Texas Cash-Out Refinance Rules & Guidelines

If you are thinking about a Texas cash-out refinance loan, you are considering a home loan where you receive cash back at the closing table after you pay off the first mortgage, liens, and closing costs. You are taking out money over what you owe, which leaves you cash available to spend as you wish.

Texans like to get cash-out refinances to consolidate debt, perform home improvements, new home construction, pay for college, or to have an emergency fund, among other uses.

If you are eligible for a cash-out refinance loan in Texas, it is essential to learn about the rules, guidelines, and restrictions in place on these loans in The Lone Star State. That way, you will have a full understanding of your financial options and what you can and cannot do under Texas law.

Explaining the Texas Cash-Out Refinance Loan

In 2017, the state passed new laws that affect all cash-out refinance loans in Texas. The good news is the new regulations are generally friendlier to those who want to pull equity out of their properties:

– You can refinance into a conventional loan without doing a cash-out a year after you did a cash-out refinance loan.

– If you are using your land for agricultural reasons, you can now get a cash-out refinance loan in Texas.

– The fee on a cash-out refinance loan in Texas has been lowered from 3% to 2%.

–  The authorized lenders list has grown. Feel free to shop for a cash-out refinance loan at a savings and loan association, credit union, bank subsidiary, mortgage company, or a mortgage banker.

A Texas cash-out refinance loan also is known as a Section 50(a)(6) loan. A Section 50(a)(6) loan might be a good choice for you if you want to refinance and need extra money. You can get a low, fixed-rate that provides more peace of mind and stability than a home equity line of credit (HELOC)  with a variable interest rate. With a fixed-rate cash-out refinance, you will always know how much you have to pay every month.

Any homeowner in Texas is eligible for a Texas cash-out refinance loan if you have more than 20% equity in your home. You also must meet your lender’s credit, income, and debt-to-income ratio standards.

Also, any primary residence in the state qualifies as long as it is not more than 10 acres. But a rural property can be considered for a cash-out refi if it is up to 100 acres.

What Are The Rules For a Cash-Out Refinance in Texas?

Note that this state has unique rules on cash-out loans and home equity. In Texas, the maximum amount of a loan on any cash-out refinance mortgage of an owner-occupied property is 80% of the property value (LTV).

For example, say your property is worth $200,000, and you have 60% equity in the home. In this situation, you can borrow 40% of your property equity. That means you can pull $80,000 out. The 20% of your home’s value that is left – $40,000 – must stay there.

Texas cash-out refinances are different from other states because of tighter home equity laws. The state remembers the mortgage meltdown of 2008 and 2009, and seeks to avoid a repeat!

What Else Should You Know?

Generally, loan rates for a Texas cash-out refinance are slightly higher compared to a rate and term loan; this loan is where you only are refinancing to get a lower rate or different term, not to take cash out.

Texas also has closing cost rules on cash-out refinances that you should know. The Cash-Out law says the total closing costs cannot be more than 3% of the loan amount. This rule applies to subsequent mortgages after the original cash-out loan.

So, when a homeowner refinances a current cash-out refinance loan, the 80% LTV rule applies, as does the 3% closing costs rule. This is the case for the remaining loan term until you pay off the loan.

Also, a cash-out refinance loan in Texas can have a fixed rate from 15-30 years, and seven and 10-year adjustable mortgages also are allowed. However, you cannot qualify for a three or five-year adjustable-rate mortgage.

These rules also apply:

  • You must have at least six months of ownership of the property you are refinancing.
  • You must pay off any existing property liens at closing.
  • Borrowers must wait at least one year between cash-out loans.
  • You can refinance a Texas Section 50(a)(6) loan into a rate and term refinance without taking out cash, but you must wait at least one year from the date of your cash-0ut refinance closing.

Final Thoughts on Texas Cash-Out Refinance Loans

Texas cash-out refinance loans have a few more restrictions and rules than some states. You cannot take out more than 80% of your property’s equity, and you only can do one refinance per year.

But these rules have been put in place to protect borrowers from overextending themselves, which is always a good thing. You still have plenty of flexible options to get the funds you need.

If you have questions about a Texas cash-out refinance, talk to a mortgage specialist who is licensed to handle Texas home loans. He or she can offer guidance through the mortgage process and help you get the best refinance loan for your needs and budget.

References

Author: Bryan Dornan

Bryan Dornan is a financial journalist and currently serves as Chief Editor of Cash Out Refi Tips.com. Bryan has worked in the mortgage industry for over 20 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, Linkedin and ActiveRain.

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