Cash-out refi issues in TX

[Dmitri L.]

Hi All,

I have a TX rental (~250k market value, ~80k loan balance) and want to pull some cash out of the equity via a cash-out refi/heloc/2nd mortgage. 

Unfortunately it looks like there's some rule against the combination of:

- conventional loan

- cash-out refi

- investment property

- borrower does not own a primary residence in TX

Has anyone ran into this type of issue before? Anyone aware of a lender that could help?

TIA!

Dmitri

[Eliott Elias]

Different lenders have different guidelines, use a DSCR loan.

[Conner Olsen]

Quote from @Dmitri L.:

Hi All,

I have a TX rental (~250k market value, ~80k loan balance) and want to pull some cash out of the equity via a cash-out refi/heloc/2nd mortgage. 

Unfortunately it looks like there's some rule against the combination of:

- conventional loan

- cash-out refi

- investment property

- borrower does not own a primary residence in TX

Has anyone ran into this type of issue before? Anyone aware of a lender that could help?

TIA!

Dmitri

You can definitely do a cash out refi, but if it's not a primary residence the banks are going to give you a lower LTV than if it was your primary residence. I'd talk to more banks and see what they offer. What kind of LTV are you hoping to get?

[Jay Hurst]

Quote from @Dmitri L.:

Hi All,

I have a TX rental (~250k market value, ~80k loan balance) and want to pull some cash out of the equity via a cash-out refi/heloc/2nd mortgage. 

Unfortunately it looks like there's some rule against the combination of:

- conventional loan

- cash-out refi

- investment property

- borrower does not own a primary residence in TX

Has anyone ran into this type of issue before? Anyone aware of a lender that could help?

TIA!

Dmitri

 @Dmitri L.   There are NO state specific rules regarding taking cash out on a investment property in Texas. We do a  lot of them.  The reason for the confusion is there ARE state specific rules about taking cash out of an owner occupied property. So, non-Texas based lenders simply do not understand the rules  well enough so they just do not do them as it just not a  big enough piece of their overall business to take the risk.  So, the attorneys just say they will not do them and the LO's assume it is some sort of law. I have heard all kinds of crazy things on why they can not be done, but they are all made up. You can take cash out of a non-owner occupied cash out in Texas. We do it all the time.

[Alex Bekeza]

@Dmitri L. Texas has some unique cash out refi laws that only pertain to loans which are governed by Dodd Frank (Fannie/Freddie conventional/primary residence).  

NONE of these apply to investor DSCR loans.

Most DSCR products will allow up to 75% cash out in Texas assuming you stay cash flow positive. We don't require you to own your primary residence.

However, you wouldn't be able to incorporate any subordinate or secondary financing. We (most DSCR lenders) would need to be the only lien in 1st position.

Happy to chat through your scenario offline if you'd like. I think you'll be surprised how close the best DSCR loans are to Fannie/Freddie investments rates right now without the vast majority of red tape. (LLC vesting not just allowed but preferred, no cap on # of rentals, no DTI requirements or tax returns, etc... totally based on FICO/DSCR).

[Jay Hurst]

Quote from @Alex Bekeza:

@Dmitri L. Texas has some unique cash out refi laws that only pertain to loans which are governed by Dodd Frank (Fannie/Freddie conventional/primary residence).  

NONE of these apply to investor DSCR loans.

Most DSCR products will allow up to 75% cash out in Texas assuming you stay cash flow positive. We don't require you to own your primary residence.

However, you wouldn't be able to incorporate any subordinate or secondary financing. We (most DSCR lenders) would need to be the only lien in 1st position.

Happy to chat through your scenario offline if you'd like. I think you'll be surprised how close the best DSCR loans are to Fannie/Freddie investments rates right now without the vast majority of red tape. (LLC vesting not just allowed but preferred, no cap on # of rentals, no DTI requirements or tax returns, etc... totally based on FICO/DSCR).

 This is simply incorrect. There are no restrictions from Fannie/Freddie (and Dodd-Frank has nothing to do with it all).  

[Alex Bekeza]

@Jay Hurst Thanks man.  I should have worded it the way you did because I believe we were referencing the same exact restrictions.  I agree that the words Fannie/Freddie/Dodd-Frank were pointless/incorrect though and could have settled for "primary residence".  Solid Fact Check. 

[Dmitri L.]

Quote from @Jay Hurst:

Quote from @Dmitri L.:

Hi All,

I have a TX rental (~250k market value, ~80k loan balance) and want to pull some cash out of the equity via a cash-out refi/heloc/2nd mortgage. 

Unfortunately it looks like there's some rule against the combination of:

- conventional loan

- cash-out refi

- investment property

- borrower does not own a primary residence in TX

Has anyone ran into this type of issue before? Anyone aware of a lender that could help?

TIA!

Dmitri

 @Dmitri L.   There are NO state specific rules regarding taking cash out on a investment property in Texas. We do a  lot of them.  The reason for the confusion is there ARE state specific rules about taking cash out of an owner occupied property. So, non-Texas based lenders simply do not understand the rules  well enough so they just do not do them as it just not a  big enough piece of their overall business to take the risk.  So, the attorneys just say they will not do them and the LO's assume it is some sort of law. I have heard all kinds of crazy things on why they can not be done, but they are all made up. You can take cash out of a non-owner occupied cash out in Texas. We do it all the time.

Thanks Jay (and everyone else) for the helpful feedback! 

The lender specifically referenced this:

    "It’s called the Texas section 50(a)(6) and it involves cash out transactions in TX."

Though as she was reading it over the phone, it didn't sound like it said what she said it did.

Jay will email you shortly, perhaps we can work together on it. TIA!

[Jay Hurst]

Quote from @Dmitri L.:

Quote from @Jay Hurst:

Quote from @Dmitri L.:

Hi All,

I have a TX rental (~250k market value, ~80k loan balance) and want to pull some cash out of the equity via a cash-out refi/heloc/2nd mortgage. 

Unfortunately it looks like there's some rule against the combination of:

- conventional loan

- cash-out refi

- investment property

- borrower does not own a primary residence in TX

Has anyone ran into this type of issue before? Anyone aware of a lender that could help?

TIA!

Dmitri

 @Dmitri L.   There are NO state specific rules regarding taking cash out on a investment property in Texas. We do a  lot of them.  The reason for the confusion is there ARE state specific rules about taking cash out of an owner occupied property. So, non-Texas based lenders simply do not understand the rules  well enough so they just do not do them as it just not a  big enough piece of their overall business to take the risk.  So, the attorneys just say they will not do them and the LO's assume it is some sort of law. I have heard all kinds of crazy things on why they can not be done, but they are all made up. You can take cash out of a non-owner occupied cash out in Texas. We do it all the time.

Thanks Jay (and everyone else) for the helpful feedback! 

The lender specifically referenced this:

    "It’s called the Texas section 50(a)(6) and it involves cash out transactions in TX."

Though as she was reading it over the phone, it didn't sound like it said what she said it did.

Jay will email you shortly, perhaps we can work together on it. TIA!

 yes, the 50(a)(6) is the section of the Texas constitution. This section only has pertains to primary residence in Texas, not non-owner occupied. 

[Dmitri L.]

Quote from @Alex Bekeza:

@Jay Hurst Thanks man.  I should have worded it the way you did because I believe we were referencing the same exact restrictions.  I agree that the words Fannie/Freddie/Dodd-Frank were pointless/incorrect though and could have settled for "primary residence".  Solid Fact Check. 

Thanks for the input though, I think I'll probably need to look into DSCR loans at some point.

What's the max ratio are you/your industry peers typically lending to?

[Alex Bekeza]

There are always exceptions in this world which I'm sure someone will chime in with but realistically, for DSCR, 75% for cash out.

[Dmitri L.]

Quote from @Alex Bekeza:

There are always exceptions in this world which I'm sure someone will chime in with but realistically, for DSCR, 75% for cash out.

Cool, that sounds reasonable. How about for a new purchase/BRRR?

[Alex Bekeza]

@Dmitri L. Without getting too salesy in the forums (to avoid restrictions from BP admins) I'd say 80% LTV is somewhat widely available for DSCR on more or less turnkey purchases (pending debt coverage) although I suspect some loan officer could chime in saying they can do 85% DSCR (won't debt cover at today's rates in 99% of cases especially with property taxes in TX but this is a fairly common "blowing of smoke" I see here in the forums). On a BRRRR, depending on borrower experience and the deal's loan-to-cost vs ARV we're seeing most deals get 85%-90% LTC/75% ARV. (12, 18, or 24 month IO w/ no prepayment penalty designed to refi out into long term debt once value has been forced/property leased).

Feel free to reach out anytime.

[Eric Kump]

Hey Dmitri! I agree with alot of whats been said, different lenders do have different requirements. Have you refinanced within the past 12 months? TX has some specific guidelines if you have, and you would most likely need to wait 12 months to pull any cash out if you have pulled out cash previously.

Feel free to message me if you have any questions! I am a loan officer and licensed in TX. I have done plenty of cash out loans there. 

[Alan Lacey]

as noted above 50(a)6 is is part of Tx constitution limiting cash out on homestead property. It doesn’t apply to non homestead properties which can do a regular cash out loan as not covered by the same constitutional restrictions. 

So either 1. your lender to take cash out on homestead property(or probably more accurately title co or Texas attorney) incorrectly thinking it is homestead because it is your only home in Tz. And in that case covered by constitutional restrictions of 50(a)6 but not eligible for 50(a)6 c/o because it is not a primary.

2. It was homesteaded incorrectly and they are correct.

3. The loan officer just wrong and thinks the only cash out loans you can do in Tx are 50(a)6 because that is only cash out you can do ona primary.

[Erik Estrada]

Quote from @Dmitri L.:

Hi All,

I have a TX rental (~250k market value, ~80k loan balance) and want to pull some cash out of the equity via a cash-out refi/heloc/2nd mortgage. 

Unfortunately it looks like there's some rule against the combination of:

- conventional loan

- cash-out refi

- investment property

- borrower does not own a primary residence in TX

Has anyone ran into this type of issue before? Anyone aware of a lender that could help?

TIA!

Dmitri

There are DSCR lenders that can do first time investors at 75% LTV. Do not have to own your primary residence. You can also do a 2nd trust deed with a hard money loan as long as the CLTV does not exceed 65% of the appraised value.

[Jay Hurst]

Quote from @Eric Kump:

Hey Dmitri! I agree with alot of whats been said, different lenders do have different requirements. Have you refinanced within the past 12 months? TX has some specific guidelines if you have, and you would most likely need to wait 12 months to pull any cash out if you have pulled out cash previously.

Feel free to message me if you have any questions! I am a loan officer and licensed in TX. I have done plenty of cash out loans there. 

 The above only applies to homestead properties, NOT non-owner occupied. 

[Jay Thomas]

It's important to be aware of the legalities surrounding real estate transactions, especially in Texas. The 50(a)6 provision of the state constitution limits cash out on homestead property – but it doesn't apply to non-homestead properties, which can do a regular cash out loan. It could be that your lender is incorrectly thinking that the property is homestead because it is your only home in Texas, and if this is so, it would still be subject to the constitutional restrictions of 50(a)6 – but not eligible for a 50(a)6 cash out. Alternatively, it could be that the homestead was incorrectly declared in the first place – something else you'll need to look into further. All in all, it's important to stay informed and make sure you understand the legalities of any real estate transactions you enter into.

[Dmitri L.]

Thanks everyone for the advice. Just wanted to share that I did manage to do the refi, was actually fairly smooth once I found a good lender to work with :)

Major thanks to @Jay Hurst and his team. They were excellent to work with. Highly recommended!

[Jay Hurst]

Quote from @Dmitri L.:

Thanks everyone for the advice. Just wanted to share that I did manage to do the refi, was actually fairly smooth once I found a good lender to work with :)

Major thanks to @Jay Hurst and his team. They were excellent to work with. Highly recommended!

Thanks Dmitri!