Texas Cash Out Loans – what’s “cash out”

Texas home equity = Texas cash out = 50(a)(6) loan
They are all terms for the same thing.

Texas home equity mortgage laws can be tricky. It’s hard to imagine a state loan regulatory law that is more comprehensive. The Texas Constitution only permits liens against Texas homestead property in certain situations, one of those is the “cash out” home equity loan commonly called a “50(a)(6) loan” for the Constitutional provision that permits those loans.

Except for very limited circumstances, if a homestead owner walks away from a mortgage closing with any cash, the closing is considered a cash out mortgage, and the lender must follow all the requirements of 50(a)(6) to prevent the loan from being illegal.

When the homestead borrower leaves with cash, but it’s not “cash out”
Sometimes refinancing borrowers pay an application fee or appraisal fee up front and then get a credit from the lender for that amount at closing. It’s acceptable to give the borrowers their money back at closing for the credited fee. The money came out of their pockets not out of the loan proceeds.

When the homestead borrower leaves with no cash, but it is “cash out”
When borrowers refinance a home equity loan, it must be done as a home equity loan. Hence the “once a home equity, always a home equity” rule. For these loans the borrower may actually bring cash to closing, but it is still classified as a “cash out” home equity loan.

The Texas Office of Consumer Credit Commissioner has a very good Home Equity FAQ that I think explains the basics of Texas home equity lending laws quite well.

Richard Duncan

About Richard Duncan

I have been a Texas real estate, title, and mortgage attorney since 1985. If you have title or closing issues in Texas, let's discuss them. Posts here are not intended to be legal advice - they are only topics for discussion that may be addressed by your attorney.
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