Texas Cash Out Refinance Options
A Texas cash out refinance will enable you to pull equity out of your home to use towards home improvements or anything else you need the funds for. One of the challenges Texas residents face is there are fewer lenders offering cash out refinances in due to recent changes to Texas refinance laws.
Texas Cash Out Refinance Rules
In 2017, Texas passed Section 50(a)(6) for all refinance loans. This Texas 50(a)(6) cash out rule did two things:
- Established a maximum of an 80% loan to value ratio when cashing out equity for a primary residence in Texas.
- Prevented lenders from charging more than 2% in fees
Putting a cap on lender fees is what has created an environment where many lenders no longer offer cash out refinances in Texas.
The 80% LTV limit does not allow for a second loan or HELOC can be added on top of a refinanced mortgage increasing the loan to value ratio over 80%. Read in more detail about Section 50(a)(6) of the Texas constitution down below.
Benefits of a Texas Cash Out Refinance
Cashing out equity in your home can provide various benefits. The funds can be used for just about anything but the most common uses for the cashed-out equity are as follows:
- Home improvements
- Consolidating debt
- Investments
- To setup a college fund
Our goal is to help you to find the right financing so you can cash out the equity that you need from your home. However, it would be wise to consider how you spend the equity you are cashing out of your home. Discuss with a financial advisor whether using the funds for vacations or cars is a wise decision.
Types of Cash Out Refinance Mortgages in Texas
Texas does not limit the types of loan available to its residents which means all of the standard and portfolio programs are available. These are the most common cash out refinance options in Texas:
| Loan Program | Max LTV | Min Credit Score |
| Conventional | 80% | 680 |
| FHA | 80% | 580 |
| VA | 100% | 550 |
| Investment | 75% | 640 |
| Bank Statement Loan | 75% | 600 |
| Subprime | 75% | 600 |
FHA Cash Out Refinance in Texas
FHA guidelines permit cash out refinances of up to 80% of the appraised value. This can be done after you made at least 6 payments on your current mortgage. Qualifications are as follows:
- 2 year work history
- DTI up to 56%
- Home must be your primary residence
- FHA mortgage insurance is required
Your existing mortgage does not have to be an FHA loan and you will have all of the same FHA closing costs that you would have when making a purchase. This means, an appraisal, title work, lender fees and more.
Conventional Cash Out Refinance in Texas
Conventional loans are the most popular mortgages in the US. However, it is not easy to get approved for a conventional cash out refinance unless you have good credit and plenty of equity. Here are the basic requirements for a conventional cash out refinance in Texas:
- 2 year work history
- Maximum LTV of 80%
- Credit scores of 680
- DTI less than 45%
- No recent bankruptcies or foreclosures
When you factor the higher credit score needed and the lower DTI allowed, often times an FHA loan is a better option. However, conventional cash out refinances under 80% LTV do not require PMI. This is where conventional loans have an advantage over FHA
VA Cash Out Refinance Texas
If you are a veteran or active military and have VA eligibility, then you may qualify for a VA cash out refinance in Texas. However, the challenge in Texas is the state is going to cap the maximum LTV at 80%. Here is what the requirements are to qualify in Texas:
- 2 year work history or guaranteed VA disability or social security income
- Maximum LTV of 80%
- No credit score requirement
- DTI of over 50% allowed
- No recent bankruptcies or foreclosures
- You must have VA eligibility
With Texas having a cap at 80% LTV, you should seriously consider all cash out refinancing options even if you have VA eligibility.
Bank Statement Loan Cash Out Refinance in Texas
Bank statement loans are special mortgage programs for self employed borrowers who typically write off too much to qualify for a conventional or FHA loan. Not every lender offers bank statement loans and they are considered to be portfolio loans. If you are self employed, here are the basic requirements for a bank statement loan cash out refinance in Texas:
- Must be self employed for at least two years
- Provide 12-24 months bank statements
- Maximum LTV of 75%
- Minimum credit score of 600
One of the challenges in finding a lender to help with a bank statement loan cash out refinance is the 2% lender fee cap in Texas. With these loans, lenders make all of their income via the fees. We do have a handful of lenders who are able to help you with this refinance.
Investment Cash Out Refinance in Texas
Investor loans are not tied to the same cash out refinance laws as primary residence loans in Texas. As a result, securing financing will be easier. However, most lenders do not offer the best mortgage programs for investment refinances. Here are the basic requirements:
- Credit scores of 660 or better
- Maximum LTV of 75%
- No income documentation, tax returns or job needed
- Property must be cash flow positive
- Property can be owned individually or in an LLC or corporation
If you believe you meet the basic requirements referenced above, then an investor cash out refinance is possible. We can help you to get a quote.
Cash Out Refinance Rates Texas
The cash out refinance interest rates will be slightly higher than the rate you would be offered for a refinance without the cash out feature.
When it comes to providing rate quotes, lenders have a matrix with many factors that will either increase or decrease the rate. Adding the cash out feature typically results in an increase in the rate. Credit scores are a huge component when determining the rate. The loan to value ratio also plays a major role.
As a result, lenders will need quite a bit of information from you before a cash out refinance. You may find the rate you are offered may be significantly different than what one of your friends or relatives received.
Read [how are interest rates determined]
Cash Out Refinance Credit Score Requirements
Cash out refinances guidelines typically require higher credit scores than purchase loans or rate and term refinances. Here are the cash out refinance credit score requirements for each type of mortgage:
- Conventional = 680
- FHA = 580
- VA = 550
- Bank Statement loan = 600
- Investment = 640
If there are two borrowers on the mortgage, the lender will use whichever score is lower between the two individuals.
Texas 12-day letter
The Texas 12 day letter is issued by the lender and must be received by the applicant no later than 3 days after the time of application. It prevents cash out refinance loans or HELOCs in Texas from closing within 12 days of the application date.
Texas rate and term refinance rules
How often can you refinance your home in Texas? Snippet
What is the Texas 50(a)(6) cash out rule?
Section 50(a)(6), Article XVI of the Texas Constitution details the requirements for loans that are secured against the equity of your home. The summary of the rule is as follows:
- The cash out refinance cannot close within 12 days from the date of application
- The maximum loan to value ratio allowed when cashing out is 80%
- Lenders are not permitted to charge more than 2% of the loan amount in lender fees.
There are other stipulations and requirements mentioned within the rule, but these are the requirements that have the greatest impact on your cash out refinance in Texas.
How often can you refinance your home in Texas?
According to section 50(a)(6) of the Texas Constitution, you are able to get a cash out refinance in Texas as often as needed but with a one year waiting period in between each refinance. In other states, the waiting period is just six months.
What is the difference between a cash out refinance and a HELOC?
A HELOC is a line of credit with an adjustable rate that you can draw against as needed, but with a cash out refinance, you are borrowing the entire loan amount all at once usually with a fixed rate mortgage.
With a HELOC, your closing costs will be minimal, but a cash out refinance will require all of the normal closing costs that you would expect with a typical refinance.
How to Get Closing Costs Waived