contractor doing the home improvements.
- 3% cap on total fees. There is an exception, which applies to discount points, not to be confused with an Origination point.
- Your title insurance “will” be at a higher cost. The additional cost is calculated at 1.25%
- You can only go up to 80% loan to value (LTV). If you take out a 2nd lien, then it is the combined loan to value (CLTV) that is used, but still held at 80%.
- You “Must” sign the Texas “12 Day Disclosure”. It is called “Notice Concerning Extensions of Credit Defined By Section 50(a)(6), Article XVI, Texas Constitution. This form must be signed by anyone who is on title.
- You “CANNOT” close prior to 12 days after the form is signed. The 12 days is a cooling off period. Most lenders will require the borrower to bring the original signature 12 day disclosure form to closing.
- Rates can be a little higher on Texas cash out loans, due to the risk to the investors/lenders. There can also be additional adjustments to the rate, which are dependent upon a borrower and Co-borrowers credit score. The middle score from the three major credit bureaus is used in determining any adjustments. Should there be a Co-borrower, then the lowest middle score between the two will be used.
- Fees can be higher on Texas cash out loans, but you are still held to the 3% Cap.
- Credit Scores typically need to be a little higher and normally at a minimum of 660 middle credit score. This does vary from lender to lender and there are some lenders that will go as low as 620. One must be prepared to take a higher rate or higher closing cost if your score is below 740.
- You “Must” sign the “HUD Settlement Statement” one business day prior to closing. This form must be signed by anyone who is on title.
- You “Are” allowed a 3 day right of recession after you close.
- You can only refinance a Texas Cash Out loan, once every 12 months.
- Does not apply to a 2nd homes, or Investment properties, when the borrower has designated another Texas property as their homestead.
NOTE: There is a very important rule that borrowers should be aware of, which is the Home Improvement Loan. If you are looking to take equity out of your home to improve the value of then you should take a look at applying for a Home Improvement Loan, opposed to a standard TX Cash Out loan. The reason being, is that your loan will “NOT” be coded as a Texas (a) (6) Home Equity loan and not all the rules above may apply.
See attached Texas 12 day disclosure:
If you have questions concerning Texas Cash Out loan, please feel free to give me a call at 512–524-9414.
Disclaimer: These are some of the major points that I have noted and I may have left something off of this list. Every loan is unique, so please consult a licensed mortgage lender for additional clarification.