An owner whose home equity loan closed on 1 March 2026 asks in August 2026 to refinance it as an ordinary rate-and-term loan. May this conversion refinance close before the first anniversary of the home equity loan?
Correct Answer
A) Too soon: that refinance waits for the first anniversary of 1 March
A home equity loan may be refinanced as a non-home-equity loan only where four conditions hold together: the refinance does not close before the first anniversary of the original closing, no additional funds are advanced beyond refinancing listed debts and actual costs and reserves, the new principal with all other liens stays within 80 percent of fair market value, and the lender gives a prescribed written notice on a separate document no later than the third business day after application and at least 12 days before closing. Other choices: advancing no new funds and staying under 80% are each one condition of four; and the conversion is permitted, so never is wrong. Source: Tex. Const. art. XVI, sec. 50(f)(2)
Why This Is the Correct Answer
A home equity loan may be refinanced as a non-home-equity loan only where four conditions hold together: the refinance does not close before the first anniversary of the original closing, no additional funds are advanced beyond refinancing listed debts and actual costs and reserves, the new principal with all other liens stays within 80 percent of fair market value, and the lender gives a prescribed written notice on a separate document no later than the third business day after application and at least 12 days before closing. Other choices: advancing no new funds and staying under 80% are each one condition of four; and the conversion is permitted, so never is wrong. Source: Tex. Const. art. XVI, sec. 50(f)(2)
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