Texas Cash-Out Refinance Guidelines For 2022
In this blog, we will discuss and cover 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 but did an about-face and increased rates by 0.75%. With interest rates now out of control, mortgage rates have surpassed the 6% rate. Home prices have been increasing with no sign of a correction despite soaring inflation and skyrocketing mortgage rates.
The Best Mortgage Lenders in Texas For Hundreds of Mortgage Options at The Best Rates
Gustan Cho Associates are prominent in the state of Texas. Our professional mortgage team has numerous loan programs for residents of the Lonestar state of Texas. In this blog, we will go over a few facts about Texas, detail the strict cash-out refinancing rules throughout the state, and explain how to apply for a cash-out refinance with Gustan Cho Associates. The state of Texas has a long-rooted history well before it was part of the United States. Six separate nations have ruled over the area that is now called Texas. These include Spain, France, Mexico, the Republic of Texas, the Confederate States of America, and now the one and the only United States of America.
Does Texas Allow Cash-Out Refinancing?
Out of all states in the nation, Texas Cash-Out Refinance Guidelines are different than any other state. Texas is enormous in size and is larger than any European country. The only state larger than Texas is Alaska. From 1836 to 1845, Texas was its own country and if it were to be its own country again, it would be the 39th largest in the world (based on area). Texas has a large influence on national politics as it is the second most populated state in the union. The only state with more people than Texas is the state of California. Texas is known for having natural disasters. You may remember the ice storms that shut down most of the state last year and had a significant impact on the power grid.
Texas Real Estate and Housing Market
Many Americans learned that Texas actually uses its own power grid not connected to the rest of the country. It is estimated that there are nearly 150 tornadoes every single year in the state of Texas. The largest city in the state of Texas is Houston although the capital city is Austin. Austin is known for its food, music, and entertainment. It is also one of the fastest-growing cities in the state. Texas is the home of Honky Tonks, a bar where live country music is played all night long.
Benefits of Buying a House in Texas
Texas is a massive state with tons of entertainment. There are numerous professional sports teams throughout the state. It is no secret that high school football is a major attraction across the state. Texas even has beachfront entertainment located along the Gulf of Mexico. On the west side of the state in El Paso, there is even a manmade surfing wave park. There are many other amusement attractions in the state. Texas is home to many exotic animals such as tigers. It is estimated there are more tigers in Texas than in areas where tigers live naturally. On a side note, Texas is also one of nine states throughout the nation that does not have an income tax at the state level.
How Does The Texas Cash-Out Refinance Guidelines Loan work?
Why is a cash-out refinance so difficult in the state of Texas? With all the unique facts about Texas, their cash-out refinance guidelines can easily confuse many mortgage borrowers. In fact, many loan officers are not up to date with the Texas-specific cash-out refinance guidelines. The Texas Section 50(a)(6) rule was put in place to protect Texan citizens from equity stripping their property. Just the way the rule is written shows you there is quite a bit of legal language involved. The Texas Section 50(a)(6) rule is a state-specific guideline that lenders must follow surrounding cash-out refinance transactions. This guideline has been changed slightly over the years but can be a damper for many readers of Gustan Cho Associates.
Are Cash-Out Refinance Rules Different in Texas?
Texas will only allow a conventional mortgage loan when completing a cash-out refinance transaction. Meaning if you are a veteran, you cannot utilize your VA loan to complete a cash-out refinance in the state of Texas. The same is true for FHA mortgage lending, you may only utilize a conventional mortgage loan for any cash-out transaction. If you are reading this, you may know that a conventional mortgage loan requires a minimum of a 620 credit score. You cannot manually underwrite a conventional mortgage loan, so you must receive an automated AUS approval (AUS stands for automated underwriting system). For more information on an AUS approval, please contact our cash-out refinance expert, Mike Gracz at 630-659-7644.
Why Texas Section 50(a)(6) Rule Was Put in Place in Mortgage Lending?
The Texas Section 50(a)(6) rule was put in place to prevent malicious lending practices such as equity stripping and mortgage churning. Equity stripping refers to wasting your equity paying lender fees when there is not much benefit to the refinance transaction. Mortgage churning is a malicious practice where lenders prey on mortgage borrowers and refinance their homes over and over again, collecting unnecessary fees.
The Texas Section 50(a)(6) Rule Launched To Protect Mortgage Borrowers
The Texas Section 50(a)(6) rule was originally put in place to protect mortgage borrowers. In fact, there are strict limitations to how much a lender may charge in closing costs. The total closing costs may not exceed 2% of your loan amount. Please keep in mind, that this 2% threshold does not include third-party closing costs such as appraisal fees and title insurance. This portion of closing cost protections will only apply to fees charged by your lender known as origination and or processing charges.
What Is The Texas Cash-Out Refinance Guidelines on Maximum Loan-To-Value
There is a maximum loan to value (LTV) threshold for all cash-out refinance transactions in the state of Texas. All Texans are limited to 80% loan to value for any cash-out transaction. You will need an appraisal to close a cash-out refinance and you will only be able to have a total loan amount equal to or less than 80% of the appraised value. For example, if your house appraises for $500,000, the max loan amount you will qualify for would be $400,000 based on the Texas cash-out refinance rules. In this example, if you owe $300,000 on your mortgage, then the total available cash-out funds will be $100,000. Please keep in mind, that the closing costs will be subtracted from that $100,000 of cash-out equity.
Texas Cash-Out Refinance Guidelines on Waiting Period Requirements
Waiting periods. The state of Texas makes sure you have been in your current mortgage for a minimum of six months before you are allowed to utilize a cash-out refinance transaction. Also, if you have already completed a cash-out transaction on your property, a full 12 months must elapse before you are eligible for a new cash-out to refinance transaction. This is put in place to prevent equity stripping.
What Is A Texas 50(a)(6) Loan?
Where the Texas Section 50(a)(6) rule hurts the most is waiting periods after a major derogatory credit event such as a foreclosure. Since you may only utilize a conventional mortgage loan for cash-out transactions in the state of Texas, all conventional waiting periods apply. There is a seven-year waiting period after a foreclosure, a four-year waiting period after a chapter 7 bankruptcy, and a full two-year waiting period after a chapter 13 bankruptcy. These waiting periods can put a damper on your mortgage savings you may benefit from refinancing your current loan.
What Credit Score Is Needed For A Texas Cash-Out Refinance?
If you have been reading our mortgage blogs, you may know we are able to help borrowers refinance their homes during an active chapter 13 bankruptcy (before the two-year conventional waiting period). We are pleased to announce that we do have a mortgage program available in the state of Texas that will allow borrowers to pay off their bankruptcy early utilizing a cash-out refinance transaction.
Texas Cash-Out Refinance Guidelines Versus Other States
For borrowers living outside of the state of Texas, these transactions are completed based on FHA or VA mortgage guidelines. But in the state of Texas, utilizing a cash-out refinance transaction to pay off your bankruptcy has a slightly different process. Unfortunately, when I say different, it also means more difficult. Below are some of the basic qualifications for using a cash-out refinance loan to pay off a chapter 13 bankruptcy in the state of Texas.
Buying Out Your Chapter 13 Bankruptcy With Cash-Out Refinance in Texas
To utilize the specialty program available to use a cash-out refinance to pay off your Chapter 13 plan in the state of Texas, you must have a full two-year history of on-time payments to your trustee. This is double the payment history required for FHA or VA lending when paying off a Chapter 13 plan. The maximum loan to value allowed for this program is 70%. This is 10% lower than FHA and 30% lower compared to VA cash-out refinance programs. Since filing your bankruptcy, no missed payments on any accounts are allowed. During the underwriting process, all payment histories will be verified. No missed payments to the trustee, mortgage, or any other items reporting to credit are allowed. The main kicker for this program is the credit score requirement.
What Are The Minimum Credit Score Requirements For FHA Loan During Chapter 13 Bankruptcy Repayment Plan
Above and beyond the stricter requirements above, you are required to have a 640 credit score or higher. Obtaining a 640 credit score during an active chapter 13 bankruptcy can be difficult. We will go over a few pointers for raising your credit score during a bankruptcy below. When utilizing this specialty program, your trustee/ bankruptcy plan must be paid in full. We will obtain an official payoff from the bankruptcy court, and that amount needs to be satisfied. Please keep in mind the strict 70% loan to value threshold for completing this transaction. If you feel you need these criteria and want to pay off your bankruptcy early, please reach out to our Texas refinance expert, Mike Gracz at 630-659-7644 or via email at [email protected].
How To Rebuild and Boost Your Credit During Chapter 13 Bankruptcy
Tips for raising your credit score during an active chapter 13 bankruptcy:
- No missed payments to any creditors
- You will need to take out revolving tradelines
- Keeping your utilization well below 30% on the revolving trade lines is key critical
- Payment history on all accounts is important
- Keeping an installment payment outside of the chapter 13 plan can help your credit score
- Try to keep an auto loan outside of your payments to the trustee and make sure these reports on your credit report
Applying For A Cash-Out Refinance in Texas
Applying for a cash-out refinance in the state of Texas with Gustan Cho Associates. Our team has put together a simple mortgage application process. We know you are busy, and we want to save you time and frustration when completing a refinance transaction. First, you will call our team directly and have a one-on-one mortgage consultation with a licensed loan officer.
Starting The Texas Cash-Out Refinance Mortgage Loan Application Process
It is important to be as specific as possible during this phone call so we can find the best refinance options available to you. After your initial phone call, you will fill out your loan application. This application is completed online and gives our team permission to verify your credit report. After you fill out your initial application, you will need to send a list of documents to your mortgage team. Depending on your sources of income and loan program chosen, these documents will vary.
Documents Required To Start The Texas Cash-Out Refinance Mortgage Process
Some basic documents you should be prepared to upload include your most recent two years of W-2s, 30 days of pay stubs, 60 days of bank statements, and a driver’s license or any government-issued photo ID. If you are currently retired, you will need to send in the verification of your sources of fixed income. Your loan officer will be able to answer any questions you may have surrounding the required documentation. The next steps will be going over your customized refinancing options. Once you and your loan officer agree on the best option for you, the loan process will officially start.
How Long Does The Cash-Out Refinance Mortgage Process in Texas Take?
The loan process will take approximately 30 to 45 days from start to finish. The longest part of the process will be having your home appraised. Since the real estate market is so hot, appraisals are taking longer than usual. While waiting for your appraisal, your file will be sent to the underwriting department. They will let us know if any further documentation is required from you. Once we have your appraisal, required verifications, and complete title work, you will be issued a clear to close! For more information on the refinancing process, please reach out to Gustan Cho Associates today.
Best Texas Mortgage Lenders For Cash-Out Refinance Mortgage Loans
Gustan Cho Associates are experts in mortgage lending throughout the country. As we continue to grow in our licensed states, our team is staying up to date on state-specific rules and guidelines. We understand that the Texas cash-out refinancing guidelines are confusing. Please reach out directly to go over your specific refinance qualifications with one of our licensed loan officers. We strive to stay up to date on the constantly changing mortgage guidelines and market conditions during these crazy economic times.
Home Prices Continue To Skyrocket Despite High Inflation and Increasing Rates
The housing market forecast for 2022 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, and Los Angeles to other low-taxed cities/states with affordable housing.
High Inflation and Surging Rates Not Putting a Dent on The Texas Housing Market
Most financial experts agree homeownership is one of the strongest tools to combat inflation. We look forward to helping you buy a home or save money by refinancing your current mortgage. We encourage you to reach out to our team for any mortgage information. If we do not know the answer, our team is dedicated to researching guidelines and getting you accurate information. If you follow financial news, it looks like we are headed into some tough financial times. Refinancing your home paying off high-interest credit card debt, a chapter 13 bankruptcy, or even utilizing cash-out funds as reserves may help the turmoil we are headed into.
Strong Housing Market Forecast For 2022
The housing market forecast for 2022 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 2022 due to rising home prices. The mortgage industry had a very strong year in 2021 mainly driven by the refinance mortgage market.
Mortgage Rates For Home Loans in Texas For 2022
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.
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 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 Texas. Constitution.
Texas (a6) Cash-Out Refinance Loan Rule
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 refinances after a Texas (a)(6) cash out, always a cash-out transaction, even if you were not pulling additional funds row.
Texas Rate and Term Refinance
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. The Texas (a)(6) law, 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
- The 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, and 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 number 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 in Texas
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.
Surging Home Prices Benefit Texas Homeowners with Equity
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 in Texas
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 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.
Qualify and Get Pre-Approved at GCA Mortgage: One-Stop Mortgage Broker
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!!