Texas Homeowners' Must-Read: 2024 Cash-Out Refinance Essentials

Fortunately, the rules and requirements for cash-out refinancing have become less stringent. But what does this mean for homeowners in Texas who've just built their homes using a construction loan? Can you still opt for a cash-out refinance, or would a traditional refinance be better?

Keep reading to discover all the possibilities and requirements of cash-out refinancing in Texas.

Construction Loan Refinance Or Cash Out Refinance?

Let’s quickly understand why people refinance a construction loan.

Construction loans are short-term loans repaid once the construction is complete, usually within 1 to 2 years. Since not everyone has the budget to repay in full, there are options to convert the loan into a standard mortgage or an end loan through refinancing.

Now, let's talk about cash-out refinancing! If you've already converted your construction loan into a standard mortgage and need extra cash for home improvements or emergencies, you can replace your existing mortgage with a larger one, receiving the difference in cash.

Essentially, to get the best cash out refinance terms, you need a property that’s already built to assess the total equity in your home, as well as an existing mortgage balance. While construction is ongoing, you won't be able to refinance.

Alright, let’s now explore how as a Texan, you can become eligible for a cash-out refinance.

Cash Out refinance: Texas Eligibility & Requirements

To successfully refinance and access the cash you need, ensure that you meet these requirements.

• ➙ Pay all your monthly mortgage payments as per the schedule.

• ➙ Maintain a credit score of 620 or higher.

• ➙ Have at least 20% equity in your home.

• ➙ The closing costs don’t go beyond 2% of your loan amount.

• ➙ Your second mortgage is completely repaid.

• ➙ You’ve had your existing mortgage for at least 6 months.

• ➙ Investment properties & second homes are not eligible.

• ➙ FHA or VA cash out refinance is not allowed in Texas.

Texas Cash Out Refinance Process Explained

Here’s a rough picture of what your cash-out refinance process looks like in Texas. Please remember that depending on the lender, your process might differ.

• Get Your Credit Scores Checked

  Before applying for a loan, it's important to know your credit score. You can check it for free online or request a copy from the major credit reporting agencies.

• Go Through A Home Appraisal Process

  Some lenders may ask for a home appraisal to determine its value. This may cost a few hundred dollars, so make sure to let the appraiser know about any improvements or repairs you've made to the house

• Lock In Your Interest Rate

  You might want to lock in your interest rate quote early to protect yourself during the closing process, which can take up to 45 days. Keep in mind that if rates drop during this time, you could end up paying a higher rate. Also, be aware that some lenders may charge a fee for locking in your rate.

• Sign The 12-Day Wait Letter

  In Texas, homeowners looking to get a cash-out refinance must sign a letter explaining the process. Even though cash-out loans may be quicker to complete, Texas law requires a 12-day waiting period between the application and loan closing.

• Complete The Underwriting Process & Close The Loan

  Once all necessary documents and verifications are done, the loan moves to the closing stage. Here, the closing agent will handle the final document signing, funds disbursement, and recording of the new mortgage with the county recorder's office. This part of the process can take several days to several weeks.

Pros And Cons Of Cash-Out Refinance For Texas Homeowners

Making the right decisions always starts with assessing the pros and cons. Skipping this step isn't an option!

✅Pros	Cons❌
Helps homeowners tap into their home's equity, providing a lump sum of cash for various needs.	Using your home as collateral in a Texas cash-out refinance means missing payments could lead to foreclosure.
You don’t just get extra cash, but revised mortgage terms with lower interest rates as well.	Fees and closing costs will be added to your total loan amount, so you need to budget accordingly.
It also allows homeowners to use cash to pay off high-interest debts, like credit cards or student loans.	Texas cash-out refinance demands thorough documentation making the process slightly complicated.

Refinance Expert Insights and Tips

If you're still confused about whether you should repay your construction loan amount in full before refinancing, or if you should refinance first and then wait for at least 6 months before starting with a cash-out refinance, don't worry!

I'm here to help you out. Don't be too hard on yourself. There are expert solutions for every situation.

• Consult With A Financial Advisor

  This should be your first action whenever you face financial confusion. Seek guidance from a financial advisor to assess the long-term implications of a cash-out refinance on your financial goals.

• Compare Refinance Offers

  During your waiting period, you’ll have a good amount of time to shop around and compare offers from the best cash out refinance lenders. Use this time to ensure you're getting the best deal.

• Consider Alternative Options

  Explore alternative financing options, such as

  • Rate and term refinance,

  • HELOC,

  • Home equity loans or government-insured FHA loans,

  • USDA or VA streamline refinance loans.

Latest Trends and Regulations in Texas: 2024

The good thing about the Texas real estate market is that they have a decent number of homes available for sale, and it's not low compared to the national housing market. Additionally, compared to 2023, the number of homes sold rose by 7.4%.

So, if you've already built your home and are trying to close on your construction loan, now seems like a good time for your home's value to increase, potentially increasing your eligibility for a cash-out refinance down the line.

Final Thoughts On Cash Out Refinance In Texas

To sum up, cash out refinancing in Texas is a valuable option for homeowners to tap into their home's equity for various needs.

Remember to carefully consider the benefits and requirements before making a decision. With thoughtful planning, you can achieve your financial goals through cash-out refinancing in the Lone Star State.