Things aren’t always bigger in Texas. To the delight of its homeowners, the Lone Star State boasts some of the country’s strongest curbs on home equity lending. These effectively reduce the size of the average Texas home equity loan and foster a range of safeguards for local homeowners who wish to tap the equity in their homes without taking on undue risk. At the same time, it’s crucial for homeowners to understand their responsibilities as borrowers and take steps to minimize the risk of unpleasant surprises.
A Brief History of Home Equity Loans in Texas
Texas has a singular relationship with the home equity lending industry. The state banned home equity loans as late as 1997 and continues to subject lenders to far stricter constraints than most other states. This stems from Texas’s longstanding protection of homesteading rights and the unique title structure that governs all private property transactions within the state.
In 1997, the Texas Constitution’s Section 50 gave home equity lenders the right to operate within the state on a limited basis. Section 50’s provisions are exceedingly strict, and lenders that fail to follow them can face serious penalties. In the most extreme case, lenders may be forced to forfeit the principal and interest balances on non-compliant loans.
Since home equity lending became legal in Texas, the state’s industry has had to follow some unique rules. These include:
- Restrictions on the total value of mortgage debt: Homeowners can’t owe more than 80 percent of the market value of their home on combined mortgage loans and home equity vehicles. (more…)