We’re tackling your top 5 questions about Texas Home Equity Loans.  First up:

  1.  My borrower lives in California, owns a rental property in Austin, and wants to do an investment cash-out loan on this Austin property. Why is the title company requiring this loan to be a 50(a)(6)?

Generally, if a borrower does not own other real estate in Texas, title companies will be concerned that in the event of future litigation that a court could hold that the investment property is the borrower’s Texas homestead.  Due to this concern, they will require a cash-out loan to be a 50(a)(6) loan to insure. Note that standard FNMA/FHLMC loan documents for a 50(a)(6) loan have the borrower promise to occupy the property (see paragraph 6 on the FNMA/FHLMC Texas Home Equity Deed of Trust). This provision would have to be waived if borrower will not occupy, which could negatively impact the salability of the loan. For non-portfolio lenders, this can create a “catch-22” situation in regards to loans with this fact pattern.