WHAT ARE TEXAS CASH OUT LOANS?
Texas Cash Out Loans or Texas Home Equity Loan is the type of loan where a borrower pulls cash or equity from their home. It is merely a financial product that allows the borrower to use the market value of their home as a collateral for the loan. Typically, a loan secured by a real estate as a collateral is considered safe by lenders, hence, a lower interest rate compared to other types of loans.
There are several reasons why a homeowner pulls equity out of their property. It could be to pay off a high-interest loan on credit cards or personal loans. It could be used to fund a college education, pay off a car loan, or even invest the equity of the home somewhere else that yields a higher rate of return. However, there are certain factors a borrower must consider:
Eighty Percent Cash out Rule in Texas: According to this rule, the loan one gets cannot go above eighty percent (80%) of the property’s appraised value. Let’s consider an example for better understanding of this law. If someone owns a home that has an appraised value of $100,000, and the person owes a current amount of $50,000. Then the total loan amount on a home equity loan would be eighty percent of the $100,000, which is equivalent to $80,000. The net amount of proceeds the borrower gets (without closing cost) would sum up to $30,000.
Three Percent Rule in Texas: According to this rule, the total fees should not be more than 3% of the loan amount. That means, when one takes a loan of $100,000, then the total fees payable to all parties, would be three percent of the one hundred thousand dollars, which sums up to $3000. This includes the survey, title, underwriting, appraisal, preparation of documents and all other fees associated with the loan. The aim of this law is to protect the borrower, but technically, it penalizes lower loan amounts. This makes it difficult for people with low loan amounts to enjoy the advantage and benefit of a home equity loan.
Day 12 Rule in Texas: Each time one applies for a home equity loan, the mortgage company or Loan Originator would provide a form called “12-day Letter”. This form mentions that until the twelve days are over, the loan cannot close. This probably is Texas’s way of giving people twelve days to rethink about doing the loan.
Three-Day Rule in Texas: Upon the end of the twelve days of waiting, the borrower can close on the loan but still have to wait for another three days after you close on the loan to get your money. After that, you get the funds or proceeds. These rules contribute to the thirty days that it takes to process Texas Cash Out Loans. There are many laws >surrounding refinance mortgage; therefore, make sure the professional you hire has proper insight into how things work.
Our Home Loan Specialists are here to assist you if you are considering a Texas Cash Out Refi in the Austin area.