Repeat after me: Once cash-out, always cash-out!
The main issue with Texas loan is whether the homeowner at some point received a cash out loan along the way. Many times it's hard to detect upon initial application. The only real way to check is after the prelim comes in. So, what we do as originators is price the deal rate and term or FHA rate and term and prelim comes back and BLAMO!, dead deal or you have a FAT/JUICY LLPA that makes your deal STC or you must re-price and offer @ a higher APR. YES you can add in taxes ( non delinquent ones that is!!) and all the NRCC's in the loan and WILL NOT violate the TX cash out 50 (a) (6) rule. Make dang sure you client knows upfront that their new loan will be short to close @ COE. So, keep your spurs on and get bank statements and make sure the cash to close comes from verified source! On non-50 (A) (6)/R&T's: Pad your payoffs a tad as usual but send out the discos $150.00-200 SHORT!!
Also, keep in mind that this state requires a PROPERTY SURVEY on all transactions to clear title. So...on the front end make sure you ask the homeowner IF they have one and for them to send it to you in the beginning. Just add it to your NEEDS LIST up front. IF you have a cash-out 50 A-6 loan, there will be an additional $200-ish fee for the final HUD/DOCS attorney review. Make sure it's on your initial itemization!. Also, IF your homeowner doesn't have their survey, you will need to order one from a certified surveyor. ( the fee is about $350 POC )
VA Loans
Texas cash out refinances, Section 50 (a)(6) are not allowed.( check your prelims!!! look for the verbiage )
50 (a) (6) Cash-Out Govies not allowed loans in TEXAS!!
Harp 1 or 2
Texas Owner Occupied Homestead Cash Out:
Loans under Texas amendment 50, Article XVI of the Texas Constitution, which became effective
January 1, 1998 (Owner Occupied Homestead cash-out refinance transactions) are NOT allowed.
All loans must receive a Property Inspection Waiver (PIW) from DU in order to be
eligible.
• For loans that do not receive a PIW, and do require an appraisal, please refer to the standard
DU Refi Plus program
ARMs
• Texas Cash Out 50-A-6 on Homestead properties not allowed. Fixed only!!
Conforming Fixed
Texas Cash out Refinances:
• All transactions limited to 80% LTV/CLTV
A cash-out refinance is any refinance transaction that does not meet the requirements above.
For all cash out transactions, the borrower must comply with the following:
• Must have owned the property for six months prior to the application date.
• If the property was listed for sale in the past 6 months, LTV for cash out refinance may not
exceed 70%.
• All cash-out refinance transactions require a full appraisal.
No more 2075's and 2055's : (
CONFORMING FIXED RATE
TEXAS CASH OUT REFINANCES
UNDERWRITING METHOD
• DU/DO Automated Underwriting
• Credit Score determined by DU/DO
• Ratios determined by DU/DO
• Reserves determined by DU/DO
ELIGIBLE TRANSACTIONS
• A new loan is originated for the purpose of taking equity out (cash out refinance)
• An existing Texas Section 50(a)(6) first or second mortgage is paid off by a new first mortgage
• Once a mortgage is considered a Texas Section 50(a)(6) Loan, any subsequent refinance is
considered a Texas Section 50(a)(6) Loan, regardless of whether the borrower receives any cash
at closing. ( ALWAYS and FOREVER!!!) the 50 (a) (6) status stays with the home(stead) not the homeowner!
• There can not be more than one Texas Section 50(a)(6) Loan on a property at one time (one time
cash out for life of loan)
ELIGIBLE LOAN TYPES
• Conforming Fixed Rate 15,20, and 30 year only
INELIGIBLE LOAN TYPES
• Interest Only
• Libor ARMS
• Agency Jumbo
• Government Loans (FHA / VA)
PROGRAM PARAMETERS
MAXIMUM LTV/CLTV • 80%/80%/80%
MAXIMUM LOAN AMT • $417,000 ( US BANK will go to 90% cash out >$1MM )
OCCUPANCY • Owner Occupied Only
• Prelim must reflect the subject property as homestead
• No Investment or 2nd homes!!!
SUBORDINATE FINANCING
New subordinate financing on a first lien Texas Section 50 (a)(6) loan is not permitted.
• Only non-50(a)(6) subordinate financing is permitted
• Any HELOC being paid off must be closed and fully reconveyed
• The subordinate 2nd mortgage must meet the 80% CLTV requirements
SEASONING
Texas permits only one equity loan at one time and only one within a 12 month period. Add BBQ sauce!
IF an existing Texas Section 50(a)(6) first or second mortgage will be paid off, the lender must
verify that 12 months have passed since the closing date of the existing Texas Section 50(a)(6) loan
being paid off before a new Texas 50(a)(6) lien can be secured.
FHA
ELIGIBLE LOAN TYPES/SECTION OF THE ACT
• 203(b) Basic, 203(b)
• Streamline 30 year fixed, 3/1 Arm, 5/1 Arm
Section of the Act and ADP Code
203(b) Fixed rate Mortgages ADP Code 703 Includes 3/1 & 5/1 Arm
203(b)/234(c) “Condo” Fixed rate Mortgage ADP Code 734
INELIGIBLE LOAN TYPES
Graduated Payment Mortgages
Growing Equity Mortgages
Loans to non-profit organizations
Loans with private water purification systems requiring an escrow for maintenance
Texas Section 50 (a)(6) Program
Construction to permanent loans with modifications
Non-occupant borrowers on multi-unit dwellings.
Non-occupant co-borrowers not allowed for cash out refinances
All Expanded Documentation Process types
FHA $100 Down Payment Program
203K rehab not eligible
Deed Restricted Properties
Non-Traditional Credit
High Balance 15 year fixed ( see notes )
High Balance 3/1 and 5/1 ARM’s
STATE RESTRICTIONS
NOTE: Cash-out refinances are not permitted for FHA loans in Texas….Let me say it again…NO FHA/VA CASHOUT IN TEXAS!!!
Cash-out refinances are not permitted for FHA loans in Texas. Texas rate & term
refinances are limited to 10% total financed closing cost of new loan amount.
FREDDIE OPEN ACCESS
Texas Owner Occupied Homestead Cash Out – not eligible:
Loans under Texas amendment 50, Article XVI of the Texas Constitution, which became effective
January 1, 1998 (Owner Occupied Homestead cash-out refinance transactions) are NOT allowed
JUMBO FIXED & AGENCY
Texas Cash Out on Homestead properties not allowed
JUMBO FIXED AND ARM
RATE/TERM REFINANCES
Transactions meeting the following criteria are to be Rate/Term refinances (additional requirements apply to
owner-occupied homestead properties in Texas - refer to Texas Rate and Term refinances below.
• Payoff of the current mortgage (principal balance plus accrued interest, and any required prepayment
penalty, only; other costs such as late fees and past-due amounts may not be paid with the new loan)
- If the first mortgage is a Home Equity Line of Credit (HELOC) a copy of the HUD-1 Settlement
Statement from the borrower's purchase of the subject property, or documentation of home
improvements made to the property, must be provided evidencing the proceeds were used in
their entirety to acquire or improve the subject property
• Payoff (as defined above) of any subordinate mortgage lien used in its entirety to acquire or improve the
subject property
• Payoff (as defined above) any other mortgage lien against the subject, provided:
- The lien has been open at least 12 months, and
- Total draws in the past 12 months do not exceed 2% of the new first mortgage amount
• Standard loan fees (e.g., closing costs on the new mortgage; prepaids, such as interest, taxes and
insurance, etc; and points)
• Incidental cash to the borrower not to exceed 1% of the principal balance of the new loan amount
Temporary Buy-downs are not allowed.
Texas Rate and Term Refinances:
Once the borrower has executed a home equity/cash-out refinance on
an owner occupied, homestead property under Section 50(a)(6), Article XVI of the Texas Constitution, all
subsequent transactions are considered home equity-cash-out refinances until title is transferred. In other
words, once a cash-out, always a cash-out. Therefore, a rate/term refinance originated to pay off an existing
home equity/cash-out mortgage is ineligible.
Documentation (commitment for title insurance, mortgage/deed of trust and/or HUD-1) must be provided in
each loan package to verify that a home equity/cash-out loan under Section 50(a)(6) has not previously been
originated against the subject property.
JUMBO FIXED AND ARM
CASH OUT REFINANCE:
The following guidelines apply to all rate/term refinances secured by owner occupied, homestead properties in
the state of Texas:
• Total financed closing costs are limited to 10% of the new loan amount. 10% is deemed reasonable.
• Special title insurance coverage must be obtained when impounds for prepaid expenses are included in
the new loan amount. The following must be included as a Schedule B Exception:
- Possible defect in lien of the insured mortgage because of the Insured's inclusion of reserves or
impounds for taxes and insurance in the original principal of the indebtedness secured by the
insured mortgage.
Incidental cash back to the borrower at closing is not allowed.
TIP Get bank statements on EVERY LOAN
Pay Off of Subordinate Lien(s) - Subordinate liens used entirely to purchase the subject property may
be eligible for payoff as a rate/term refinance, subject to the following requirements
If the subordinate lien was used entirely for home improvements, the lien is eligible for pay off as a
rate/term refinance.
• The subordinate lien must have been originally closed using the entire amount for home improvements
as evidenced by a Mechanic's lien contract on the commitment for title insurance. Documenting the
home improvements by obtaining canceled checks, invoices, receipts, lien waivers, etc., is not
acceptable.
Jumbo cash out refinance transactions are ineligible. ( Unless you do US Bank )
Home Equity/Cash-out Refinance Transactions under Section 50(a)(6) are not eligible
INTERVIVOS / REVOCABLE TRUSTS:
Living ("inter vivos") trusts must comply with local state regulations and the following requirements to be
eligible for financing:
To be eligible the borrower must be:
• The settlor, or the person who created the trust, and
• The beneficiary, or the person who is designated to benefit from the trust, and
• The trustee, or the person who will administer the trust for the benefit of the beneficiary, the borrower.
Eligible borrowers include:
• One or more borrowers with one living trust, or
• Two or more borrowers with separate living trusts, or
The following documentation is required:
1. Attorney's Opinion letter from the borrower's attorney verifying all of the following:
a. The trust was validly created and is duly existing under applicable law,
b. The trust is revocable,
c. The borrower is the settlor of the trust and the beneficiary of the trust,
d. The trustee is:
• Duly qualified under applicable law to serve as trustee,
• Is the borrower,
• Is the settlor,
• Is fully authorized under the trust documents and applicable law to pledge or otherwise
encumber the trust assets
2. Complete copy of the trust documents certified by the borrower to be accurate, OR A copy of the
abstract or summary for jurisdictions that require a lender to review and rely on an abstract or summary
of trust documents instead of the trust agreements.
NON-CONFORMING PROGRAMS/ MOST PORTFOLIO LENDERS
Rate & Term refinance must meet the following, if prepaids and taxes are included
in the loan amount:
• The prepaids and taxes are limited to 5% of the loan amount.
• The following language must be included in Schedule B of the Title Insurance:
“Possible defect in lien of the insured mortgage because of the insured’s
inclusion of reserves or impounds for taxes and insurance in the original principal
of the indebtedness secured by the insured mortgage.”
• The following P-39 Standard Language must be included in the Title Insurance
Policy: “Company insures the Insured against loss, if any, sustained by the
Insured under the terms of this Policy by reason of a final, non-appeasable
judgment of a court of competent jurisdiction that divests the Insured of its
interest as Insured because of this right, claim, or interest.
Company agrees to provide the defense to the Insured in accordance with the terms of this Policy if
suit is brought against the Insured to divest the Insured of its interest as Insured
because of this right, claim or interest.
Jumbo Cash Out refinances, on Primary Residences located in Texas, are not allowed. ( most investors)
Texas cash out refinances, Section 50 (a)(6) are not allowed.( check your prelims!!! look for the verbiage )
50 (a) (6) Cash-Out Govies not allowed loans in TEXAS!!
Harp 1 or 2
Texas Owner Occupied Homestead Cash Out:
Loans under Texas amendment 50, Article XVI of the Texas Constitution, which became effective
January 1, 1998 (Owner Occupied Homestead cash-out refinance transactions) are NOT allowed.
All loans must receive a Property Inspection Waiver (PIW) from DU in order to be
eligible.
• For loans that do not receive a PIW, and do require an appraisal, please refer to the standard
DU Refi Plus program
ARMs
• Texas Cash Out 50-A-6 on Homestead properties not allowed. Fixed only!!
Conforming Fixed
Texas Cash out Refinances:
• All transactions limited to 80% LTV/CLTV
A cash-out refinance is any refinance transaction that does not meet the requirements above.
For all cash out transactions, the borrower must comply with the following:
• Must have owned the property for six months prior to the application date.
• If the property was listed for sale in the past 6 months, LTV for cash out refinance may not
exceed 70%.
• All cash-out refinance transactions require a full appraisal.
No more 2075's and 2055's : (
CONFORMING FIXED RATE
TEXAS CASH OUT REFINANCES
UNDERWRITING METHOD
• DU/DO Automated Underwriting
• Credit Score determined by DU/DO
• Ratios determined by DU/DO
• Reserves determined by DU/DO
ELIGIBLE TRANSACTIONS
• A new loan is originated for the purpose of taking equity out (cash out refinance)
• An existing Texas Section 50(a)(6) first or second mortgage is paid off by a new first mortgage
• Once a mortgage is considered a Texas Section 50(a)(6) Loan, any subsequent refinance is
considered a Texas Section 50(a)(6) Loan, regardless of whether the borrower receives any cash
at closing. ( ALWAYS and FOREVER!!!) the 50 (a) (6) status stays with the home(stead) not the homeowner!
• There can not be more than one Texas Section 50(a)(6) Loan on a property at one time (one time
cash out for life of loan)
ELIGIBLE LOAN TYPES
• Conforming Fixed Rate 15,20, and 30 year only
INELIGIBLE LOAN TYPES
• Interest Only
• Libor ARMS
• Agency Jumbo
• Government Loans (FHA / VA)
PROGRAM PARAMETERS
MAXIMUM LTV/CLTV • 80%/80%/80%
MAXIMUM LOAN AMT • $417,000 ( US BANK will go to 90% cash out >$1MM )
OCCUPANCY • Owner Occupied Only
• Prelim must reflect the subject property as homestead
• No Investment or 2nd homes!!!
SUBORDINATE FINANCING
New subordinate financing on a first lien Texas Section 50 (a)(6) loan is not permitted.
• Only non-50(a)(6) subordinate financing is permitted
• Any HELOC being paid off must be closed and fully reconveyed
• The subordinate 2nd mortgage must meet the 80% CLTV requirements
SEASONING
Texas permits only one equity loan at one time and only one within a 12 month period. Add BBQ sauce!
IF an existing Texas Section 50(a)(6) first or second mortgage will be paid off, the lender must
verify that 12 months have passed since the closing date of the existing Texas Section 50(a)(6) loan
being paid off before a new Texas 50(a)(6) lien can be secured.
FHA
ELIGIBLE LOAN TYPES/SECTION OF THE ACT
• 203(b) Basic, 203(b)
• Streamline 30 year fixed, 3/1 Arm, 5/1 Arm
Section of the Act and ADP Code
203(b) Fixed rate Mortgages ADP Code 703 Includes 3/1 & 5/1 Arm
203(b)/234(c) “Condo” Fixed rate Mortgage ADP Code 734
INELIGIBLE LOAN TYPES
Graduated Payment Mortgages
Growing Equity Mortgages
Loans to non-profit organizations
Loans with private water purification systems requiring an escrow for maintenance
Texas Section 50 (a)(6) Program
Construction to permanent loans with modifications
Non-occupant borrowers on multi-unit dwellings.
Non-occupant co-borrowers not allowed for cash out refinances
All Expanded Documentation Process types
FHA $100 Down Payment Program
203K rehab not eligible
Deed Restricted Properties
Non-Traditional Credit
High Balance 15 year fixed ( see notes )
High Balance 3/1 and 5/1 ARM’s
STATE RESTRICTIONS
NOTE: Cash-out refinances are not permitted for FHA loans in Texas….Let me say it again…NO FHA/VA CASHOUT IN TEXAS!!!
Cash-out refinances are not permitted for FHA loans in Texas. Texas rate & term
refinances are limited to 10% total financed closing cost of new loan amount.
FREDDIE OPEN ACCESS
Texas Owner Occupied Homestead Cash Out – not eligible:
Loans under Texas amendment 50, Article XVI of the Texas Constitution, which became effective
January 1, 1998 (Owner Occupied Homestead cash-out refinance transactions) are NOT allowed
JUMBO FIXED & AGENCY
Texas Cash Out on Homestead properties not allowed
JUMBO FIXED AND ARM
RATE/TERM REFINANCES
Transactions meeting the following criteria are to be Rate/Term refinances (additional requirements apply to
owner-occupied homestead properties in Texas - refer to Texas Rate and Term refinances below.
• Payoff of the current mortgage (principal balance plus accrued interest, and any required prepayment
penalty, only; other costs such as late fees and past-due amounts may not be paid with the new loan)
- If the first mortgage is a Home Equity Line of Credit (HELOC) a copy of the HUD-1 Settlement
Statement from the borrower's purchase of the subject property, or documentation of home
improvements made to the property, must be provided evidencing the proceeds were used in
their entirety to acquire or improve the subject property
• Payoff (as defined above) of any subordinate mortgage lien used in its entirety to acquire or improve the
subject property
• Payoff (as defined above) any other mortgage lien against the subject, provided:
- The lien has been open at least 12 months, and
- Total draws in the past 12 months do not exceed 2% of the new first mortgage amount
• Standard loan fees (e.g., closing costs on the new mortgage; prepaids, such as interest, taxes and
insurance, etc; and points)
• Incidental cash to the borrower not to exceed 1% of the principal balance of the new loan amount
Temporary Buy-downs are not allowed.
Texas Rate and Term Refinances:
Once the borrower has executed a home equity/cash-out refinance on
an owner occupied, homestead property under Section 50(a)(6), Article XVI of the Texas Constitution, all
subsequent transactions are considered home equity-cash-out refinances until title is transferred. In other
words, once a cash-out, always a cash-out. Therefore, a rate/term refinance originated to pay off an existing
home equity/cash-out mortgage is ineligible.
Documentation (commitment for title insurance, mortgage/deed of trust and/or HUD-1) must be provided in
each loan package to verify that a home equity/cash-out loan under Section 50(a)(6) has not previously been
originated against the subject property.
JUMBO FIXED AND ARM
CASH OUT REFINANCE:
The following guidelines apply to all rate/term refinances secured by owner occupied, homestead properties in
the state of Texas:
• Total financed closing costs are limited to 10% of the new loan amount. 10% is deemed reasonable.
• Special title insurance coverage must be obtained when impounds for prepaid expenses are included in
the new loan amount. The following must be included as a Schedule B Exception:
- Possible defect in lien of the insured mortgage because of the Insured's inclusion of reserves or
impounds for taxes and insurance in the original principal of the indebtedness secured by the
insured mortgage.
Incidental cash back to the borrower at closing is not allowed.
TIP Get bank statements on EVERY LOAN
Pay Off of Subordinate Lien(s) - Subordinate liens used entirely to purchase the subject property may
be eligible for payoff as a rate/term refinance, subject to the following requirements
If the subordinate lien was used entirely for home improvements, the lien is eligible for pay off as a
rate/term refinance.
• The subordinate lien must have been originally closed using the entire amount for home improvements
as evidenced by a Mechanic's lien contract on the commitment for title insurance. Documenting the
home improvements by obtaining canceled checks, invoices, receipts, lien waivers, etc., is not
acceptable.
Jumbo cash out refinance transactions are ineligible. ( Unless you do US Bank )
Home Equity/Cash-out Refinance Transactions under Section 50(a)(6) are not eligible
INTERVIVOS / REVOCABLE TRUSTS:
Living ("inter vivos") trusts must comply with local state regulations and the following requirements to be
eligible for financing:
To be eligible the borrower must be:
• The settlor, or the person who created the trust, and
• The beneficiary, or the person who is designated to benefit from the trust, and
• The trustee, or the person who will administer the trust for the benefit of the beneficiary, the borrower.
Eligible borrowers include:
• One or more borrowers with one living trust, or
• Two or more borrowers with separate living trusts, or
The following documentation is required:
1. Attorney's Opinion letter from the borrower's attorney verifying all of the following:
a. The trust was validly created and is duly existing under applicable law,
b. The trust is revocable,
c. The borrower is the settlor of the trust and the beneficiary of the trust,
d. The trustee is:
• Duly qualified under applicable law to serve as trustee,
• Is the borrower,
• Is the settlor,
• Is fully authorized under the trust documents and applicable law to pledge or otherwise
encumber the trust assets
2. Complete copy of the trust documents certified by the borrower to be accurate, OR A copy of the
abstract or summary for jurisdictions that require a lender to review and rely on an abstract or summary
of trust documents instead of the trust agreements.
NON-CONFORMING PROGRAMS/ MOST PORTFOLIO LENDERS
Rate & Term refinance must meet the following, if prepaids and taxes are included
in the loan amount:
• The prepaids and taxes are limited to 5% of the loan amount.
• The following language must be included in Schedule B of the Title Insurance:
“Possible defect in lien of the insured mortgage because of the insured’s
inclusion of reserves or impounds for taxes and insurance in the original principal
of the indebtedness secured by the insured mortgage.”
• The following P-39 Standard Language must be included in the Title Insurance
Policy: “Company insures the Insured against loss, if any, sustained by the
Insured under the terms of this Policy by reason of a final, non-appeasable
judgment of a court of competent jurisdiction that divests the Insured of its
interest as Insured because of this right, claim, or interest.
Company agrees to provide the defense to the Insured in accordance with the terms of this Policy if
suit is brought against the Insured to divest the Insured of its interest as Insured
because of this right, claim or interest.
Jumbo Cash Out refinances, on Primary Residences located in Texas, are not allowed. ( most investors)
Just hold the snake by the tail and you will love this state!
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