Texas is a common law state and if you are married and own Real Estate that is considered your primary residence, and you likely homesteaded this property, both spouses have equal rights to the equity in the home. Equity is the value of the home minus the mortgage loan amount. The Owelty Lien is designed to give each spouse what is owed to them per what the divorce decree states. As an experienced Mortgage Advisor for 9 years, I have found that the Owelty Lien is one of the best tools in finance designed to help make the splitting of assets in regards to Real Estate, much easier. It many times is the last hurdle in a divorce and can be a very emotional transaction that requires attention to detail, and I’ve learned that being a good listener and being empathetic helps the succession be maximized.
Lets just say this plainly, the Owelty Refinance is hand over fist the much better option than a Texas Cashout when settling the Real Estate variables during the divorce, and there are a number of reasons why.
Texas State Law says, once a cashout loan, always a cashout loan. This means that once you refinance your primary residence and take cash out of it, that mortgage is “flagged” as a Texas Cashout mortgage or the legal term is, Texas a(6). There are a number of reasons why you would prefer that your mortgage not be a Texas a(6) mortgage.
1) All banks, lenders, and investors bump your interest rate a little higher when dealing with the Texas a(6)…this means that if you go to refinance your house a couple years down the road after you have gotten a Texas a(6), even if you are just refinancing to lower your rate/payment and taking no cash from the equity, you still get “hit” with a little higher rate
2) Texas law says that you can not take more than 80% of the equity in your home for cash…this means you are limited to an 80% loan to value on your mortgage. If you bought your home 5 years ago and only put down 5%, you likely do not have equity to the extent you could use a cashout, because you have to have more than 20% equity to start taking cashout…THE OWELTY LIEN FOLLOWS REGULAR LENDING GUIDELINES AND YOU WOULD BE ABLE TO REFINANCE IN AN OWELTY.
3) The transaction for a Texas a(6) is much more turbulent than an Owelty. There are waiting periods set into the a(6) and special documentation that doesn’t typically get viewed and included in other loans that are included in the a(6) that when not administered correctly can post pone the closing…better to use a loan officer with extensive Texas lending history rather than an online or TV commercialized lender where they are licensed in Texas but office in another state.
If you are in need of an Owelty Lien to finish the split of assets in your divorce, contact me, the Frisco Mortgage Planner. No matter where you are in Texas, I can handle your process with years of experience under my belt and give you the confidence you need at this tough transitional time in your life. I’ll be your owelty lien specialist, and I promise that you will be glad in the end.