Texas Home Equity Guidelines

Texas Home Equity Mortgages and TX HELOC Guidelines

As you pay down the mortgage on your home, you begin building home equity. If you find yourself in need of money, whether for a large unexpected expense or a remodel, you can opt to tap into your home’s equity via a home equity loan. While most states have similar rules in regards to home equity loans, there are some states, including Texas, who have additional rules put in place to protect consumers.

The first rule you need to be aware of is the 80% rule. In a Texas home equity loan, you are limited to 80% of your home’s value. Therefore if your home’s appraised value is $100,000, your home equity loan can be no more than $80,000. If you are still paying on an existing mortgage, your loan maximum will be further reduced by the amount you owe. If you still owe $20,000 on your home, this means you are limited to a maximum home equity loan of $60,000. This is to prevent homeowners from getting over their head in debt.

There is an exception to the 80% rule. If the equity loan is on an investment property, rather than your personal residence, you can receive a higher amount loan.

The second rule you should know is the 3% rule. This rule simply states that closing costs can not be more than 3% of the amount you are borrowing. By limiting the amount of closing costs you can be charged, the law protects you from lenders taking on additional fees to line their pockets. Keep in mind, though, that prepaid interest, sometimes referred to as points, do not count in the 3% calculation.

The third rule of a Texas home equity loan is the 12 day rule. After you submit your application for a home loan, the lender should give you a written consumer rights notice. The loan may not close until twelve calendar days have passed. If the lender forgets to give you the notice, the twelve day count will not begin until they do. The mandated wait gives you an opportunity to think about your decision and cancel your application if you choose not to follow through with your loan.

After your home equity loan closes, the 3 day rule comes into effect. This rule delays funding of your loan for three business days. If you or one of your co-borrowers decide against the home equity loan, you can cancel the loan agreement without penalty during these days.

The final rule you should be aware of is the one year rule. This rule, voted into the Texas constitution by voters, mandates that you must wait a full year before you can refinance your Texas home equity loan.