Texas Cash Out Laws and Proposition 2

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I have been doing business in the state of Texas since 2005 and I remember my first day of training with the first mortgage company I ever worked for.  I was hired by the largest privately held subprime lender in the country at that time and I was flown to Dallas for a week of training.  I was only 22 years old and I could barely spell mortgage let alone sell one.  I was in for a crash course in mortgage laws, lending practices and sales techniques.  I was joined by all the recent new hires from other parts of the country that made up our region.  Texas, Alabama, Tennessee and a few other southern states were represented and each state pretty much was the same when it came to the various mortgage and lending laws that had to be adhered to.  Except for One…..

After my first day I quickly learned that I may have chosen the wrong state to live in and try to make it in the mortgage industry.  All my colleagues from other states always had the same responses when they asked where I would be working:

“Good luck trying to sell cash out loans in Texas!”     “Those Texas laws are brutal!”    and my favorite: “Glad I don’t live in Texas, I like to make money!”

Sheesh, these guys were brutal and I started to wonder if I had made a mistake taking the job in the first place.  Luckily for me it wasn’t that bad and I quickly found out that I would be successful as a mortgage professional even though I lived and worked in the state of Texas.

To be honest Texas gets a bad wrap in the mortgage industry.  We are the most regulated state when it comes to Texas Cash Out Loans and this deters a lot of lenders and investors from even doing business in our great state.  It also causes some lenders to claim to know how our laws work and mislead many Texas Homeowners.  I have heard some horror stories of what some of these people are telling my fellow Texans.  I have been told by many of my clients that the last lender told them it is against the law to take cash out of your home in Texas or that the lender they spoke to told them they don’t even loan in the state of Texas because there are too many laws to follow.   Regardless of what other lenders can or won’t do, I am here to educate you on what the Texas Cash Out laws really say and how they affect Texas Homeowners.  Check out our Texas Cash Out Loans page for the laws that affect Texas Homeowners and see how we can help you get cash for any of life’s reasons.

If you are wanting specific info,  contact us for a quote and one of our mortgage professionals can go into detail how to get you approved for your cash out loan.  Otherwise I am here to share with you some good news that has happened recently that is going to help many Texas Homeowners.

As of January 1st 2018, Proposition 2, which was passed in November 2017, is loosening the Texas cash out laws and allowing Texas Homeowners more options when it comes to accessing home equity.  Here is what changed:

1. Prior to the passing of Prop 2, the old saying was: “Once a Texas Cash out, Always a Texas Cash Out.” This is how lenders informed borrowers that once you did a Texas Cash out, also known as a Texas 50(a)(6), you could not refinance unless you did another Texas Cash out loan, even if you didn’t receive any additional cash. This means a higher interest rate and higher closing costs because the next loan also had to be treated just like a Texas Cash Out Loan and follow the same laws.  Lenders hit you for the same risk as they did before which raises the interest rate and increases the closing costs.
2. Texas cash out loans were limited to a 3% cap of ALL fees involved.  This was designed to protect Texas homeowners from over paying for their home equity loans.  However, this fee cap made it nearly impossible for a Texas homeowner seeking a smaller loan amount to be able to get financing since their loan was below a certain value.  Prop 2 changed the fee cap to 2%, but eliminated appraisal, survey and title fees from being included in this calculation.  Since all three of these fees are considered third party fees not controlled by a mortgage lender, Texas homeowners are still protected from any predatory lending practices that may occur.  Texas title work is also governed by the Texas Board of Insurance and title policies are standardized across the state regardless of which title company is used.
3. Prior the passing of Prop 2 you could not do a Texas Cash out on any kind of agricultural property that you claimed as your homestead or primary residence. Now all Texas farmers and ranchers have the opportunity to access the cash they need.  Before only agricultural land being used for milk production would qualify.
4. If you have  HELOC (Home equity line of credit) you can now take additional advances all the way to 80% of the value of your home.  Prior to Prop 2 you were limited to 50% of the market value of your home.

I am very excited to see these amended laws start benefitting Texas homeowners.  I firmly believe we will see a positive change here in Texas when it comes to home equity.  We still may be the most regulated state when it come to home equity laws, but we still have the laws designed to protect Texas homeowners in place and now we have more opportunity to provide more Texans with the cash out they need and deserve.

I wish I had a time machine to go back to that first day of training and let past Eric know that the future is bright for Texas homeowners.  I would materialize in a grand fashion just as the guy from Tennessee was wishing me luck in making any money doing Texas cash out loans.

Future Eric would announce in classic futuristic fashion:  “You Don’t Mess With Texas!  The cash out laws designed for homeowner protection will always be there, but improvements to benefit Texas homeowners will become the new law……..you just have to wait 12 years!”

Thanks future Eric.  Not only am I being chastised for living and working in Texas, but now I have a weird older brother that the other guys keep asking how we are twins, but he looks way older.

Sheesh, maybe I should reconsider selling cars instead.

Eric Weishaar

President | NMLS# 207659

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