Everything You Need to Know About Texas Cash-Out Refinance Regulations

When was the last time you stood out in front of your house and thought, "There’s got to be a way I can get some funds by cashing out from this beauty!" You might use it for home improvements or to meet those bills that are piling up faster than you can pay them down.

Luckily, cash-out refinancing is a way to turn your home equity into cash. If you live in Texas, cash-out refinancing works a bit differently than in other states, and today I will highlight everything that’s new about Texas cash-out refinance regulations.

Can You Apply for a Cash-Out Refinance in Texas?

Applying for a cash out refinance in Texas can be done as long as you have substantial home equity. Yes, there are some rules specific to Texas residents, but you can still apply for a cash out refinance if you meet all the eligibility requirements and follow the rules.

These rules are set so that homeowners are protected and use the equity from their properties mindfully. So, come along as it’s now time to check out what these Texas specific cash out refinance regulations are.

What Are the Texas Cash-Out Refinance Rules?

These rules are set so that homeowners are protected and use the equity from their properties mindfully. So, come along as it’s now time to check out what these Texas specific cash out refinance regulations are.

In Texas, there are clear guidelines for cash-out refinances, often referred to as Texas Section 50(a)(6) loans or A6 loans. Here's what you need to know.

• Closing Costs Limits

  When you refinance, your lender can charge fees like loan origination and processing fees, but these costs cannot exceed 2% of your loan amount. Other costs, such as attorney fees and appraisal fees, are separate.

• Loan Amount Limits

  You can't borrow more than 80% of your home's value. This ensures you keep at least 20% equity remaining. Let's say your home is valued at $250,000. With a cash-out refinance in Texas, you can't take out more than $200,000 (which is 80% of $250,000).

• Pay Off Existing Loans

  Any existing second mortgages (liens) must be paid off with your new cash-out refinance. This might reduce the amount of equity you can cash out.

• Primary Residence Requirement

  These rules apply only to your primary residence. Investment properties and second homes have different regulations.

• Waiting Period

  You must wait at least six months after buying your home before you can apply for a cash-out refinance in Texas. Also, there's a one-year waiting period between cash-out refinances.

• Post-Financial Hardship Waiting Time

  After a foreclosure, bankruptcy, or short sale, you'll need to wait before you can qualify for a Texas cash-out refinance. Seven years for foreclosure, four for bankruptcy, and four after a short sale.

• Government-Backed Loans

  Texas doesn't allow FHA cash-out refinances or VA cash-out refinances, as these are not supported by federal government backing.

• Limits on Additional Loans

  You won’t be eligible for a home equity loan or HELOC (second lien) if there’s an existing cash out refinance. However, if you don’t have a cash-out refinance, you can apply for a HELOC without any restrictions. Remember, there are also maximum limits to qualify for a HELOC, which vary based on your lender and your current mortgage terms.

Texas Cash-Out Refinance Eligibility Requirements

To successfully qualify, ensure you meet these key eligibility requirements to secure approval for the best cash out refinance offer.

1. ✅ Do a Credit Check

   Make sure your credit score meets or exceeds 620 to qualify for the best cash out refinance terms in Texas.

2. ✅ Balance your Debt vs. Income

   Keep your debt-to-income ratio (DTI) below 43% to show lenders you can manage your finances well.

3. ✅ Find out your Property’s Worth

   Get your home appraised to determine its current market value and understand how much equity you can access through a cash-out refinance.

How to Apply for a Cash-Out Refinance in Texas

Applying for a cash-out refinance in Texas involves quite a few steps –

• Assess Your Home Equity: Start by estimating how much your home is worth today and calculate your available equity. You can use online tools or schedule a professional appraisal.

• Check Your Credit: It’s best to know your credit score before starting a cash out refinance application. Review your credit report and score so you can address any errors or issues that might affect your loan application.

• Start Organizing Required Documents: Pulling out your file cabinet at the last moment won't get you closer to approval. Prepare your financial documents, such as pay stubs, tax returns, bank statements, and information about your existing mortgage, as soon as you know you're eligible for a cash-out refinance.

• Research Lenders: Your aim should be to find the best cash out refinance lenders who offer competitive interest rates and favorable terms. Get their quotes and compare them to find what works best for you.

• Submit Your Refinance Application: Choose your preferred lender and submit your application along with all necessary documents. Be prepared for a credit assessment and a property appraisal.

• Review & Complete the 12-Day Waiting Period: After applying, you'll receive a loan estimate form detailing the loan terms, estimated closing costs, and monthly payments. Review this carefully. Remember the mandatory 12-day waiting period. Use this time to ask questions and ensure you’re comfortable with the loan terms.

• Close your Loan: Once the waiting period ends and all conditions are met, finalize your loan at the specified location. Sign the final paperwork and receive your funds promptly.

Depending on the lender, the application process may vary, potentially including fewer or additional steps. It's wise to start with a personal financial review with a loan officer.

This helps determine any extra requirements and allows them to recommend the best steps and strategies based on a thorough analysis of your financial profile.

4 Benefits of Getting a Cash-Out Refinance in Texas

A cash-out refinance in Texas can be a great financial tool for several reasons:

1. 1. Access to Cash When You Need It

   One of the primary advantages is the ability to access a good amount of cash from your home's equity.

   This can be used for various purposes such as home improvements to increase your property's value, covering educational expenses for yourself or your family, and managing unexpected medical bills, there are no restrictions on how you use the funds.

2. 2. Potential for Lower Interest Rates

   If interest rates have decreased since you obtained your original mortgage, refinancing allows you to replace your current mortgage with a new one at a lower rate.

   This not only reduces your monthly payments but also saves you money over the life of the loan. Lowering your interest rate can free up cash flow, allowing you to allocate funds towards other financial goals or investments.

3. 3. Debt Consolidation to Simplify Finances

   Many homeowners choose a cash-out refinance to consolidate high-interest debts, such as credit cards or personal loans, into one lower-interest mortgage payment.

   By consolidating debts, you may reduce your overall interest costs and streamline your finances into a single monthly payment. This approach can also help you pay off debts faster and improve your credit score over time.

4. 4. Tax Benefits with Proper Planning

   Under certain circumstances, the interest paid on a cash-out refinance may be tax-deductible if the funds are used for home improvements that increase the value of your property.

   It's essential to consult with a tax advisor to understand the specific tax implications for your situation. Proper planning can help you maximize any potential tax benefits associated with refinancing.

Ready to Cash-Out in Texas?

Texas has its own way of doing things when it comes to cash-out refinancing, and that's good, isn't it? The government's aim is to protect borrowers and ensure they benefit from refinancing. To successfully qualify, all you need to do is research thoroughly, gather your documents, and find a lender you trust (your loan officer can guide you through every step of the process!).

Plus, who knows? If you get the best cash-out refinance, you might also take advantage of a lower mortgage rate in the process. Start your cash-out refinancing today!