Can you have a HELOC and Home Equity Loan?

Question

Strange situation. We added onto our primary home about five years ago and rolled the construction loan and Initial mortgage into a single primary mortgage. We now have significant equity in the home with the one mortgage on it. We recently found that the bank is reporting the loan to Equifax as a Home Equity Loan. To our knowledge it was just a standard 30 year mortgage when we got it.

We now want to draw on some of the equity to make other investment purchases but will we be able to do a HELOC or fixed home Equity Loan with the way our primary mortgage is reported? Is this something we can change without refinancing? We have great rates on it and don’t want to completely refinance. What are our options? TIA!

Jay Hurst · Answer

Account Closed   It does not matter how it is reporting to the credit bureau. It matters how the title reads.  If it is an A(6) loan (that is the paragraph of the Texas constitution that pertains to home equity loans) then you would NOT be able to get HELOC or Home equity because the Texas law says you can only have one cash out loan at a time. so, if your first is currently a cash out loan then you can not get another one.

If you have your closing docs from the refi IF there is a doc called a "12 day letter" then that means that it is a cash out loan if you have not had title already pulled.  But, again, I have seen plenty of loans called a "home equity"  on credit reports when they are in fact NOT.  For example, every second lien I have every seen by Wells Fargo says "home equity" on the credit report even if they were purchase money which cannot be a home equity loan. Feel free to reach out with any questions as we do a lot of equity loans in Texas.

Trevor Reed · Answer

What Jay said is accurate.  If you have a Texas A6 loan currently you cannot get a HELOC.  It's been long enough, you could rate/term into a conventional loan then get a HELOC or do another cashout refi, but more than likely it won't make sense since you have a lower rate currently I'd assume. Of course you'll want to check your closing docs to be certain.  There are some private lender's out there that may be able to work something out but make certain you use a lawyer before engaging in anything like that.   Happy to be a resource and answer any other questions you may have.