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Specialty Loan Types
A “refinance” is a mortgage loan transaction for any purpose other than to purchase a property. It includes the replacement of existing mortgage loans with a new loan or a home equity loan transaction where there is no existing mortgage loan. There term also includes a home equity loan that is subordinate to existing mortgage loans. A refinance that replaces existing mortgage loans can include additional funds paid to the borrower at closing in additional to paying off existing loans secured ty the property.
Most refinances are for the purpose of replacing an existing loan with a new loan at a lower interest rate and/or with more favorable terms. On example of modifying the terms would be switching from a 30-year term to a 15-year term. But the sole or primary purpose of a refinance transaction might be to provide the borrower with additional cash secured by the property.
The loan amount on a refinance cannot exceed 95% of the value of the property securing the loan. On a loan secured by a primary residence (homestead) in Texas the maximum loan amount cannot exceed 80% of the value of the property. This is true if the borrower is receiving any cash at closing or if existing loans being paid at closing were originally “cash out” loans. There may be further limitations on the maximum loan amount for loans secured by 2 to 4 unit properties or properties that have other unique characteristics.
Home Equity Loans
A home equity loan is a type of “refinance” transaction where the borrower utilizes the equity in the property as security for the additional funds borrowed. It can either be a loan in a primary (“first”) or subordinate (“second”) lien position. The proceeds of the home equity loan can be used to pay existing loans in full, provide funds to the borrower at closing, or a combination of both.
If a home equity loan is secured by the borrower’s Texas homestead (usually the primary residence) the loan amount cannot exceed 80% of the appraised value of the property.
For answers to frequently asked questions about Home Equity Loans refer to FAQ: Home Equity Loans.