Texas Home Equity Loans

  Homesteads in Texas have been protected from forced sale since 1839.  That’s just three years after the fall of the Alamo and this was still the Republic of Texas!  House Joint Resolution 31 (HJR 31), the legislation enabling home equity loans in Texas, was passed by the 75^th Legislature and was adopted by Texas voters on November 4, 1997 - it’s provisions becoming law on January 1, 1998.  So home equity lending is somewhat of a new concept in Texas.  Furthermore, the long struggle to bring about the enabling legislation was won in part by concessions made to protect homeowners.  But before we discuss these important features unique to home equity loans in Texas it is important to clarify two separate issues concerning Texas homesteads.  Many people confuse the homestead protection against forced sale and the homestead exemption, or reduction, in property taxes offered by some local taxing authorities.  Though both issues deal with Texas homesteads they are two separate concepts and should not be confused with each other. 

So, let’s see what makes Texas home equity loans unique.

When borrowing against the equity in your Texas homestead the total debt secured by that homestead cannot exceed 80% of the value at the time the equity loan is closed.

Certain fees enumerated by state law cannot exceed 3% of the value. 

There is no personal recourse on Texas home equity loans, i.e. the lender cannot pursue a deficiency judgment in the event of a foreclosure of a homestead.

The transaction must be voluntary and requires the written consent of each property owner and each property owner’s spouse.

Home Equity Lines of Credit (HELOCs), previously not permitted, were approved by Texas voters in a constitutional amendment election in September, 2003.

No additional collateral can be required – including the requirement for a co-signer.

There can be no prepayment penalty charged on a Texas home equity loan.

Urban homesteads used for home equity loans are limited to one acre.

Home equity loans are limited to a maximum of one at a time and one year must pass before the same property can be used for another home equity loan.

Once an home equity loan is closed on a Texas homestead any subsequent refinance of that loan will also be considered an home equity loan.

There can be no balloon payments or negative amortization on a Texas home equity loan.

There can be no cross default, meaning that the lender cannot demand repayment of a Texas home equity loan because the borrower has defaulted on another loan or obligation unrelated to the homestead.

Home equity loans can only be closed at the office of the lender, an attorney or a title company.

Texas home equity loans require a twelve day cooling off period between the date of application and the date of closing.  Note that federal law requires a separate three day right of rescission between the date of closing and the date the loan is funded.

The lender must provide the borrower a written home equity disclosure at least twelve days before the loan is closed. 

Home equity lending in Texas is relatively new and distinctly different than in other states.  Because this transaction is one of the most important legal and financial obligations you will ever face you should have the help of a competent mortgage professional – not just a telemarketer.  That’s why only seasoned, experienced professionals are allowed to work at Neighborhood Mortgage Center. 

To contact Preston Dumas: pdumas@nmcltd.com

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