The Texas 50(a)(6) mortgage provision is a unique provision in the Texas state law that allows homeowners to access the equity in their homes through a cash-out refinance. This provision is often used by homeowners who need money for home improvements, debt consolidation, or other purposes. However, the 50(a)(6) mortgage provision also has some unique requirements and restrictions that homeowners must be aware of before pursuing a cash-out refinance.

In this blog post, we will provide an overview of the Texas 50(a)(6) mortgage provision, including its benefits, requirements, and restrictions. We will also discuss how homeowners can qualify for a 50(a)(6) cash-out refinance and what they should consider before making this financial decision.

What is the Texas 50(a)(6) Mortgage Provision?

The Texas 50(a)(6) mortgage provision is a section of the Texas Constitution that allows homeowners to take out a home equity loan or a home equity line of credit (HELOC) using the equity in their home. This provision was created to help homeowners access the equity in their homes without having to sell their homes or take out high-interest loans.

Under this provision, homeowners can borrow up to 80% of the appraised value of their home minus any outstanding mortgage debt. For example, if a homeowner’s home is worth $500,000 and they have a mortgage balance of $300,000, they can potentially borrow up to $100,000 ($500,000 x 80% – $300,000) through a 50(a)(6) cash-out refinance.

Benefits of the Texas 50(a)(6) Mortgage Provision

The Texas 50(a)(6) mortgage provision offers several benefits for homeowners who need to access the equity in their homes. These benefits include:

  1. Lower Interest Rates: The interest rates on 50(a)(6) cash-out refinance loans are typically lower than other types of loans, such as credit cards or personal loans. This can save homeowners thousands of dollars in interest payments over the life of the loan.
  2. Tax Deductible: The interest paid on a 50(a)(6) cash-out refinance loan may be tax-deductible, which can further reduce the cost of borrowing.
  3. Flexible Repayment Terms: Homeowners can choose from a variety of repayment terms, including fixed-rate and adjustable-rate options. This allows homeowners to select a loan that fits their financial needs and goals.

Requirements and Restrictions of the Texas 50(a)(6) Mortgage Provision

While the Texas 50(a)(6) mortgage provision offers several benefits, there are also several requirements and restrictions that homeowners must be aware of before pursuing a cash-out refinance. These include:

  1. Primary Residence Only: The 50(a)(6) mortgage provision only applies to a borrower’s primary residence. It cannot be used for investment properties or second homes.
  2. Appraisal Required: Before a homeowner can take out a 50(a)(6) cash-out refinance loan, they must have their home appraised by a licensed appraiser. The loan amount cannot exceed 80% of the appraised value of the home.
  3. Equity Restrictions: The total amount of home equity debt cannot exceed 80% of the appraised value of the home. This means that if a homeowner already has a mortgage balance of $250,000 and their home is appraised at $500,000, they can only borrow up to $150,000 through a 50(a)(6) cash-out refinance.
  4. Waiting Period: If a homeowner has previously taken out a home equity loan or HELOC, they must wait at least 12 months before they can take out a 50(a)(6) cash-out refinance