Texas Home Equity Loan Laws

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Home equity laws in Texas protect consumers.
Home equity laws in Texas protect consumers. (Image: texas map image by Vladislav Gajic from <a href='http://www.fotolia.com'>Fotolia.com</a>)

When a homeowner in Texas needs to borrow for any purpose, he can make a home equity loan and secure the loan with a lien on his property. Equity is simply the difference between the current fair market value of your property, less them amount that he owes on it. So, if you still owe $100,000 on a house worth $300,000, you are said to have $200,000 worth of equity. Home equity loans were not available in Texas until 1997, and its laws go farther in protecting homeowners than most other states.

One at a Time

In Texas, unlike most other states, you must pay off a home equity loan entirely before you can make another loan against your house. That's opposed to a state like California that experienced a huge run-up in housing values. To tap into the accumulated appreciation, people remortgaged their homes, having pledged them a multiple of times. In addition, regardless of how quickly you pay off your home equity loan, you cannot apply for another home equity loan for one year in Texas.

80 Percent Rule

A combination of your first mortgage and your home equity loan may not exceed 80 percent of the fair market value of your home. Let's say you have a home that's worth $200,000, and you owe $100,000. You would be able to make a $60,000 home equity loan secured by your home. ([.8 x $200,000] - $100,000). However, if you owed $165,000 on your home, you would not be able to apply for a home equity loan in Texas.

Buyer's Remorse

Even after a home equity loan is executed, the borrower has three days to cancel the loan; and if she does, she will not have to pay any penalties. For that reason, the proceeds of that loan will not be delivered to the borrower until that time has expired.

Other Laws in Texas Governing Home Equity Loans

A lender cannot charge any more than 3 percent of the loan's value in fees. The state of Texas will impose a serious penalty on a lender when excess charges are revealed. In addition, a home equity loan cannot be closed within 12 days after a person applies for the loan and it must be closed at an office of the lender, at an attorney's office or at a title company's office.

Furthermore, the borrower will be given a statement of the fees he will pay at least a day before the closing unless the borrower waives his rights to one. Finally, the lender may not take as security any other of the borrower's assets as collateral except his home. And agricultural land and so-called “open space” cannot be taken as security for a home equity loan.

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