Texas Refinance

Frequently asked questions about Texas Refinance

• What is the 2% rule in Texas?

  To protect consumers seeking a cash-out refinance, Texas law prohibits lenders from charging closing costs in excess of 2% of the principal balance. This will include appraisal fees, underwriting fees, and credit history checks. As closing costs for a conventional mortgage refinance can be up to 6% in other states, you can save thousands in fees.

• Can you refinance your mortgage in Texas?

  Yes, you can refinance your existing mortgage in Texas, but some restrictions exist. Only conventional loans are eligible for a cash-out refinance, though you can do a rate-and-term refinance for federal government-backed loans like Federal Housing Administration, VA, and USDA loans. 

  If you have had a short sale in the past, you must wait four years to pursue a refinance, and you must have had the current mortgage for at least 6 months. You can only get a cash-out refinance once every 12 months. 

  To get a refinance, you need to meet certain qualifications. Most lenders want a minimum credit score of 620, though some will expect a 640 credit score or higher. You should also have a debt-to-income ratio of no more than 43%. Again, some lenders will go higher than this, but some may want lower.

• Why does Texas not allow cash-out refinance?

  Texas does not allow a cash-out refinance for government-backed loans like FHA, VA, and USDA loans, though these loans are eligible for a streamlined refinance that does not provide a lump sum payment. 

  This is because of the unique restrictions of Section 50(a)(6) in the Texas constitution, meant to protect homeowners from taking out more than they can afford, which may make them risk foreclosure.

• What is the maximum cashback on a rate-term refinance in Texas?

  With a rate-and-term refinance, the borrower cannot receive more than $2,000 at the close in cash back. If this is your primary residence, Texas won’t allow you to receive any cash back.

• How much can you cash out refinance in Texas?

  The loan-to-value ratio of a refinance cannot be more than 80%, and you must pay off any second mortgage using the proceeds of a cash-out refinance loan. As a bonus, though, this means that you won’t have private mortgage insurance premiums, which will also save you money each month. 

  For example, if your home is worth $250,000, you’d only be able to get a cash-out refinance loan for $200,000. If you wanted a $10,000 lump sum payment, you would need to have a loan balance of no more than $190,000.

• What is the 50a6 rule in Texas?

  Section 50(a)(6) of the Texas Constitution places certain restrictions on cash-out refinances for conventional mortgages on a primary residence; these don’t apply to investment properties. You can only get a 50(a)(6) loan on a single-unit dwelling.

   

  The rules include retaining 20% home equity, and the total loan cannot be more than $647,200. Lenders must provide a 12-day cooling-off period. Additionally, you cannot get a 50(a)(6) cash-out refinance more than once a year, and you must get title insurance. On the plus side, the closing costs cannot be more than 2%.

• What is a Texas 50A4 loan?

  A 50(a)(4) loan is a rate-and-term refinance of an existing home equity 50(a)(4) loan. These are called non-home equity loans because you simply change the loan term and rate, not getting cash out. 

   

  As with the 50(a)(6) loan, you must get a new appraisal, and there must be a 12-day cooling-off period. The loan-to-value ratio also can’t be more than 80%, just as with cash-out refinancing. You cannot receive more than $2,000 at the time of close.

• Can you get a HELOC in Texas?

  Yes, you can get a home equity loan or Home Equity Line of Credit (HELOC); however, there are a few restrictions that are specific to Texas that you must know about.

  Just like with a cash-out refinance, you cannot have a loan-to-value ratio higher than 80%, and you can’t have home equity products simultaneously, meaning that you will have to choose between a HELOC and a cash-out refinance. Lastly, you can only take out a home equity loan or HELOC on your home of residence, not an investment property.