The “SJR 60” went into effect January 1, 2018 and while we could spend all day on the language there were 3 really important changes to Texas Home Equity Laws because of this legislation passing. This is just for Texas and these rules only apply on your primary home. Specially, this is referred to the “Texas 50(a)6 rule”. These rules don’t have anything to do with investment property cash out rules but it might impact us in different ways
1. The 50(a)4 Change - There was a common phrase in Texas “once a cash out, always a cash out” which essentially meant that if you took a Texas Cash Out loan on your primary home it would ALWAYS be a cash out loan…even if you refinance later and didn’t receive cash out. Since January 1, 2018 you can now refinance your 50(a)6 loan into a 50(a)4 loan.
The reason why this is important is that you can now take a cash out loan AND then get a HELOC on your property. Prior to this rule, if you had received a cash out loan you would not have been able to get a HELOC on your home.
In order to convert your 50(a)6 loan into a 50(a)4 loan you would need to…
- Wait 12 months or longer from when you received your 50(a)6 loan
- Refinance your 50(a)6 loan into a 50(a)4 loan
- Not receive any funds when you refinance into the 50(a)4 loan
So while refinancing will be an additional cost you can now tap your equity in the form of a HELOC whereas before you could not. Keep in mind this is ONLY a benefit if you previously received a 50(a)6 loan and you want to receive a HELOC loan on your primary home.
2. HELOC Threshold - Another important change to the law was that the 50% threshold on a HELOC was repealed. Previously, you could only receive 50% of the value of your primary home with a HELOC. You can now tap into greater than 50% of the appraised value of the home. In Texas, the limit on cash out loans is 80% and that threshold is still present but if you own your primary home free and clear your HELOC can now be up to 80% of the value of the property.
3. Ag Exemptions - The 3rd important change to the Texas Cash Out laws is that an property with an agricultural exemption CAN receive a cash out loan. Previous to this change if your property had an agricultural exemption you would have had to remove that exemption, refinance into the 50(a)6 loan, then reapply for your exemption. Since each county governs this exemption it was very difficult with some counties and still really annoying with other counties. Now, none of that is even necessary. Keep your agricultural exemption and receive a cash out loan.
Texas cash out laws are very confusing. Probably the most confusing of any of the 50 states. But the change this January helps out those of us who live in Texas. If you have any other questions on these changes feel free to post here. Thanks!
Great update, thank you!
Great info Thank you!
Thank you for summarizing the changes. One of them actually puts me in a position to do what I wanted to do but couldn't.
Now if only Texas would allow HELOC on investment properties...
This is a pretty random first post... But does anyone know if Texas allows HELOCs in first lien position? I'd like to refinance into this type of loan and use equity from the house for investment purposes in addition to eliminating a high volume of interest.
Great info. I hadn't heard about the change in the % on HELOCs.
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