Two troublesome quirks in the new TX home equity rules

 Loan Guidelines, Owner-occupied, Residential Mortgage  Comments Off on Two troublesome quirks in the new TX home equity rules
Jan 042018

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By G. Steven Bray

As we discussed last year, Texans changed the rules for homeowners who want to take equity out of their homes. TX Equity loans, what we call cash out loans, are a special type of conventional loan because the TX constitution provides homeowners some unique protections. As a result, the loans have slightly higher interest rates and higher closing costs than other conventional loans.

The changes approved by voters last fall mainly benefited homeowners with lower-priced homes and homeowners in rural areas. However, attorneys, as they’re apt to do, have noticed a couple quirks in the wording that could cause problems.

– The rules now allow a lender to charge closing costs equal to 2% of the loan amount, down from the previous limit of 3%. However, this amount now excludes the appraisal and survey fees and a fee for a title policy and policy endorsements established in accordance with state law. It’s the “in accordance with state law” part that is at issue. Our attorneys are recommending a conservative reading, which could add a few hundred dollars back to the total subject to the 2% limit.

– The rules also now allow homeowners on ag-exempt land to take out home equity loans. The issue is the state tax code says an ag-exemption is not allowed on land that secures an equity loan. While this likely was an oversight, and the Comptroller may correct the problem soon, the risk for homeowners is that they’ll lose their ag-exemption. That raises the horror of property tax rollbacks.

Even with the issues, the changes are a welcome relief for homeowners wanting to use their home equity, and in time I suspect the state will resolve the issues in the favor of homeowners.