Cash out refi illegal in Texas?

Question

I am currently piecing together my first BRRRR investment in Texas. In the interest of adding more properties quickly I am especially interested in the Renovation and Refi sections of the strategy.

I reached out to the loan officer that conducted my recent primary house purchase and they are saying that cash out refinance on an investment property is not allowed in Texas.

If this is true, how do people get equity out of the investment to roll into the next property?

Thank you in advance!

Eric James · Answer

LOL. I do them with commercial loans that even have no seasoning period. Ask to speak with someone who has been working there more than a week.

Andrew Postell · Answer

@Craig Gifford unfortunately, this is all too common.  You can certainly get a cash out loan on an investment property in Texas.  You can do it with either a commercial loan or a conventional loan.  Find a different lender.

Andrew Postell · Answer

@Matt Devincenzo I've been told that BRRRR'ing a property is illegal.  Sometimes just speaking to a wrong lender is part of it.  Keep in mind that investment properties foreclose at a higher rate than primary homes.  So some lenders don't want to mess with investment properties at all.  And some will put so many restrictions that it becomes really challenging.  And that's why we preach finding "investor friendly" lenders.  I wrote an entire post you can read on this topic HERE.

But for this specific element, Texas has rules to taking cash out of PRIMARY homes.  Rules like - the lender has to have a brick and mortar location in the state, fees are limited, you can only go up to 80% LTV, and so forth.  And because of that, some lenders won't write cash out loans here at all.  And if that lender were to train their team that this is allowed...but just at different lenders....then that team would leave to another lender.  I know this because I used to work at one of those places....which is exactly why I left when I learned that it is allowed.

Anyway, I hope that makes sense how I am describing it.

Joe Splitrock · Answer

Texas is the only state that has restrictions on cash out finances and it is for primary residence only as you mention. Many lenders write the majority of mortgages on primary residence, so it may just not come up often enough for them to be aware that investment properties are treated differently.

There were also changes that took place in 2017, which reduced restrictions so lenders may be working off old information. I think there are still restrictions that prevent cash out refinance on VA or FHA loans, so that could also add to the confusion. Maybe the original loan was FHA or VA and that is confusing them.

I would just point out to the lender that legal restrictions on Section 50 (a) (6) do not apply since this is not a primary residence. That being said, cash out refinances can be subject to other difference like higher interest rates.

Eric James · Answer

Maybe misconceptions like that come from miscommunication. The bank tells employees that they don't do cash out refi's, and employees interpret that to mean they are illegal.

Eric Willis · Answer

I had the same experience two years ago on my first BRRRR Texas.  I had just finished rehab and had it rented and when I went to refi I remember kind of freaking out a little at the time.  As some others have posted you just keep searching for a different lender. I had luck with a local credit union in my area (have done 2 total with same bank to date now).  When I was informed refi in Texas was illegal I was not given a specific reason.  You’ll likely also hear about different time frames you have to have owned the property before you can refi as well. The varying responses from lenders are common. Just keep calling around and you’ll find a lender in who should do it.

Matt Devincenzo · Answer

@Andrew Postell could you explain the high level 'why' they say no to a cash out refi in TX? I know I have heard this before, and my understanding is there is something specific to TX that is legitimate behind the statements...but it can be done.

Craig Gifford · Answer

Thank you @Andrew Postell

Craig Gifford · Answer

Thank you @Eric James

Cash out refi illegal in Texas?

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