Home Equity Loans & the 12 Month Rule

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Question:

In 10/09, a customer refinanced a home equity loan, no cash out. Does that mean he cannot do another loan involving his primary residence for at least twelve months, due to “once a home equity, always a home equity”, or is the twelve month rule just on the original loan, not a no cash out refinance of the balance? Would he be eligible for a reverse mortgage or HELOC at this time, or does the original home equity status of the loan prevent those options?

Answer:

Home equity laws vary from state to state. As your question includes one of our (Texas) quirky restrictions, my answer is based on the assumption that you are located in Texas. The restriction for the frequency is based first on the home equity loan itself, so if a home equity loan is consummated on 10/01/09, that loan may not be refinanced before 10/01/10. There is an additional restriction, however. Not only can the first loan not be refinanced within the one year time frame, that borrower cannot have more than one home equity loan at any time. Also, even if the first home equity loan is paid off on 10/02/09, another home equity loan cannot be consummated before the one year anniversary of the first one, so the borrower can add and/or refinance a home improvement loan at any time.

First published on BankersOnline.com 4/19/10