Texas Home Equity Loans
Because Texas laws have traditionally been designed to protect individuals and their families, home equity loans were not even possible in Texas until late 1997. The law is both lengthy and complex, but some of the most significant provisions are:
⦁ The total of all mortgage debt (not just the home equity loan) cannot exceed 80% of the fair market value of the home. So, if you already have a $30,000.00 mortgage against your $80,000.00 home, the most you can borrow is $34,000.00 ([.80 x 80,000] – 30,000). If the mortgage on that same $80,000.00 home were $65,000.00, a home equity loan would not even be possible because the current mortgage already exceeds 80% of the fair market value.
⦁ Only one home equity loan may be made against a home at a time. While additional financing arrangements might be possible, a homeowner cannot obtain a second home equity loan until the first has been paid in full.
⦁ A borrower is only permitted one home equity loan per year, regardless of how quickly the loan is repaid, and a home equity loan may not be converted to another type of loan.
⦁ Land that is taxed as “agricultural” or “open space” may not be used to secure a home equity loan.
⦁ There are restrictions on who can make a home equity loan. For example, an unlicensed individual cannot make a home equity loan unless the individual is (1) providing seller-financing or (2) related to the borrower within the second degree.
⦁ Lenders are prohibited from charging fees and costs (other than interest) which exceed 3% of the principal amount of the loan. The law provides significant penalties for a lender who violates this rule and refuses to correct the error once it is brought to the lender’s attention.
⦁ The lender may not require the borrower to apply the loan proceeds to repay a debt except debt secured by the homestead or debt owed to another lender. The borrower is otherwise free to use the funds for any lawful purpose.
⦁ The loan must be secured only by the home; the lender may not require that additional assets be mortgaged.
⦁ A home equity loan may be closed only at the permanent office of a lender, a title company, or an attorney’s office.
⦁ The loan cannot close until 12 days after the borrower has made application for the loan and received a special notice of the borrower’s rights.
⦁ Not later than the day prior to closing, the borrower must receive a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged. (This requirement may be waived if a bona fide emergency or another good cause exists and the lender obtains the written consent of the owner.)
⦁ After the loan closes, the borrower has three additional days to change his mind and cancel the transaction without any penalty or charge. The loan proceeds cannot be delivered to the borrower until the three day period has passed.