Published in 2020. VA loan rules, funding fees and loan limits have changed since this was written, so some details below may be out of date. For today’s rules and numbers, book a call.
Three years ago, state voters passed new laws affecting the Texas cash-out refinance loan. Texas borrowers should take note of these rules. Among the changes:
- You can now refinance into a conventional loan one year after getting a Texas cash-out refinance loan.
- If you use your land for agricultural purposes, you can now qualify for a Texas cash-out refinance loan.
- The fee on this loan lowers from 3 percent to 2 percent
A Texas cash-out refinance loan can offer plenty of benefits, such as lowering your mortgage rate, obtaining extra funds for anything from a new car to college tuition to funding a business, and you may also be able to shorten your repayment.
The Texas cash-out refinance loan explained
A Texas cash-out refinance loan is also called a Section 50(a)(6) loan. With this option, you refinance your current mortgage while also tapping into your home’s equity. This tapped equity converts into cash paid out at closing. The cash can be used for anything you’d like, from home improvements to paying off higher-interest debt.
A Section 50(a)(6) loan can be a good option if you want to refi and need extra cash. You can get a fixed interest rate. Plus, your mortgage interest may be tax deductible. (Check with a professional first, as recent changes to the tax law apply.)
The home equity fine print
Texas has unique laws when it comes to cash-out loans and home equity. In Texas, the maximum loan-to-value (LTV) you can get for your primary residence is 80 percent.
Recent changes that improve this loan
In November 2017, Texas voters chose to amend the Texas Constitution. This changed the rules related to home equity lending. As a result, the Texas cash-out refinance loan is friendlier and more flexible to borrowers today. Here are three reasons why:
You can refinance your Texas Section 50(a)(6) loan in the future to a conventional rate-and-term refi without taking cash out. You must wait at least 12 months from the date of your Texas cash-out refi closing. “In the past, if you had a cash-out mortgage or any kind of home equity loan you wanted to refinance, you needed to refi using the same type of Texas cash-out refi loan.
The fees on the loan have decreased to 2 percent. Before, they were 3 percent of the original loan amount. Note that the fee doesn’t include appraisal and survey costs, title insurance premiums, a title exam report, or discount points used to buy down the interest.
The list of “authorized lenders” approved to make these loans has grown. Savings and loan associations, credit unions, bank subsidiaries, mortgage companies, and mortgage bankers are now included.
These are fast, and come with much lower closing costs than a mortgage.
Loan amounts are typically under $50,000, but can go up to $100,000.
Other rules of note
Some other rules also apply that haven’t changed. One is that Texas Section 50(a)(6) refinances on government loans like VA, FHA and USDA loans are not permitted.
In addition, you are legally allowed to get a Texas cash-out refinance loan only once per year. Whether you pursue a new Section 50(a)(6) loan or a conventional cash-out rate-and-term loan, 20 percent equity in your home must remain untouched.
Also, you can’t take out a HELOC (second lien) if you already have a Texas cash-out loan in place.
Lastly, Texas cash-out refinance loan rules only apply to your primary residence. In other words, investment properties or second homes are not bound by these rules.
Not everyone will qualify for a cash-out refinance in Texas, but for those who do, it can be a great program.
Texas layers its own rules on top of everything above, and they change. If you are weighing a cash-out in Texas, book a free call and I will tell you which set of rules your situation actually falls under.
Connect with us at VA Loan Guy to learn more about this process.