I do HELOCs. If you want to see what you could get, tell me the deal.
Why are Texas HELOCs different?
Texas protects homesteads in its Constitution. A loan against your homestead is only allowed in the situations the Texas Constitution lists. Home equity loans, including HELOCs, are in Article XVI, Section 50. The home equity loan is paragraph (a)(6), and the line of credit rules are in subsection (t).
So a Texas HELOC isn’t just a product a lender designs. A lot of the rules are written into the Constitution, and they apply to every lender.
I’m a loan officer, not a lawyer. Here’s how those rules read.
What are the main rules for a Texas HELOC?
The 80% limit
The line, plus everything else owed on the home, can’t be more than 80% of the home’s fair market value on the date the line is set up.
There’s a second part. If the balance on the line plus your other debt on the home goes over 80% of the value later, the lender can’t let you draw more until it’s back under.
You’ll also sign a written acknowledgment of the home’s fair market value, agreed to by you and the lender.
Draws of at least $4,000
Each advance has to be at least $4,000.
No cards
You can’t draw with a credit card, debit card, or anything like them.
Fees only at the start
The lender can only charge fees when the line is set up. No fee per draw.
There’s also a cap on fees for Texas home equity loans in general. Fees to originate, evaluate, maintain, record, insure, or service the loan can’t add up to more than 2% of the original principal. Interest doesn’t count toward that, and the Constitution leaves out a few items, like the appraisal, the survey, and the title insurance premium and examination.
The lender can’t change the terms on its own
The Constitution says the lender can’t unilaterally amend the terms of the line.
What are the closing rules?
A HELOC on your homestead is a Section 50(a)(6) home equity loan, so the same closing rules apply:
- 12-day wait. It can’t close until at least the 12th day after the later of your application or the date you get the required notice.
- Final numbers ahead of time. You get the final itemized disclosure of costs at least one business day before closing.
- Where it closes. Only at the lender’s office, an attorney’s office, or a title company.
- 3-day right to cancel. You can rescind within 3 days after closing.
- Only one at a time. You can have only one 50(a)(6) home equity loan on your homestead at a time.
- Once a year. You generally can’t close a new 50(a)(6) loan within one year of the last one.
There are also protections if things go wrong. These loans are non-recourse, which means you’re not personally liable beyond the home unless there was actual fraud. And a lender can only foreclose on a Texas home equity loan with a court order.
Should I get a HELOC or a cash-out refinance?
They do different jobs.
- A HELOC often sits behind your current first mortgage. You keep your first loan and draw on the line as needed, in chunks of at least $4,000.
- A Texas cash-out refinance replaces your first mortgage with a new, bigger loan, and you take the difference in cash at closing. In Texas that’s also usually a 50(a)(6) home equity loan with the same 80% limit and closing rules.
Here’s the catch with the “only one at a time” rule. If you already have a Texas home equity cash-out loan on your homestead, you can’t add a HELOC on top of it under 50(a)(6).
A HELOC can make sense if you like your current first mortgage and want access to money over time. A cash-out refinance can make sense if you want one loan and one payment, or you need the cash up front.
I’ll look at your numbers with you and tell you straight which one fits. If I can’t do your deal, I’ll say so and point you to someone who can.
Can I refinance a Texas home equity loan later?
Yes, and there’s a path out of the home equity rules. The Constitution lets you refinance a home equity loan into a regular loan if:
- at least a year has passed since the home equity loan closed,
- you don’t take new cash out,
- the new loan is no more than 80% of the home’s value, and
- you get a required notice at least 12 days before closing.
That’s on my cash-out refinance page too.
Does this apply to rental property?
These rules are about your homestead. A rental or second home isn’t your homestead, so different rules apply. Ask me about the specific property.
What I’d check before applying
- Rough value of the home and what you owe now.
- Whether you already have a Texas home equity loan on it.
- How much you need, and when.
- Whether you’d rather keep your first mortgage or replace it.
Want me to look at a HELOC on your home? Tell me the deal.
This is general information, not legal advice. For your specific situation, check with a real estate attorney or your title company. For which loan fits, call me at 817-873-6288.