This November, Texas voters will have the opportunity to vote on Proposition 2, an amendment to the Texas Constitution that would modernize the way Texas homeowners access home equity loans and home equity lines of credit.
Most homes are purchased with a loan, which means the lender still has an interest in the property until the loan is paid off. Equity is the difference between the outstanding loan balance and the value of the property. For example, if $150,000 was borrowed to purchase a $200,000 home, and $50,000 had been repaid, the home would possess $100,000 of equity.
Because equity is owned entirely by the homeowner, many lenders offer loans that borrow against it. These types of loans can be a tool for homeowners to renovate their home, send a child to college, or cover unexpected medical bills. In Texas, homeowners cannot borrow more than 80 percent of their home value – so if a house is worth $200,000, a home equity loan could not exceed $160,000. This means that 20 percent of the equity in a home is always protected. These home equity protections are the primary reason why Texas weathered economic downturn better than nearly any other state.
However, the way the home equity law was originally written, home equity loans are not an option for all Texans. Today, the Texas Constitution caps the fees paid to the bank as part of a home equity loan cannot exceed three percent of the loan value. So the fees associated with a $100,000 home equity loan cannot exceed $3,000. However, this three percent cap includes high cost items like appraisal, property survey, and title insurance. These factors often drive the loan fees above the three percent cap, particularly on smaller loans. As a result, many lenders are unable to make smaller home equity loans, making equity inaccessible to Texas homeowners. Texas REALTORS® do not think that’s right.
Proposition 2 would lower the cap on fees for home equity loans from three percent to two percent, so a bank can only charge $2,000 in fees on that $100,000 loan. However, the fees charged for an appraisal, property survey, and title insurance would be excluded from the calculation. This means that smaller equity loans, which were previously unavailable from most lenders, would now be accessible to anyone who possesses equity in their home. Proposition 2 accomplishes this while maintaining the strict consumer protections that have served the state so well.
Vote for Proposition 2 this November and make sure that Texas homeowners have the ability to access their equity on their terms. If you have additional questions, please contact firstname.lastname@example.org.