Frequently Asked Questions Related to Cash-Outs

I want to refinance my loan but the loan officer says the max he can lend is 80%. Why is that?

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In the state of Texas once you have completed a cash-out or home equity loan on your homestead or primary residence the maximum loan-to-value (LTV) allowed thereafter is 80%. This restrictive ruling is actually part of the Texas Constitution (see section 50 (a) (6) article XVI). County records identify the fact that the home had previously had home equity lien filed against it. This will be the case until the home is sold or conveyed to a different party removing this restriction. Until then, the maximum allowable loan-to-value is 80%. So if you are in the process of refinancing your current loan please remind your HomeStart Loan officer if you had previously performed a cash-out or home-equity loan against your home.

What is the maximum loan to value on a cashout loan?

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In the state of Texas cash-out and home-equity loans for homestead properties are restricted by the Texas Constitution (see section 50 (a) (6) article XVI). This article restricts cash-out loans to a maximum loan-to-value (LTV) of 80%. In other words, if your home is worth $100k the maximum allowed loan on the home would be $80k. If the home is not designated as a homestead or primary home, the maximum loan-to-value is usually 90%. Of course, the above is subject to approval. Ask your HomeStart loan officer to explore your available possibilities for a cash-out loan before starting the process with someone else.

Are there any restrictions on what I can use the money from a cashout?

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NO. You can use the funds for whatever purpose you desire. You can use the cash to consolidate bills, pay for education, purchase a car, invest in the market, pay for a marriage, ect. The uses of the cash you receive are not restricted to any particular purpose and have an unlimited application. In fact, if you like HomeStart will pay off at closing all debts you identify at no additional charge.

How can HomeStart roll all my bills into one monthly payment?

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If you have equity in your home your HomeStart loan officer can payoff your outstanding loans and credit card balances and roll them into one low monthly payment. Not only does this alleviate the hassle of having to pay individual creditors but you will be lowering the interest rate charged by your creditors. Most credit card companies charge between 14 to 21 percent interest on their loan balances. Compare that to a home equity loan in the single digits and the savings are impressive. Ask your HomeStart loan officer about our home consolidation loan and start saving money today.

I've been told that the lender will pay all third party fees on my cashout. Is that true?

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YES and NO. First off, in Texas, this is true only for subprime cash-out deals. Secondly, although the lender is technically paying for all third party fees (title, insurance, reserves, attorney fees, etc) the lender is typically charging your loan 2 discount points (2%) to buy down the rate and pay all third party vendors. This is called a third party “buy-out fee”. Sometimes this works in your favor. In a situation in which third-party fees are greater than the discount points charged to your account this would make sense. However, the difference is sometimes nominal. Ask you HomeStart loan officer to see if buying-out third party fees or a typical closing cost scenario best suits your needs.

What is the 3% rule on Texas cashouts?

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Texas constitution states that all third-party fees on a cash-out or home equity loan for homestead properties may not exceed 3%. In other words, if you want a $50k home equity loan third party fees may not exceed $1,500. Third party fees include origination, points as well as attorney fees, title insurance, escrow fees, recording fees, survey, etc. This is why sometimes it is difficult to complete a home-equity loan without the need to have a lender pay your third-party fees on your behalf (see “I've been told that the lender will pay all third party fees on my cashout. Is that true?”). Ask your HomeStart loan officer if your situation allows for a buy-out of third party fees.

What should I know about my cash out loan?

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The state of Texas is unique when it comes to cash out or home-equity loans. Unlike most states, Texas allows a home owner to only borrower up to 80% of their home’s value. This is meant to protect home owner’s equity. In addition, the state of Texas mandates that a “cool off period” be present between when a home owner solicits a home equity loan against their home and when they close on the loan. This “cool off period” is explained in the disclosure provided to you at time of application and is named “the 12-day letter”. Furthermore, after closing of your home equity loan, Texas constitution requires a 3-day rescission period in which you may terminate the loan without obligation. There are other home equity requirements required by Texas constitution. You may find more information by looking up Texas Constitution section 50 (a) (6) article XVI. Ask you HomeStart loan officer for a copy of “the 12-day letter” and explanation of you rights.