Finding a home equity loan credit line or cash out refinance used to be difficult in Texas, but new laws may have opened up opportunities. Many borrowers in Texas have been misinformed about taking out a home equity loan, so we wanted to set the record straight.

Texas Home Equity Loans and Credit Lines Are Allowed!

Lone-Star homeowners are eligible for Texas home equity loan or HELOC. These 2nd mortgages can be a cost-effective way to secure a low-interest loan. However, there are some restrictions, including:

Loan Amount: The maximum you can borrow is 80% of your home’s appraised value.
Closing Costs: Borrowers cannot pay more than 2% of the original loan amount in fees and charges.
Frequency: You can only take out one HELOC or equity home loan every 12 months.

Compare Texas loan programs for financing home improvements, consolidating debt, second home purchasing and much more. Learn more about Texas HELOC loans in 2024.

Texas Law Revisions Expand Home Equity Loan Programs Statewide

Current laws on the books in the state of Texas make it difficult, if not impossible, for homeowners to take out a second mortgage on their property if they have a limited amount of equity in their home. Texas law sets the maximum home equity loan amount at 80% of your home’s appraised value. For example, if your house is worth $400,000 and you have a mortgage of $240,000, you could take out a $80,000 home equity loan in Texas and meet the state guidelines and restrictions.

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Get a free loan evaluation today from Texas home lenders that specialize in cash out home equity loans, HELOC credit lines, 2nd mortgages and refinancing.

What Are Texas Home Equity Loan Requirements?

Under Texas state law, the maximum amount of a home equity line of credit or fixed rate home equity loan cannot exceed 80% of the home’s appraised value. Texas home equity loans can only be taken out on a primary residence, and only one home equity loan can be active on a property at a time. A new loan cannot be issued if there is an outstanding balance on an existing loan. Additionally, borrowers are limited to one home equity loan per calendar year, even if a previous loan has been fully repaid.

To obtain a home equity loan in Texas, borrowers should approach potential lenders with the following information:

Credit Score: A score in the 600 and 700 is required from most Texas home equity lenders.

Home Appraisal Value: An accurate appraisal of your home’s value is necessary. Texas lenders are looking for local borrowers with enough equity to keep them under 80% combined loan to value (CLTV). Borrowers need to demonstrate they enough equity in your home to comply with Texas (a)6 laws.

Employment History and Income: Proof of steady income to demonstrate your ability to repay the loan.

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There is a proposed amendment, however, which would make it possible for prospective buyers to use Texas Home Equity Conversion Mortgages from the FHA to purchase a house.

These types of loans are often referred to as reverse mortgages and they allow individuals to put the existing equity in their home to use. A reverse mortgage is most commonly used by individuals 62 years of age or older who are looking to use the equity that they have on their home to cover other financial obligations, or to provide them with additional spending money so they can enjoy their retirement years and style.

Of course, the housing crisis over the last few years has dramatically shifted the way that both lenders and borrowers are able to do business. With greater restrictions and regulations put in place to ensure that individuals do not receive loans that they will not be able to pay, many individuals are finding that they do not have nearly as many options available to them as they once did. Or, at least it seems that way.

This particular amendment would make it possible for individuals to put to use the programs available from the FHA when traditional lenders are not able to meet the needs that they have. It is easy to understand, however, why these additional regulations have been put in place, especially when a person takes a moment understand the housing crisis was caused largely by subprime loans taken out by individuals who could not afford their monthly mortgage payments.

When these individuals went into default, the flood of foreclosed homes and defaulted loans caused the national median home value to drop and put a virtual freeze on new home buying.

In order to ensure that this type of situation does not occur again, regulations have been put in place to ensure that everyone is able to fulfill their financial obligations whether they are purchasing a new home, refinancing their existing home, or looking to put the equity that they have on their home to use in other areas of their life. It is also important to keep in mind that a reverse mortgage or second mortgage is not the best choice for everyone or for every financial situation and an individual should carefully consider all of their options.

Takeaway on Texas Home Equity Loan Programs

If you’re a homeowner in Texas looking for an affordable loan financing option, you have several choices for leveraging your home equity. Typically, a home equity loan can be a great choice for borrowers to tap their equity to finance for home remodeling, consolidating high-interest debts, buying a rental property, or other financial needs. BD Nationwide can help you shop for 2nd mortgage lenders that offer the best home equity loans in Texas.

Can You Get a Home Equity Loan in Texas?