Texas Cash-Out Refinance Guidelines On Home Mortgage
This Article Is About Texas Cash-Out Refinance Guidelines On Home Mortgages
If you have been following the mortgage market, you know the COVID-19 coronavirus outbreak has created a low-rate environment.
- The Federal Reserve Board has lowered the interest rate to zero in order to avoid another Great Recession due to the coronavirus pandemic
- With interest rates at zero percent, mortgage rates have plummeted to a historic low
- Home prices have been increasing with no sign of a correction
- The housing market forecast for 2021 is expected to remain strong
- The coronavirus pandemic has changed the way we work
- Many companies have transferred their employees to become remote wage earners due to the coronavirus pandemic
Actually, remote employees are a huge saving for employers because it saves them for brick and mortar rent. Remote workers are not tied up to a certain city and/or state. Remote workers can live in any state they choose. This is a great benefit for remote workers to escape high taxed cities like New York City, San Francisco, Los Angeles to other low taxed cities/state with affordable housing.
Strong Housing Market Forecast For 2021
The housing market forecast for 2021 is expected to remain strong despite the high unemployment rate due to COVID-19. With the exception of blue Democrat-led states, housing prices are expected to increase. Both HUD and the Federal Housing Finance Agency (FHFA) have increased FHA and Conventional loan limits for 2021 due to rising home prices.
- The mortgage industry had a very strong year in 2020 mainly driven by the refinance mortgage market
- Many Americans have already taken advantage of refinancing their home loan into a much lower interest rate
- If you have not capitalized on this low-rate environment, this is the time
- In this blog, we will detail how to refinance your home in the state of Texas
- There are very specific guidelines for Texas Cash-out refinance transactions
- We will also explain how to apply for a refinance your loan with Gustan Cho Associates
In this article, we will discuss and cover Texas Cash-Out Refinance Guidelines.
Texas Cash-Out Refinance Guidelines Versus Other States
Texas is different than any other state in the nation when it comes to cash-out refinance laws and guidelines:
- The great state of Texas has a few refinance rules that do not apply in other states
- These rules are put in place for a very specific reason
- Texas is trying to protect its citizens from equity stripping their property
- Equity stripping means constantly taking cash out of your primary residence and not paying down the amount you owe
- This is considered a predatory lending practice
- These laws were put into place years ago and still stay in effect today
- The Texas cash-out refinance rules are often referred to as Texas (a)(6) because the law comes from section 50 (a)(6) of the Texas Constitution
- This law was amended in November 2017
- The result is after completing a Texas (a)(6) cash-out refinance loan is completed; Texas residents now have the ability to complete a rate and term refinance without an additional loan level pricing adjustment (LLPA)
- The old rule considered each refinance after a Texas (a)(6) cash out, always a cash-out transaction, even if you were not pulling additional funds out
- Now, Texas residents have the ability to complete a rate and term refinance even if they have completed a Texas (a)(6) home equity loan in the past
- We will go into this in more detail later in this blog
The Texas (a)(6) rules were put into effect to prevent equity stripping of a primary residence. In the Texas (a)(6) law, it prevents a Texas resident from completing more than one cash out transaction in any given 12 months. Meaning if you complete a Texas (a)(6) cash-out refinance transaction, you must wait at least 12 months before you are eligible to enter another Texas (a)(6) cash-out refinance transaction.
Texas Cash-Out Refinance Guidelines And Eligibility Requirements
Basic qualifications for a cash-out refinance in Texas:
- 620 middle credit score
- Maximum loan to value is 80%
- Maximum debt to income ratio 45% (sometimes can be stretched to 49.99%)
- No mortgage insurance required
- Must be 4 years discharged from a Chapter 7 bankruptcy
- Must be 2 years discharge from the chapter 13 bankruptcy
- Must be 7 years seasoned from a mortgage foreclosure
- Must be 4 years season from a short sale
- Must receive an automated approval from the automated underwriting system (AUS)
Texas has one of the hottest housing markets in the United States. Many residents from other high taxed states like New York, Illinois, California are fleeing to Texas due to the low cost of living.
Texas Cash-Out Refinance Guidelines On Government Versus Conventional Loans
Texas has different cash-out refinance mortgage guidelines than other states:
- As mentioned above, you may only utilize a conventional mortgage for a Texas (a)(6) cash-out refinance
- FHA, VA, and USDA loans are not permitted under section (a)(6)
- Texas cash-out rules only apply to primary residences
- Meaning if you have a second home or investment property, you may use standard conventional cash-out guidelines for qualifications
FHA, VA, and USDA loans are only eligible for primary residences.
Texas Cash-Out Refinance Guidelines On Costs To Borrowers
2% FEE rule:
- The Texas(a)(6) rule also limits the amount of fees a lender can charge for the transaction
- This is also put into effect to prevent price gouging for the citizens of Texas
- The lender may only charge up to 2% of the loan amount in total loan fees for the transaction
- Certain items such as the appraisal and title fees are not included in this 2%. 2% is strictly capped and lender fees may not go over this threshold
- This can be an issue for smaller loan amounts
A Texas (a)(6) cash-out refinance with a loan amount under $100,000 may run into high-cost problems. Contact us for more information on the 2% FEE rule.
Mortgage Guidelines On Cash-Out Non-QM Loans
- We offer a full slate of NON-QM mortgage products
- NON-QM mortgage products CAN be used to complete a Texas (a)(6) cash-out refinance
- Please keep in mind the 2% rule still applies and NON-QM loans have higher fees, so the loan amount usually needs to be above $175,000
- NON-QM loan products are a great way to reset financially if you don’t fit into traditional lending guidelines
- Mike Gracz is the NON-QM expert
Please reach out directly with any questions!
Rate And Refinance Guidelines In Texas
A brief explanation of the amendment to the Texas (a)(6) rule.
- In November 2017, the Texas constitution was amended to allow rate and term transactions even after a Texas (a)(6) mortgage has been closed
- This is a change to the rule. This simply takes out a loan-level price adjustment for those who are looking to complete a rate and term transaction
For more information on this amendment. Please reach out to Mike and 630-659-7644 or send an email to [email protected].
The Refinance Mortgage Process
Closing and funding a refinance transaction with Gustan Cho Associates has never been easier.
- We have a seamless online application process
- The first step to refinancing your property is to call Mike Gracz directly on 630-659-7644 or email [email protected]
- You and Mike will have a one-on-one refinance consultation going over your specific refinance transaction
- There are numerous different ways to put your equity to work for you
- Mike will be able to go over some of the situations
- It may make sense to pay off a high-interest credit card or personal loan with the equity in your property
- This can save you hundreds if not thousands of dollars a month depending on your situation
- It is important to understand that mortgage interest is also tax-deductible
- With a change coming to our federal government, tax write-offs may change in the future
Please contact your CPA for more information on tax-deductible mortgage interest.
Documents Required To Start The Mortgage Process
After your initial consultation, Michael will send you an application link. After completing the application link you upload the required documentation. Below are the documents you can expect to upload:
- Driver’s License
- Last 30 Days of Pay Stubs
- Last Two Years Tax Returns (not always required)
- Last Two Years W2 or 1099s
- Mortgage Statement
- Homeowners Insurance Policy
Once Mike receives your full application and documentation, he will verify your credit report and go over that with you line by line. Assuming everything checks out, you will then be sent a loan disclosure package. After completing your loan disclosure package, your loan team will then order the appraisal and start the refinance process. Please see our blog on the LOAN PROCESS for more information.
Contact Us To Get Pre-Approved For A Home Mortgage
The team at Gustan Cho Associates has a national reputation of being a one-stop mortgage shop. Besides not having any lender overlays on government and conventional loans, GCA Mortgage Group offers non-QM and alternative mortgage programs. Some of our most popular loan programs include bank statement mortgages, non-QM mortgages one day out of bankruptcy and/or foreclosure, asset-depletion loan programs, fix and flix loans, and dozens of other non-QM loan programs. Gustan Cho Associates is available seven days a week. We are even available on most holidays. When it comes to refinancing your home, you want to trust a professional mortgage team. As you can tell from our articles, we are up to date on all mortgage guidelines. Many lenders do not understand the nuances of Texas (a)(6) cash-out refinance transactions. It is important to call Mike on 630-659-7644 with any questions surrounding your refinance in the state of Texas. We look forward to saving you money on your home loan!!