In Texas, a home equity loan cannot exceed what percentage of the home's fair market value?
Audio Lesson
Duration: 2:42
Question & Answer
Review the question and all answer choices
70%
A is incorrect because 70% is below the actual Texas limit. While some states have lower limits, Texas has established 80% as the maximum allowable loan amount for home equity financing.
80%
90%
C is incorrect because 90% exceeds Texas's strict home equity loan limit. While conventional mortgages might allow higher LTV ratios, Texas home equity loans have this specific 80% limitation.
100%
D is incorrect because 100% financing is never allowed for home equity loans in Texas. This would eliminate all homeowner equity, defeating the purpose of a home equity loan and violating state constitutional provisions.
Why is this correct?
B is correct because Texas law specifically limits home equity loans to 80% of a home's fair market value. This 80% cap is a fundamental restriction in the Texas Constitution and statutes designed to protect homeowners from excessive debt and potential foreclosure.
Deep Analysis
AI-powered in-depth explanation of this concept
This question tests knowledge of Texas-specific home equity lending regulations, which is crucial for real estate professionals working in the Texas market. Understanding these limitations helps agents properly advise clients on financing options and prevents them from making misleading statements. The core concept involves the loan-to-value (LTV) ratio restrictions unique to Texas home equity loans. To arrive at the correct answer, one must recognize that Texas has historically imposed stricter limitations on home equity borrowing than most other states. The question is challenging because it requires specific knowledge of Texas law rather than general real estate principles. Many students might confuse this with conventional mortgage limits or home equity limits in other states. This concept connects to broader real estate knowledge about financing regulations, state-specific real estate laws, and consumer protection measures in real estate transactions.
Knowledge Background
Essential context and foundational knowledge
Texas home equity lending restrictions stem from constitutional amendments passed in 1997 and subsequent legislation. These measures were implemented after a period of aggressive home equity lending practices that led to many Texans losing their homes. The 80% LTV limit is part of a comprehensive regulatory framework that also includes requirements for mandatory waiting periods, counseling, and specific disclosure documents. Texas has some of the most restrictive home equity lending laws in the United States, reflecting the state's policy preference for protecting homeowners' equity interests.
Eighty's the limit, don't you forget it, Texas home equity has this strict credit
Recite this rhyme when encountering questions about Texas home equity loan limits to remember the 80% maximum
For Texas-specific questions, remember that home equity loans have stricter limits (80%) than conventional mortgages. When in doubt, choose the more conservative option for Texas home equity questions.
Real World Application
How this concept applies in actual real estate practice
A buyer in Dallas is interested in taking out a home equity loan to renovate their kitchen. The home's appraised value is $300,000, and they owe $180,000 on their first mortgage. They ask their real estate agent if they can borrow an additional $150,000. The agent must explain that Texas law limits them to borrowing a maximum of $60,000 ($300,000 × 80% = $240,000 total debt, minus $180,000 existing mortgage = $60,000 available). This knowledge helps the agent set realistic expectations and prevent the client from pursuing financing that isn't legally available.
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