Houston Cash Out Refinance
Guide To Cash Out Refinance In Houston In 2023
Cash-Out Refinancing in Texas: What You Need to Know
A Texas cash-out refinance loan, also known as a Section 50(a)(6) loan, is a type of mortgage refinancing option available in the state of Texas. It allows homeowners to refinance their existing mortgage while accessing their home's equity.
The main purpose of a cash-out refinance is to provide homeowners with funds that can be used for various purposes. Some common uses of the cash include home improvements, debt consolidation, paying off higher-interest debts like credit cards or personal loans, funding education expenses, or even investing in other properties.
By refinancing your mortgage and accessing the equity, you essentially replace your existing mortgage with a new one with a higher loan amount. The difference between the new loan amount and the amount needed to pay off your old mortgage is paid out to you in cash.
Texas Cash-Out Refinance Eligibility Requirements
Stay current on your mortgage payments: It's important to demonstrate that you are up to date with your existing mortgage payments. Falling behind on payments could result in a denial of your cash-out refinance application.
Have sufficient equity in your home (at least 20%): Texas regulations require a minimum amount of equity to prevent predatory lending practices known as "equity stripping." Reputable lenders will not suggest a cash-out refinance if you have minimal equity. You should have at least 20% equity in your home.
Reside in the property as your primary residence: While it may be possible to pursue a cash-out refinance on a secondary or investment property, keep in mind that the terms and requirements may differ. Moreover, you can only carry one home equity loan or cash-out loan at a time.
Maintain a clean financial history: Generally, you should not have had any bankruptcies or foreclosures within the past 12 months. Some lenders may have more stringent requirements, extending the bankruptcy and foreclosure-free period to up to 7 years.
Texas Cash-Out Refinance Process
Texas Cash-Out Refinancing Rules
- Closing costs charged by your lender cannot exceed 2% of your loan amount. This does not apply to third-party closing costs like attorney fees, appraisal fees, and title insurance fees. It applies only to fees charged by your lender such as loan origination and processing fees
- Your new loan amount cannot exceed 80% of your home's value. That means you must leave 20% equity untouched when cashing out. For example, if the value of your home is $200,000, you could borrow up to $160,000. If you owed $120,000 on your existing mortgage, you could borrow up to $40,000 cash back
- All liens (second mortgages) must be paid off. If you already have a home equity loan or home equity line of credit (HELOC), your new cash-out refi will have to pay off these loans as well as your primary mortgage. This could reduce the amount of equity you're able to withdraw
- You'll need to wait six months to refi after initially buying the home. You're eligible for a cash-out refinance in Texas only when you've had your existing mortgage loan for at least six months. Also, you can't get a new cash-out refi unless it's been a year since your last one
- Waiting times after foreclosure, bankruptcy, or short sale. You'll have to wait seven years after a foreclosure, four years after a bankruptcy, and four years after a short sale before you can qualify for a Texas 50(a)(6) cash-out refinance
- There are no cash-out mortgages backed by the federal government. That means there's no FHA cash-out refinance or VA cash-out refinance allowed in Texas
- You can't take out a home equity loan or HELOC (second lien) if you already have a Texas cash-out loan in place
- Texas cash-out refinance loan rules apply only to your primary residence. In other words, investment properties and second homes are not bound by these rules
Minimum Credit Score for Texas Cash-Out Refinance
A minimum credit score of 620 or higher: While lower credit scores may be acceptable for conventional or government-backed home loans, Texas does not offer FHA options for cash-out refinances. To be eligible, you'll need a credit score of 620 or higher.
The state of Texas does not establish these underwriting rules for mortgage loans. Instead, it's private mortgage lenders who determine whether you qualify for a new mortgage based on your credit profile.
However, it's important to note that this doesn't mean that banks have complete freedom to approve you regardless of your credit score or a very high debt-to-income ratio (DTI). Lenders still need to adhere to the regulations set by Fannie Mae and Freddie Mac for conventional loans.
Nonetheless, mortgage lenders do have some flexibility in their decision-making process. For instance, if your credit score is not excellent but your DTI is low, a lender might make an exception and approve your mortgage application. This underscores the importance of shopping around and comparing offers from different lenders. In Texas, the current laws have made this process a bit more convenient for cash-out refinance applicants.
In fact, the state now permits various types of financial institutions, including savings and loan associations, credit unions, bank subsidiaries, mortgage companies, and mortgage bankers, to provide cash-out refinance loans. This means you have a wide array of options when it comes to shopping for the best interest rates and loan terms for your cash-out refinance.