Home equity line of credit on investment property in Texas

9 Replies

All,

I’ve called several banks in Texas already but they have all seem to not give home equity lines of credit on a investment property. Only on owner occupied places. 

Should I keep calling around or is that something that is not allowed by rules and regulations?

Background: I have a SFR that I purchased in 2014 as a investment property. This was not owner occupied or a second/vacation home. Looking to get a line of credit to purchase more real estate.

Any help is highly appreciated!

hi Arun, I live in Houston and had the same problem. we bought a house in 2012 and kept it to rent when we purchased our next house. after calling about 10 banks I was finally told that texas state law does not allow helocs on investment property. A heloc can only be used for an owner occupied property. however you can do a home equity loan for up to 70% of the value of the home. The total of all loans on the property have to be less than 70% in order to do this. alternatively you can do a cash out refinance if you own the home free and clear. it's basically the same thing as a home equity loan. Current rates are about 4.5% interest on these types of investment loans.

The cash out refi seems like the way to go there.

But that does surprise me that texas would have written a law forbidding a heloc on an investment property. For what purpose? They always seem to tell everyone how proud they are that they have such little business regulation. Yet they seem to have some of the oddest laws governing financing and investment properties I've heard.

i.e. No heloc's on investment properties. No seller financing. etc.

At least your property isn't Ag Exempt... because then you couldn't touch a dime of your property's equity at all. Texas definitely has some strict lending policies when it comes to real estate. While it can be a pain in the butt, it's the reason why Texas wasn't hit nearly as bad as the rest of the country when the housing market collapsed. 

Apppreciate everyone’s reply. I called roughly 10 banks yesterday too and when they all told me they didn’t do heloc’s on investment properties I followed up with whether it was a Texas law or bank specific. They all said bank specific which made things more confusing. 

At least I can stop calling now. 

I’ll take a second look at the home equity loans. How is that different from a refi?

A home equity loan and a cash out refinance are basically the same thing. The difference is you do a cash out refinance if there is not a current lien on the property and you own it free and clear. Home equity loans are for properties with current liens on them. Either way you can borrow up to 70% -75% of the appraised value of the home. Just subtract whatever % you have in current liens from 70% and that will tell you the potential about you can borrow. Both are essentially just 2nd mortgages at a higher interest rate. You will get 1 lump sum at closing and be expected to start payments the following month. The nice part is there are usually no up front costs at closing. All closing costs are just rolled into the loan and deducted from the amount borrowed. One other thing to be aware of though is Texas has really high closing costs on loans. Expect to pay at least 2 to 3 times what some other states charge.
Originally posted by @Mike H. :

The cash out refi seems like the way to go there.

But that does surprise me that texas would have written a law forbidding a heloc on an investment property. For what purpose? They always seem to tell everyone how proud they are that they have such little business regulation. Yet they seem to have some of the oddest laws governing financing and investment properties I've heard.

i.e. No heloc's on investment properties. No seller financing. etc.

 Remember Texas had a huge issue with the S&L crisis /oil shock in the 80's.  They have very strict homestead, and real estate loan requirements because of it. 

And yes it did keep us from having a huge run up and huge drop in 07.

I just did a 75% cash out refi on an investment property.  It had an existing mortgage and I had no issue getting the loan.  Got a better interest rate and a 30 year term.  The biggest portion of my closing costs were the escrow amounts for taxes and insurance, but I got a refund of escrow from the existing loan that just about evened that out.   I believe we paid 1% origination fee, we have a title company that gives us a break on all their work, and we also got a refund on the previous title policy.

@Arun Chandra you can absolutely do a HELOC on an investment property here in Texas. Admittedly, it is extremely difficult to find though. What part of Texas is your property in? I am in Dallas-Fort Worth so all of my contacts are here. I had to call about 200 banks but I did find 4 that can do it. PM for more details.

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