When someone talks about cash-out refinance loans, they are referring to a home mortgage where the borrower receives cash back at closing after paying off the first mortgage, any liens, and any closing costs. In Texas, the maximum loan amount of any owner-occupied cash-out refi loan cannot exceed 80% of the property value or loan-to-value (LTV). People take advantage of cash out loans for several reasons like consolidating their debt, home improvements, college, vacation funds, or even just to have extra cash on hand.
When a homeowner refinances their existing mortgage and gets cash back at closing, the mortgage will be considered a Cash Out Refi Loan. The rule on cash out refi is, “once a cash-out, always a cash out“. It will always be treated as a cash out for the rest of the loan term. The title will always reflect the mortgage to be a Cash Out until such time that the mortgage is paid in full. The homeowner can refinance the loan at a future time, but the cash out rule will always apply to the subsequent mortgage loans.
Generally, mortgage rates for Cash Out Refi Loans are slightly higher compared to Rate and Term Refi Loans. For obvious reasons, equity if being pulled out of the home in the form of cash back to the borrower. Rate and Term Refi, on the other hand, simply refinances the existing mortgage with either
- lower rate,
- shorter term, or
- lower monthly payment.
There is the closing cost factor in Cash Out Refi loans. Texas Cash Out rule is, total closing costs cannot exceed three percent (3%) of the loan amount. This is where the rule will apply to subsequent mortgages after the initial cash-out loan. When a homeowner refinances and existing cash-out refi loan, not only will the rule regarding rate and 80% loan to value (LTV) applies, the 3% Closing Costs rule will also apply. This is true for the remaining term of the loan until such time that the loan is paid off in full in the future.
The Texas refi cash-out is also known as the Texas Section 50 a(6) mortgage loan. Any mortgage originated under the provisions of Article XVI, Section 50 a(6), of the Texas Constitution which allows any borrower to pull equity out of their primary residence with certain restrictions and conditions. People typical refer to it as the “Texas a(6) loan” when they meant to say a Texas Cash Out.
There are certain requirements in order for a homeowner to qualify for cash-out refi loan. Eligibility requirements for a Cash-Out Refinance loan in Texas include:
- Borrower must have 6-month ownership of the property being financed;
- All liens on property must be paid off upon closing;
- Borrowers are required to wait 12 months between Cash-Out Loans.
Cash Out Loan Terms
Fixed Rates are eligible for 15 – 30-year term, and so are 7 & 10 Year Adjustable Rate Mortgages. The Texas Cash-Out Refinance Loan does not allow for 3 or 5-year Adjustable Rate Mortgages.
For additional information, contact our Home Loan Specialist at (281) 860-2533