Texas Cash Out Refinance
Guide To Cash Out Refinance In Texas In 2023
Important Information About Cash Out Refinancing in Texas
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.
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.
Maintain a 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.
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.
Additional Cash Out Refinancing Requirements
Property Ownership Duration: You must have owned the property for a minimum of six months before considering a cash out refi.
Mandatory Cooling Period: Texas rules stipulate a mandatory 12-day waiting period. This means you cannot close the refinance deal until at least 12 days after the application date.
Loan to Value Ratio: The loan amount in a cash out refinance can only be up to 80% of the appraised value of the property. For instance, if your property is valued at $100,000, the maximum loan you could procure is $80,000. However, the outstanding amount on your existing mortgage must be subtracted from this sum. If you still owe $50,000 on a home valued at $100,000, your available cash out would be limited to $30,000.
Additional Fees: Be prepared to pay extra costs such as mortgage insurance, origination fees, and title insurance in a cash out refinance process in Texas.