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Home Equity Loans in Texas
A few notes of importance:
- This only applies to a homestead property, that is the
customers primary residence
- LTV refers to Loan to Value, meaning the loan amount as
compared to the value of the home. As an example, a loan of
$75,000 on a home valued at $100,000 would be a loan at 75%
LTV.
- These specifics only apply to Texas cash out loans in the
State of Texas - obvious, but I had to put it in here.
- Although the actual Texas Cash Out Laws in Texas have not
had any "major" modifications in the last few years, there have
been minor adjustments made, that does not mean that future
changes will not occur.
Essential Information
First, and foremost, I will highlight some of the most important
points of Texas Cash Out loans:
- A person can only have one homestead propety
- Any Texas Cash Out loan is limited to a maximum of 80%
LTV
- Only one Texas Cash Out Loan may be given in any 12 month
period
- A 12 day "cooling off period" , known as the 12 day letter,
is required on every transaction
- A maximum of 3% of the loan amount can be charged to the
customer which includes all closing costs
- Once a Home Equity loan is taken on a persons homestead,
all transactions following from that point on (with the
exception of the sale of the property) are considered Texas
Cash Out loans.
- In regards to the last point, just to further clarify, even
if you are refinancing the balance of a current Cash Out loan
and not getting any new cash out, it is still considered a
Texas Cash Out loan. The rule is quite simple, once a cash out,
always a cash out loan.
- Every owner of the property must given the HUD-1 settlement
statement for review at least 24 hours prior to closing your
loan
The Process
The process of obtaining a Texas Cash Out loan is really only
slightly different than a home equity loan or refinance loan in
any other state. Yes, the documentation and requirements are
different, but the process itself is very similiar.
Before applying to obtain a cash out loan in Texas, you have
to realize that you are limited, by State Law, to a maximum of
80% LTV for the new loan. So, if your house is worth (appraised
value) of $200,000, then the maximum loan you can get, including
any/all closing costs involved is $160,000. So, if you currently
owe more than $160k on your current mortgage on the house, you
wiil not be able to obtain a home equity loan in Texas. I only
say this to save you some time and effort if it is your desire to
get cash out or obtain a debt consolidation loan on your
homestead property. You can also use this figure to estimate as
to how much cash will be available to you from your new loan as a
maximum amount.
You can also expect that your options will be more limited
than if you were looking to simply do a rate/term refinance
(refinance the balance of an existing loan) or purchase a home.
Your options are more limited because not all lenders will do
Texas Cash Out loans. The reasons are a combination of them not
willing to adjust to the more stringent documentation
requirements of the Texas Home Equity loan, some are simply
because they believe the documentation and legal restrictions are
simply too much of an additional burden on them to offer these
types of loans. Understand that while the process itself is not
that different from the consumer stand point, from a lenders
stand point the differences are more unique and do require the
lenders to essentially have a seperate set of documents and, most
likely, additional staffing just to manage and keep up with
any/all changes to Texas Law regarding these loans.
The application process will be essentially the same as any
other mortgage loan. You contact your mortgage broker or one or
more mortgage lenders, give them your information and you are on
your way. Once your applciation and credit have been evaluated,
you will, as in any other mortgage transaction, receive a Good
Faith Estimate and Truth in Lending within 3 days of you giving
your information on an application. This can be used to compare
your offers and to help you make an educated decision as to which
lender/broker to go with. Once you have made the decision as to
which company you will use, you will then be sent a disclosure
package which will contain initial RESPA disclosures, other state
required forms, lender required forms, and a list of items that
you will need to provide along with these documents in order to
get your loan completed. I have another section for disclosures
(posting to be completed shortly), so I won't go into the
specific disclosures other than the ones that apply strictly to
Texas Cash Out loans.
You can expect your loan to take longer than a standard
mortgage loan. The reason is that Texas Law requires a 12 day
cooling off period, so, your transaction cannot take place for at
least 12 days after you sign that document which essentially
states your rights as a consumer. In most cases, the delay may
only be a couple of days as during that time period the normal
other items can be taken care of simultaneously, ie., the
appraisal, preliminary title report, and the gathering of the
required documents from you, the consumer. I am simply saying
that if you are anticipating your loan to done inside of two
weeks, then you know now, that it is simply not possible.
Once your documents are in the hands of the company you chose,
and the appraisal and title work are done, then the loan is
underwritten and final approval is given as in any other mortgage
transaction. At this time, there may be some outstanding
conditions, or other documentation that may be required to be
provided due to individual circumstances and/or is something was
simply left out or missing from your file. Once those documents
are provided, and your loan is cleared of all pending conditions
or documentation, then the closing time/date is set and your
documents are sent to the title company which prepares the
documents for closing.
One item of note here, Texas Cash Out loans are required to be
closed at a title company location, they cannot be closed in the
customer's home as some mortgage transactions are. This is
strictly forbidden by Texas Home Equity Lending Laws, so don't
expect anyone to come to your home out of convience for you to
close your loan, it just won't happen in Texas.
Additionally, once your closing is set, it is a requirement
that each owner of the property be given the HUD-1 settlement
statement at least 24 hours prior to closing the loan. If any
changes are made to the settlement statement before closing, then
another 24 hours must be allowed before closing the loan, again,
this is not optional. The reality is, in my opinion, this is
actually a very good thing and one of the better laws that Texas
has pertaining to home equity lending.
The fact that the consumer gets to see the actual HUD-1
settlement statement a day before the loan closing gives them the
opportunity to ask questions and to make certain that everything
is correct OR as stated on their initial Good Faith Estimate.
This means that there can be no surprises at the closing table.
If it were up to me, all consumers would get the HUD-1 one day
prior to closing, that way all questions can be eliminated and it
would make the closing go that much smoother as you would already
be aware of exactly what the settlement statement has on it
before you get to the closing table - that is for another
discussion.
After you sign the documents there is a 3 day right of
recission, as on all mortgage refinance transactions on owner
occupied homes. This means, quite simply that once you sign, you
are given copies of all documents and given 3 business days
(Saturdays count) to review all documents and make your final
decision as to whether or not you want the loan. Keep in mind
that the decision is YES, unless you decide to say no. So, if you
sign documents on Monday, you are given until midnight of
Thursday to cancel the transaction, you loan funds on Friday.
Friday is too late to cancel. So, if you are going to cancel,
make cetain that you notify the title company as soon as possible
but you only have until Thursday to do it.
Once your loan funds and you are given your proceeds (cash or
payoff sent off), then you are done. Keep in mind that you cannot
complete another Texas Cash Out loan for 12 months (1 year) to
the day of your loan funding, without exception. You can't even
sign the initial disclosures on a new loan until after that 1
year is up. The reason I mention this is so that you realize that
you only get one shot a year to do a loan like this, make sure
you get what you need the first time because it will be a long
time before you can do it again.
Any questions pertaining to this information can be emailed to
me or you may simply comment on this post and I will respond back
to you.
My next article will be about the what is required for a
mortgage loan.
David Demko
Credit Questions Answered here:
http://www.financial-counseling.com
Mortgage Information Available here:
http://www.mortgagecreditsource.com
 MORE RESOURCES updated Thu. February / 09 / 2012
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