Texas Home Equity Loan Overview
A home equity cash out refinance home loan on a primary residence in Texas is a unique loan. The Texas Constitution has mandatory guidelines for these loan in Section 50(a)(6); hence the “A6” designation. Below is the “fine” print and “Need to Knows” behind these mortgages.
“CLTV” means combined loan to value. An 80% CLTV means that all loans on the home can’t total more than 80% of the home’s value. Example: If a home is worth $500,000 then the total of all loans on the home can’t be more than $400,000 when getting an A6 Home Equity loan.
This means that once a Texas A6 Home Equity loan is closed, that loan will forever be considered an A6 loan and subjected to these A6 rules. Ex: if someone has a mortgage of $350,000 on a home and gets a new $400,000 A6 loan to get some cash out, then that new loan will forever be an A6 loan. This means year later if that loan is refinanced, it will be subject to all these rules EVEN IF they don’t get any cash out on that refinance transaction. Once an A6, always an A6.
If someone has an A6 first lien loan, this means they can’t get cash out with a new second lien. Ex: If someone has a first lien where they received cash out three years ago and now they want to get a second lien HELOC for more cash, they won’t be able to do so since the first lien is already an A6.
Another example is if you want refinance an existing first lien mortgage and combine it with an existing second lien that’s an A6 loan (like a HELOC), the new single loan will be an A6 home loan even if you don’t take out cash. Because you’re combining the A6 second lien with the first the new loan becomes an A6 mortgage and you’re no longer eligible for a future HELOC.
When closing on an A6 home loan, the final Closing Disclosure (CD) AND the 1003 Residential Mortgage Loan Application must be signed the day before closing by all parties on the note (AND their spouses even if their spouses are not part of the loan). Failure to sign the documents will result in a delay of closing.
Any loan with the A6 designation cannot be refinanced for 12 months. You are welcome to pay if off by paying cash or selling the home, you just can’t refinance it. This typically isn’t a big deal as most folks don’t typically refinance within a year after closing.
Rates for a Texas A6 Home Equity loan are typically .1% to .2% higher than rates for a “normal” rate and term refinance.
Other Items to Note Important
The Texas A6 12-Day Letter is a loan disclosure that is part of the initial Loan Disclosure Package that is sent by the lender. The letter states that all people on the note (and their spouses even if they’re not on the loan) must sign and date the letter in order to start the 12-day clock. Once the form is signed, the loan cannot close any earlier than 12 days (not counting Sundays and Federal holidays). This is really only an “issue” when someone delays signing this disclosure.
This rule states that the Closing Costs (not including Prepaids) cannot total more than 3% of the loan amount. Most of the closing costs are fixed and total about $2,800ish in fees whiles Points and the Title Policy are percentages of the loan amount. For loan amount under $150k(ish) this rule becomes difficult to meet since those fixed costs become a bigger percentage; in this instance the interest rate will start to increase via Premium Pricing to cover the costs since fees will be waived. What’s ironic is that the Texas Legislation created this rule to protect the consumer; however, it adversely impacts those with smaller loan amounts. That’s the government hard at work folks.
Texas A6 home loans must close at a Texas title company – i.e. they do not allow for remote or mail-out closings.
Texas A6 Home Equity loans do not allow Power of Attorney at closing. Everyone on the note (and spouses if they’re not on the loan) must be present at closing and sign for themselves.
A Home Equity Line of Credit (HELOC) is a Texas A6 loan. As stated previously, a HELOC will not be available if a home already has an existing first lien with the A6 designation.
The subject property for a Texas A6 home loan cannot have an agriculture property tax exemption on it UNLESS it’s a working dairy farm. Seriously! The dairy farmers of Texas must have had some serious pull with the Texas Legislature when this law was made. For everyone else with an “ag exemption” on the home, in order to refinance they will need to remove the exemption, pay five years of back-taxes based on the difference between “normal” tax amounts and that of the ag tax amount, and then refinance the loan. For this reason, 99.99% of the homes with Ag Exemptions won’t refinance because those back-taxes are expensive.
General Things to Note
As always, please call us if you have any questions, we’re here to help.