In Texas What's Considered "Cash Out"?

[Bryan Hancock]

In the aftermath of my life mess I took out some HELOCs on my primary residence to bridge some events and funding needed.  I plan to pay these loans off prior to the middle of this year and would like to refinance my underlying note on a new 30-year FNMA amortization.  In this scenario in Texas would the new loan be considered "cash out" money for loan interest rate pricing?  I've heard the moniker "once a cash out always a cash out" so I am trying to understand what this means and if I am thinking about this correctly.  

Note that I don't plan to keep the HELOCs in the scenario described above and they will be paid off with cash from other parts of my portfolio.  So the new loan WILL NOT be used to pay off the HELOCs.  

[Erin Deann Martin]

Hi @Bryan Hancock - I am NOT a broker or loan officer, but I did have to learn a lot about the peculiar TX Cash Out rules this past year.  If I'm following your logic correctly, your situation is:

• You have a previous HELOC on your primary
• You want to refinance to new rate/ term
• You'll be paying off your HELOC from some other source prior to the refi (NOT via a cash out during the refinance)

If that's the case, you shouldn't have any difficulty (other than perhaps some loan officers not being up to date on the regulations, or having other weird overlays).  The "once a cash out, always a cash out" rule was changed in 2018. Some lenders don't seem aware of this though, so I actually had to go and find the actual language in the TX code to prove it to an underwriting depart.  

Finally, when/if you do pay off the HELOC, some lenders may want to wait one year before giving you a new rate/ term (NON cash out) refinance. This is due to their misunderstanding of the law which states that a TX homeowner may not close on a HELOC or home equity product within 1 year of closing a previous home equity product. If you press them on this, and explain that paying off your HELOC is *not* the same as "closing" (re: opening) a "previous home equity product" they agree (with some double checking by their underwriting/ law dept).  

So assuming you are moving to a standard rate and term (NON cash out) loan, and have the HELOC paid off in advance of the refi, you would then have zero home equity products and would not have "closed" on a home equity product within the last year (assuming your HELOC is more than on year old).