Home Equity Loan on duplex in Austin Texas

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Home Equity Loan on duplex in Austin Texas

Eric Guiltinan
Austin, TX · Member since 2015 · 40 posts · 33 votes

Hi BP,

This question goes out to all the Texas mortgage brokers and bankers out there. I have a duplex in Austin Texas that I would like to leverage for the purchase of another property. I lived in the duplex for one year after purchasing. I'd prefer to do a home equity loan instead of a refinance so that I do not have to give up my owner occupant rate. I understand that Article XVI, Section 50 of the Texas constitution forbids home equity loans on non owner occupied properties (only homesteads are allowed). If I were to move back into one side of the duplex could I take out a home equity loan? If so, would the appropriate LTV be 85%, 80%, or 75%? I believe my current LTV to be about 59%.

I've read that there are some issues with getting a home equity loan on a property that is generating rent.  Something about "additional collateral" which I don't fully understand.  I homesteaded the property when I lived in it and at the time TCAD wanted to know the square footage of each side.  I believe I technically only homesteaded 50% of the property.  At least I definitely only got 50% of the homestead tax exemption.  

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
8y

@Eric Guiltinan @Austin Styer There is a LOT of misconceptions to this and I wanted to give some quick pointers on how to be successful when seeking cash out here in Texas.

1. You can ABSOLUTELY get a cash out loan on any 1-4 unit property with Fannie/Freddie in Texas. Even if the property is an investment property. The cash out limit will be limited to 75% on a SFH and 70% on a 2-4 unit property. Many banks DO NOT offer this loan and will blame it on the law but it is absolutely possible to do this. And just for clarification in case others read this, Fannie/Freddie loans would be a 30 year fixed rate mortgage. More on different products below

2. This is going to sound crazy but saying HELOC on an investment property will confuse a bank. To get more success if you are looking for this type of product you want to use the phrase "Line of Credit"...I know it sounds like we are splitting hairs but this is absolutely imperative to find this product in Texas. It is SUPER hard to find a LOC product here in Texas anyway but using that term will help. I had to call about 200 banks up here in Dallas and I found 3 that will do it. It's really hard but it is possible. The smaller the bank the better. If the bank has one location, that bank will be more likely to do it than a bank with 100 locations. Call both, but start with the smaller ones.

Keep in mind that the people you spoke with are trained to blame their bank's limitations on the state law.  Don't take this out on them.  Having been trained this way from a bank...and then seeing that things were very different...it made me very angry.  Don't get mad at the loan officer, they are told to say this stuff.  Drives me crazy but finding cash out loans in Texas is VERY possible...might be hard...but absolutely possible. 

Eric, your original post was about a property that you no longer live in.  If you have since moved back into the house let me know and I can give different guidance.

Hope this helps in some way.  Thanks!

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  • Eric Guiltinan
    OP
    Austin, TX · Member since 2015 · 40 posts · 33 votes
    8y

    @Andrew Postell  Thanks Andrew.  This post has gotten quite confusing but what @Austin Styer and I, and others on this thread, are talking about is owner occupied multis.  The previous posts reference the section of the Texas constitution that Fannie and Freddie and other banks have interpreted to mean it is against the law.  

    As a lender, do you have any experience with closing a cash-out refi or a home equity loan on an owner occupied 2-4 unit in Texas?

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    8y

    @Eric Guiltinan ok, no problem. So if you live in the property, and are seeking a cash out loan, with a 2-4 unit property, the only method I have seen to be successful to this is to deed the property to your company.  Then you lease the property from your company.  You'll lose your homestead on the property but that's the point.  Once it's not homesteaded, then you can do a cash out loan.  You'll need to speak with the state on how long it takes to remove a homestead exemption too but that's the only way I have seen receiving a cash out loan work on a 2-4 unit property when you live in it.

    1Reply
  • Randon B.
    Appraiser · Austin, TX · Member since 2014 · 162 posts · 19 votes
    7y

    Only problem with doing the cashout refi is that you're now considered an investment property and the rates change. SO DUMB

    1Reply
  • Timmy Fritz
    Investor · Austin, TX · Member since 2018 · 20 posts · 17 votes
    6y

    @Andrew Postell @Eric Guiltinan Wanted to follow up on this since I noticed this post was initially asked before the new legislation for home equity laws passed. Wasn't sure what impact, if any, it might have on this strategy, or if any new light has come to this.

    I close on a property this month, and remembered reading the remark about the "2 kitchens rule" awhile back. Figured I'd do more digging to see how this will affect me when I go to cash out refi in 12 months or so. The property I am closing on is technically a SFH, but has a detached 2nd story garage apartment. Also, is zoned SF-2, so condo-ing them off isn't an option currently.

    Would seem backwards if I wouldn't be able to find a lender for a cash-out refi based on it being "2 units", and also wouldn't be able to condo separately because it isn't recognized as 2 units.

    Any recommendations here on what strategy to use for the best LTV & rate would be appreciated!

    Also, will be calling several banks before closing and will post any information that I find out!

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    6y

    @Timmy Fritz if you are occupying a single family home with an "accessory" unit then that is 100% totally fine.  That is certainly within the legal allowances of what is considered a single family home.  

    1Reply
  • Vesh Nadkarni
    Investor · Austin, TX · Member since 2017 · 1 post · 0 votes
    5y

    I've called about a dozen banks and Credit Unions over the past week in the Austin area for this exact reason. So far A+ FCU is the only one willing to entertain a Home Equity Loan (2nd lien) on an owner-occupied (primary residence) duplex. I'm still waiting to go through the loan approval process. Will keep y'all posted! 

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  • Andrew W.
    Investor · Austin, TX · Member since 2017 · 71 posts · 76 votes
    4y

    @Vesh Nadkarni were you successful with getting a HELCO on an owner-occupied duplex with A+ FCU?

    0Reply
  • Brian Ploszay
    Member since 2021 · 28 posts · 5 votes
    4y

    Off the subject a bit, my advice is for your second purchase also to be in the Austin area.

    0Reply
  • Jason Pavloff
    Austin, TX · Member since 2017 · 34 posts · 7 votes
    4y

    I tried this for about 3 years calling bank after bank. 

    1st, if its income producing (duplex) that will stop them/you if you only own one property. If you own more than one property and its your homestead doors will open for you, in my findings. 

    Currently now in 2022, its much much harder. The banking laws have forced banks to only allow so many rental properties on their books. I'm now finding banks wont just because they are currently at their max and cant take on anymore rentals. This is here locally in Austin, RBFCU and UFCU. 

    In 2018 I was able to do a HELOC with RBFCU on my duplex when now on a different property (duplex) they currently don't offer HELOC's on duplexes, same back RBFCU. Funny thing is I paid off my HELOC $35K in 2 years, you would think with my past history they could make an exception. You hear Brandon always talk about building credit with local banks...

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