Home Equity

Section 50(a)(6) Home Equity Loans ## Texas's Unique Constitutional Protections Texas's Constitution imposes strict limits on home equity lending that do not exist in any other state. These protections — codified in Article XVI, Section 50(a)(6) — were designed to prevent the predatory equity-stripping that devastated homeowners in other states during periods of loose lending. The core rule — 80% LTV cap: The total of all liens on a homestead — including the existing first mortgage, any second mortgage, and the new home equity loan — cannot exceed 80% of the property's fair market value at closing. > Worked example: Home worth $400,000. Existing mortgage: $270,000. Maximum total liens: $400,000 × 80% = $320,000. Maximum new home equity loan: $320,000 − $270,000 = $50,000. Asking for $60,000 would be denied — it would exceed the constitutional cap. ## Additional Section 50(a)(6) Protections - 12-day waiting period: The loan cannot close sooner than 12 days after the borrower submits a written application or receives required disclosures (whichever is later). This gives the borrower time to review terms without pressure. - 3-day right of rescission: After closing, the borrower has three business days to cancel the loan without penalty. This is constitutionally grounded and separate from the federal TILA rescission right. - One-loan-at-a-time rule: A borrower can only have one Section 50(a)(6) loan on a given homestead at a time. A second home equity loan cannot be taken until the first is paid off (refinancing the existing home equity loan into a new one is permitted). - Homestead requirement: Section 50(a)(6) protections apply only to the borrower's homestead — not rental or investment property. - HELOCs: Home Equity Lines of Credit…