Home Equity Loan on duplex in Austin Texas

[Eric Guiltinan]

Hi BP,

This question goes out to all the Texas mortgage brokers and bankers out there. I have a duplex in Austin Texas that I would like to leverage for the purchase of another property. I lived in the duplex for one year after purchasing. I'd prefer to do a home equity loan instead of a refinance so that I do not have to give up my owner occupant rate. I understand that Article XVI, Section 50 of the Texas constitution forbids home equity loans on non owner occupied properties (only homesteads are allowed). If I were to move back into one side of the duplex could I take out a home equity loan? If so, would the appropriate LTV be 85%, 80%, or 75%? I believe my current LTV to be about 59%.

I've read that there are some issues with getting a home equity loan on a property that is generating rent.  Something about "additional collateral" which I don't fully understand.  I homesteaded the property when I lived in it and at the time TCAD wanted to know the square footage of each side.  I believe I technically only homesteaded 50% of the property.  At least I definitely only got 50% of the homestead tax exemption.  

[Andrew Postell]

@Eric Guiltinan @Austin Styer There is a LOT of misconceptions to this and I wanted to give some quick pointers on how to be successful when seeking cash out here in Texas.

1. You can ABSOLUTELY get a cash out loan on any 1-4 unit property with Fannie/Freddie in Texas. Even if the property is an investment property. The cash out limit will be limited to 75% on a SFH and 70% on a 2-4 unit property. Many banks DO NOT offer this loan and will blame it on the law but it is absolutely possible to do this. And just for clarification in case others read this, Fannie/Freddie loans would be a 30 year fixed rate mortgage. More on different products below

2. This is going to sound crazy but saying HELOC on an investment property will confuse a bank. To get more success if you are looking for this type of product you want to use the phrase "Line of Credit"...I know it sounds like we are splitting hairs but this is absolutely imperative to find this product in Texas. It is SUPER hard to find a LOC product here in Texas anyway but using that term will help. I had to call about 200 banks up here in Dallas and I found 3 that will do it. It's really hard but it is possible. The smaller the bank the better. If the bank has one location, that bank will be more likely to do it than a bank with 100 locations. Call both, but start with the smaller ones.

Keep in mind that the people you spoke with are trained to blame their bank's limitations on the state law.  Don't take this out on them.  Having been trained this way from a bank...and then seeing that things were very different...it made me very angry.  Don't get mad at the loan officer, they are told to say this stuff.  Drives me crazy but finding cash out loans in Texas is VERY possible...might be hard...but absolutely possible. 

Eric, your original post was about a property that you no longer live in.  If you have since moved back into the house let me know and I can give different guidance.

Hope this helps in some way.  Thanks!