Good Morning!
I try to touch on this at least once a year because many people are steered into cash out loans without knowing how they will be impacted.
Here’s what you need to know…
If you get a traditional Texas Home Equity Loan to pay off your current mortgage (assuming you have a mortgage), and give you cash out – you need to be aware of the fact that this will permanently change your future loan choices.
It’s true!
Once you have a first position Texas Home Equity loan on your property – you can never again go back to a rate/term conventional loan, or even an FHA loan.
…the reason is the State of Texas, and how the Texas Home Equity Laws were written.
Once you have a 1st position Texas Home Equity loan on your home – any subsequent loan you get must also be a Texas Home Equity loan – even if you aren’t getting any equity out of the new loan!
Why is this not such a good thing?… Well, there’s two big reasons…
1)The rates on Texas Home Equity loans are higher than other conventional loans, and FHA loans.
2)The LTV is capped at 80% on a Texas Home Equity loan. …This can be really bad if you get one of these loans, and then the value of your property depreciates – so your LTV is now above the 80% threshold. I’ve talked to a lot of people in this boat. They are stuck in their loan – their only other option is to sell.
Here is an alternative if you want cash out of your home, but don’t want to permanently eliminate future loan choices.
…You get a 2nd position cash out loan. You keep your first mortgage, and get a second loan to go behind it for your cash out. (cap is still 80% combined loan to value ratio)
There are two types of 2nd position cash out loans…
1)A HELOC (usually an interest only ARM).
2)A fixed term second cash out mortgage (normally 15 yr amortization).
…just keep in mind if you refinance with one of these cash out seconds in place – you can’t refinance – and pay off the second mortgage without changing the classification of the new mortgage to a cash out mortgage. …you will have to subordinate the second.
…confused? Give me a call! I’ll go over it with you.
Have a good day today! …and thanks for reading.
Brett
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