Do you own a home in Texas? Have you thought about pulling cash out of the equity in your home for the following reasons:
- College Tuition
- Consolidate Debt
- Pay-off your auto loan
- Home repairs, etc.
What ever your reason, you should know your options and the specific guidelines for your state.
In the State of Texas, you have the option of completing a Section 50(A)(6) aka Texas Cashout Loan or a Home Equity Line of Credit (HELOC). The main differences in these products are the terms and the interest rates.
The first thing to note about the HELOC is that the rate is approx 2% higher than a typical Rate & Term refinance. This rate adjusts and can increase/decrease depending on market conditions. The other big difference is that the HELOC is an open ended loan. As you can see from the brief description, it works similar to a credit card. If you borrow against your HELOC you must do it in $4000 increments. The loan can be paid back at any time with no pre-payment penalties. After 5-10 years the rate becomes fixed and you are no longer aloud to borrower against the equity until the loan is paid off. The rate adjustments, term of loan, etc are all based on the Note sined at closing.
The Texas Cashout Loan has its own guidelines and is specific to the Primary Residence. Please note that these guidelines are set in stone in the Texas Constitution. ALL lenders must comply with these guidelines if they are completing a Texas Cashout Loan. According to the Texas Consititution, the following restrictions apply to all Texas A6 Loans:
- Loan to Value can not exceed 80% - Which basically means you can not borrower more than 80% of what your house is worth. If you owe more than 80% already, then you would not be eligible for this loan product nor can pull any equity of our your home.
- Only ONE Equity loan at a time - You may not have a second loan if you have borrower from the equity in your home.
- You may not refinance your home for at least 1 year - After you close your loan, you may not refinance your home fot at least 1 year after the date of closing. This does not mean you can not pay-off quickly. There are NO additional charges involved with paying off your home, it is strictly a state guideline. No lender can over rule this guideline just because rates have fallen below your current interest rate.
- It may not be an open ended account - This and interest rate are the biggest differences from the HELOC. If you qualify for $50,000 then a check is provided to you for this amount. One lump sum, unlike a credit card.
- Loan Documents must be signed at a Title Company, Lenders Office, or Attorney's Office - Sending a notary to your home is not an option. This ensures that a third party has witnessed the signing of the loan documents and no one else is receiving your equity check.
- Once a Cashout, Always a Cashout - In most cases, the rates for a Texas Cashout compared to a Rate & Term refinance are slightly higher. Once you have decided to complete a Texas Cashout, each time you refinance your home it will be considered a Texas Cashout.
** Please note that if you roll in your Closing Costs for your refinance, this is not considered a Texas Cashout. A Texas Cashout is when the lender is cutting you a check to spend as you will and/or paying off any debt outside of your primary mortgage **
If you live in the state of Texas and are looking for a reliable Mortgage Professional to assist you with the loan product that best fits your financial situation, give me a call. We do not charge upfront fees to run scenarios or charge unnecessary application fees. Do you want to know all of your options? Call me today and let's discuss them further.
Always available for your Frisco Texas Mortgage needs!
John Cannata Reliant Mortgage p# 214.545.5604
I'll help you get pre-approved for your Texas home loan and even suggest some very knowledgeable and professional Real Estate Agents in your area of choice. If you are available to talk, I am available to listen. Give me a call or visit my website for more details.
Do you want to know all of your mortgage options? Call me today and let's discuss them further.
Always available for your Texas Mortgage and Home Loan needs!
John R Cannata P#214.728.0449
NMLS # 322646
The views expressed on this site are mine alone and do not reflect the views of my employer.