Can you payoff a home equity lien with a construction loan in Texas?

Understanding Texas Home Equity Liens and Construction Loans

If you are planning to build a custom home or do a major renovation on a property that currently has a Texas home equity lien (often referred to as a TX A6 loan), you might be wondering: Can you payoff a home equity lien with a construction loan in Texas?

The short answer is no. Under Texas law, a construction loan cannot directly pay off an existing home equity lien.

The Solution: The 50(f)(2) Refinance

Because of the strict regulations surrounding Texas A6 home equity loans, you cannot roll that debt directly into a new construction loan. Instead, you must first refinance the existing home equity lien into a standard rate-and-term refinance, known as a 50(f)(2) loan.

How the Process Works

1. Refinance the A6 Lien: You first refinance your current home equity loan into a 50(f)(2) loan. This step officially removes the debt from the Texas A6 status.
2. Wait for the Process to Clear: Once the loan is successfully refinanced and is no longer classified as a home equity lien, the legal restrictions are lifted.
3. Close on the Construction Loan: Now that the property is out of the TX A6 status, your new Texas One-Time Close Loan can legally pay off the 50(f)(2) loan.

Why Work With an Expert?

Navigating Texas home equity laws and construction financing simultaneously requires a high level of expertise. As a specialist in Texas One-Time Close Loans, I can guide you through this exact sequence to ensure your custom build or large-scale renovation stays on track and fully compliant with Texas lending laws.

If you have an existing home equity lien and are ready to start your construction project, contact me today to map out your financing strategy.