Discover the FNMA Texas Home Equity 50(a)(6) and Non-Home Equity 50(a)(4)

Texas homeowners have a few different options when it comes to refinancing an existing home loan. Through the Federal National Mortgage Association, Fannie Mae or FNMA, there is a home equity and cash out refinance program. This Texas 50(a)(6) loan allows borrowers to take equity out of a homestead property under certain conditions.

The Non-Home Equity program, Texas 50(a)(4), allows for a rate or term refinance of an existing Texas Home Equity loan.

• 15 year, 20 year, 25 year, or 30 year fully amortizing fixed
• No adjustable rate mortgages
• 620 minimum qualifying credit score
• 1 Unit primary residence located in the State of Texas
• Property types include stick built homes (attached or detached), approved condos, Planned Unit Developments, and approved manufactured housing (multi-width only, no single wides)
• Borrow up to 80% of the value of the home

Texas has some additional restrictions when it comes to cash out refinancing that are unique to the state. The Texas Home Equity and Non-Home Equity loans allow homeowners to take advantage of the equity in their homes for other purposes such as education, home renovations, medical expenses, an emergency fund, or other investments, while still complying with Texas state law.

In order to qualify for an equity or non-equity loan there must be sufficient equity in the property, and the loan can only represent a maximum of 80% of the property value. At least 20% of the equity must be retained. The loan cannot be closed within one year of closing another equity loan on the same property. Even if the previous loan has been paid in full, the one year prohibition remains in place. Borrowers will need to meet the employment, credit, income, asset, and property requirements associated with the refinance loan they are applying for. Some of these eligibility requirements include:

• Minimum qualifying credit score of 620. Higher qualifying scores are required in some scenarios.
• Eligible property types: Stick built homes (attached or detached), approved condos, PUDs, and approved multi-width manufactured homes. Primary residence only.

Homeowners who want to convert some of the equity in their Texas primary residence to cash for other uses, or who want to refinance an existing equity loan, will likely find this program a good fit. Some of the reasons borrowers choose to refinance include (which of these will be possible in a given scenario will depend on current market conditions, property value, existing loan amount, credit worthiness of the borrower, and additional factors):

• To lower their interest rate
• To lower their monthly payment
• To save on interest payments over the course of the loan
• To pay off the home sooner
• To take cash out for another purpose

The Texas State Constitution imposes some restrictions on how homeowners can take cash out through refinancing the mortgage on a property used as their primary residence. It’s important to note that these additional requirements apply to owner occupied homes only, and second homes and investment properties may qualify for the traditional cash out refinancing products traditionally used in other states.

These restrictions, listed in Article XVI, Section 50(a)(6) include:

• A minimum of 20% equity must be retained
• A Texas Cash Out home equity loan may only be obtained once every twelve months
• If refinancing a current TX 50(a)(6) mortgage, it may be refinanced into a Non-Equity 50(a)(4) if the borrower would like a rate and term refinance with zero cash back at closing
• If refinancing a current TX 50(a)(6) mortgage, it may be refinanced taking additional cash out with a new 50(a)(6)
• The loan must be reviewed by an attorney prior to closing

Because this is a refinance product it cannot be used to finance a new home purchase. It is not uncommon however for the cash taken out of a primary residence to be used towards the down payment on another home, either a second home or investment property.

The Fannie Mae Texas Home Equity and Non-Home Equity programs are ideal for refinancing a home to either take cash out or refinance a mortgage where cash was taken out in the past. They help homeowners make use of their primary residence to achieve their financial goals while following the requirements of Texas State Law.