In case of home equity loans, the loan amount is dependent on the equity of the home, a term used to describe the difference between the fair market value of the home and the total of all the existing debts against it.

Until 1997, home equity loans were termed as illegal in Texas.  However, the Texas real estate law was later amended as a result of which home equity loans have become a reality in the state. Still, home equity loan laws in Texas are considered to be stringent directed towards consumer protection.

Some significant provisions included in the Texas real estate law regarding home equity loans are as follows:

1. A borrower can have one home equity loan at a time. Even though it is possible to gain some additional finance on the home equity, a borrower is not entitled to obtain a second home equity loan until the first loan is paid off completely.
2. A borrower’s total mortgage debts, including the home equity loan, should not exceed more than 80 percent of the fair market value of the home. It is the responsibility of the lending organization to look into these details before approving any mortgage application. Home owners with 20 percent or less equity in their homes are not eligible for a home equity loan in Texas.
3. A borrower can avail only one home equity loan per year. It does not matter even if the borrower has repaid the loan completely. This clause has been added to prevent customers from paying closing costs each time a mortgage loan is closed.
4. It is not possible to convert a home equity loan into any other type of loan.
5. Home equity loans cannot be granted on lands that are being taxed as ‘agricultural land’ or ‘open space’.
6. Lenders providing home equity loans cannot charge any fees or costs that are more than 3 percent of the principal amount.