Texas Home Equity Loans: Our Attorneys Answer Your Top 5 Questions

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We’re tackling your top 5 questions about Texas Home Equity Loans.  Here’s #3:

3.  My borrower lives out in the country (rural property). What concerns should have I about making a 50 (a) (6) loan?

First, the prohibition against making a 50 (a) (6) loan on property that has an agricultural exemption has been lifted, so lenders do not have to worry whether a property has an Ag exemption. The main concern for lenders is the size of the collateral. Texas has two categories of homestead: “urban” and “rural”, which are defined by a test in TX Property Code Section 41.002. An urban homestead is limited to 10 acres while a rural homestead is limited to 100 acres for a single person and 200 acres for a family. The Property Code’s test defines whether a property is rural, not an appraiser’s assessment of the nature of the land. If the collateral is over 10 acres, confirm that your title policy will provide coverage under the T-42.1 endorsement so that the entire property is insured as homestead.