What Are the Home Equity Loan Rules in Texas?

The state of Texas has some pretty enchanting refinance rules. This is especially true when one wants to pull cash or equity out of their home.

There are two types of mortgage refinances. The first type is called a rate and term refinance. This is simply when man wants to lower their rate or convert the term of their customary home loan. For example, man with a 30 year mortgage at 7% may want to refinance to a 5.25%, 15 year mortgage.

Home Loan

In this instance they are not pulling cash out they are just changing the rate and/or the term of their customary loan. While the "refinance boom" (2001-2004) many loan officer and mortgage brokers did dozens and dozens of rate and term refinances because mortgage rates dropped so low.

Most people refinance when their home loans when the shop rate is much lower than their current mortgage rate. A good rule of thumb is when you can save about 1% it may make sense to refinance.

The second type of refinance is called a Texas Cash out Refinance. This is when man wants to pull cash out of their home in expanding to lowering or changing the rate or term.

Texas once outlawed the potential to pull cash out of one's home but now allow this as long as the loan meets these criteria:

80% Texas Cash Out Rule: This rule states one that the loan can not exceed 80% of the home's appraised value.

For example, if one's home is worth 0,000 and the current mortgage owed is ,000 than an equity loan can go up to ,000 (80% of 100k). Thereby netting the borrower ,000, less windup costs.

3% rule: This rule state that the total fees can not exceed 3% of the loan's value. For example, if man does a 100K equity loan the total fees can not exceed 00. This means broker, title, survey, appraisal, underwriting, doc/prep (everything!) can't exceed 3%. This law was intended to protect borrowers but it indubitably penalizes lower loan amounts making it difficult for those with small loans to take advantage of their equity.

This is a great example of regulation doing the opposite than what it was intended. So for those with loan amounts under 100K, it's very difficult to do a home equity loan as state law also requires one to purchase a new title policy each time one refinance. Title policies ordinarily run 1% of the loan amount.

However, it's important to note that the 3% law does not apply for those doing an speculation cash out home equity. So it's indubitably easier to do a home equity loan on an speculation asset than on an owner busy asset in Texas!

12 Day rule: This is one of the more unique rules. Whenever you do a home equity loan your loan officer or mortgage broker will ask you to sign a 12 day form. This form states that the loan can't close until 12 days after the date of the application. I guess the state of Texas wants you to have 12 full days to think about your loan!

3 day rule: Then, after we wait 12 days, we are required to wait 3 days until we fund. Not to mention one is required to look and sign the final Hud (settlement statement) 24 hours before closing.

So to make things simple: The loan can't close for 12 days. Then, once the Hud is prepared by the title enterprise the borrower(s) must quote and sign the Hud 24 hours before we close. Then we can't fund the loan for 3 full enterprise days.

These rules are why it often takes 30 full days to fund a Texas Cash out loan.

Oh, and by the way. The final rule...one must wait 12 full months between home equity loans. So if you do a Texas cash out one year and the price of your home goes up significantly you must wait a year before refinancing.

Because Texas home equity loans have so many rules it is important your mortgage professional truly know the rules so all things goes smoothly with your refinance.

What Are the Home Equity Loan Rules in Texas?