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The word ‘equity’ means the difference between the fair market value of the house and the total debts owed by the homeowner against the house. For instance, if you have a home worth $100,000 and you still owe the bank a mortgage amount of $50,000, your home equity is $50,000.
In Texas, laws were initially designed to protect people and their families. That is why home equity loans in Texas were not allowed until late 1997. When the law changed to allow home equity loan, it ensured that the state had one of the strongest consumer protections in the country. Although home equity loan laws in Texas are long and complex, but they offer great protection to the borrowers.
- The home equity loans law in Texas clearly states that the total of all mortgage debt cannot be more than 80 percent of the fair market value of the house. For instance, if you have a mortgage of $30,000 against an $80,000 house, the maximum you can borrow is $34,000.
- At one time, just one home equity loan can be taken against a home. You cannot take a second equity loan unless the first one has been paid completely.
- Even if you pay off your home equity loan within the year, you are just allowed one home equity loan per year.
- A home equity loan cannot be converted to another type of loan.
- Agricultural land cannot be used as security to get a home equity loan.
- Lenders cannot charge fees and costs which is more than 3 percent of the principal amount of the loan. If the lender violates this rule and refuses to correct it once brought to his attention, he can be slapped with significant penalties. These fees and costs are other than the interest levied on the loan.
- A home equity loan can only be closed at the permanent office of the lender, title company or an attorney’s office.
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