Before I even describe home equity loans in Texas in depth, it is important to clarify what the term “equity” refers to, for easy understanding.
This is computed by subtracting any remaining debts previously secured by use of your home from its value.
The Texas law applies only to the owner’s assets that are occupied and the equity held on these assets is the one used as a collateral to obtain equity loans.
In some other states, the rates used to compute home equity is about a hundred to one hundred and twenty five percent.
The specific rate in Texas is eighty percent of the property value, which makes the available equity less as opposed to the above states.
All people who own homes are liberalized to use the equity on it for any of their financial or simply the way they please.
Should one decided to apply for a home equity loan in Texas, they need to find out how to go about this.
However the key point to note is the fact that the lenders will base their loan decision on the overall market rate offered in Texas loan market which is eighty percent as said earlier.
Read this example to understand the notes given above:
Suppose you want to take a decision to apply for home equity loan in Texas, where the collateral asked for by your lender is the equity owned on the home.
To determine the maximum amount of the equity loan you can obtain, a computation of your home equity comes in hardy. This is how you do it:
These figures are just assumptions to simplify the example
Your home value- $ 80000
Mortgage loan-$ 50000
Equity would be- $80,000-50,000=30,000.
Like I mentioned above, eighty percent market rate applies in Texas State and so this is how you compute the accessible equity on your home, given this consideration.
80 percent of 80,000=$64000-$50,000(due on mortgage loan)=14000
Establishing the home equity loan given that the lenders cannot lend you a value exceeding that of your home, based on the current market rate (64000).
$64000-50000(Mortgage loan)=14000.
A person whose situation is similar to the one above would use all their available home equity to obtain this particular loan.
A break-even situation
See, the eighty percent rate offered at the Texas loan market reduces the equity these residents hold on their homes.
This does look unfair to them given a situation where the home value computation, based on this rate and then their mortgage loan subtracted from it brings a break-even amount.
For example
Your home value- $ 200,000
Mortgage loan-$ 160,000
Equity would be- $200,000-160,000=40,000.
Home value based on Texas eighty percent rate:
80 percent of 200,0000=160,000
The available equity would be= 1600000-160000(mortgage amount)=0
Would this literally mean that a borrower like this would have zero equity on their homes and therefore no collateral for a home equity loan?
If you hold the home value figure constant and increase the loan amount that a Texas resident would have to pay to eventually own the property, then the equity would shift to the negative.
There are zero equity home loans for someone who really needs to apply for a loan to clear some bills, pay school fees, invest among others, but got nil equity.
It is greatly advisable for such people to consider their decision first, based on how well they would manage to continue paying for their current mortgages and still meet the requirements for this kind of new loan without defaults in pay.
An original article by Esteri Maina
HOME EQUITY 
