Austin TX Real Estate - Hill Country Austin Lakeway Homes for Sale: Dallas Real Estate- HELOC verse Refi

Dallas Real Estate- HELOC verse Refi

I learned something new yesterday which was confirmed today.  In Texas, once you do a Home Equity Line of Credit (HELOC) on your house, you cannot refinance the house until the Heloc is paid in full.

I had a listing appt yesterday where I feel so bad for their situation.  They originally bought the house with putting down 20% and waiving escrows.  After a couple of years, they got behind on taxes and decided they needed to refinance the house and roll the taxes into the mortgage and get everything caught up.  It's now a couple of years later, his ARM has gone up to over 11.5% and when he inquired about a refi, he found out he didn't refi a couple of years earlier, it was in fact a Heloc.

At that point in the appt, I just got to look down at my hands on the table and say ohhh and awww.  I was speechless. I had never heard of such a thing, and it was confirmed today that the Heloc rule is true.  It's so sad when mortgage people don't explain things fully to people.  What where they doing giving 8% on a refi two years ago anyway?  I asked ifhe had questioned the rate, and his reply was that he trusted them and didn't know to ask. 

So sad...  hopefully I can help him out of this situation.

Comment balloon 4 commentsDonna Harris • August 21 2006 04:27PM



I might be missing something.  In Michigan you have to pay off any loans you have on the property before you refi or sell.  Is there absolutely no equity in the property because they got caught up with their taxes? 


Posted by Christopher H (REAL ESTATE) over 13 years ago

A HELOC (home equity line of credit) is essentially a second (third, fourth,etc.) mortgage so that's not a  big surprise that it has to be paid before you get a new mortgage (refi)

Mortgages instruments have priority according to the date they were recorded so if they refinanced with the HELOC still in place the new refi would automatically become subordinate to it or a second mortgage, becase the HELOC would have been recorded before the new refi was and the HELOC would then become the first mortgage.

Not a position the new refi guys would want to be in.

If they have enough equity in the house they should be able to refinance all the mortgages (inlcuding the HELOC) by paying them all off with funds from the refi whether they live in Texas, Alaska, or where ever.

Posted by Jim Lee, Portsmouth NH Realtor, Portsmouth, NH (RE/MAX Shoreline) over 13 years ago
There is no equity.  Even though they put 20% down at first, we're talking about $109k house... once you roll in the closing fees and the taxes that they were behind on, they used all of the 20% and have absolutely no equity.  From what I was told, you can't refi it because there is nothing to pay off the heloc with... it's very confusing what happened to them and they can hardly explain it.
Posted by Donna Harris, Realtor,Mediator,Ombudsman,Property Tax Arbitrator (Donna Homes, powered by JPAR - over 13 years ago

Ok, no equity is a problem.  However, a lender may refi their two loans into one, with a better interest rate even if there is no equity.  As long as they don't owe much more than what the house would appraise for.

Posted by Christopher H (REAL ESTATE) over 13 years ago