| The state of Texas has some pretty interesting | | | | exceed 3%. This law was intended to protect |
| refinance rules. This is especially true when one wants | | | | borrowers but it actually penalizes lower loan amounts |
| to pull cash or equity out of their home. | | | | making it difficult for those with small loans to take |
| There are two types of mortgage refinances. The first | | | | advantage of their equity. |
| type is called a rate and term refinance. This is simply | | | | This is a great example of regulation doing the |
| when someone wants to lower their rate or change | | | | opposite than what it was intended. So for those with |
| the term of their original home loan. For example, | | | | loan amounts under 100K, it's very difficult to do a |
| someone with a 30 year mortgage at 7% may want | | | | home equity loan as state law also requires one to |
| to refinance to a 5.25%, 15 year mortgage. | | | | purchase a new title policy each time one refinance. |
| In this instance they are not pulling cash out they are | | | | Title policies usually run 1% of the loan amount. |
| just changing the rate and/or the term of their original | | | | However, it's important to note that the 3% law does |
| loan. During the "refinance boom" (2001-2004) many | | | | not apply for those doing an investment cash out |
| loan officer and mortgage brokers did dozens and | | | | home equity. So it's actually easier to do a home |
| dozens of rate and term refinances because | | | | equity loan on an investment property than on an |
| mortgage rates dropped so low. | | | | owner occupied property in Texas! |
| Most people refinance when their home loans when | | | | 12 Day rule: This is one of the more unique rules. |
| the market rate is much lower than their current | | | | Whenever you do a home equity loan your loan |
| mortgage rate. A good rule of thumb is when you can | | | | officer or mortgage broker will ask you to sign a 12 |
| save about 1% it may make sense to refinance. | | | | day form. This form states that the loan can't close |
| The second type of refinance is called a Texas Cash | | | | until 12 days after the date of the application. I guess |
| out Refinance. This is when someone wants to pull | | | | the state of Texas wants you to have 12 full days to |
| cash out of their home in addition to lowering or | | | | think about your loan! |
| changing the rate or term. | | | | 3 day rule: Then, after we wait 12 days, we are |
| Texas once outlawed the ability to pull cash out of | | | | required to wait 3 days until we fund. Not to mention |
| one's home but now allow this as long as the loan | | | | one is required to look and sign the final HUD |
| meets these criteria: | | | | (settlement statement) 24 hours before closing. |
| 80% Texas Cash Out Rule: This rule states one that | | | | So to make things simple: The loan can't close for 12 |
| the loan can not exceed 80% of the home's appraised | | | | days. Then, once the HUD is prepared by the title |
| value. | | | | company the borrower(s) must review and sign the |
| For example, if one's home is worth $100,000 and the | | | | HUD 24 hours before we close. Then we can't fund |
| current mortgage owed is $50,000 than an equity loan | | | | the loan for 3 full business days. |
| can go up to $80,000 (80% of 100k). Thereby netting | | | | These rules are why it often takes 30 full days to fund |
| the borrower $30,000, less closing costs. | | | | a Texas Cash out loan. |
| 3% rule: This rule state that the total fees can not | | | | Oh, and by the way. The final rule...one must wait 12 full |
| exceed 3% of the loan's value. For example, if | | | | months between home equity loans. So if you do a |
| someone does a 100K equity loan the total fees can | | | | Texas cash out one year and the price of your home |
| not exceed $3000. This means broker, title, survey, | | | | goes up significantly you must wait a year before |
| appraisal, underwriting, doc/prep (everything!) can't | | | | refinancing. |