How to divide home equity in Texas when divorcing

Mortgage and Lending with Service First Mortgage, NMLS #166487 NMLS 217454

Refinancing while divorcing is a very hard thing to do.  Emotionally and financially, it can be very stressful.  Finding an experienced mortgage lender in Texas capable of handling this delicate situation is essential.

Texas is a common law state and if you are married and own Real Estate that is  considered your primary residence with a homestead exemption, 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 as detailed in the divorce decree states.  I have found that the Owelty Lien is one of the best tools in finance designed to help make the division of home equity possible without selling the home. 

An Owelty Lien is also essential to remove one spouse from the existing mortgage.  Most people erroneously believe that the divorce decree releases them from the responsibility of the mortgage debt.  This is incorrect.  Even if the decree awards the home to one spouse, if the other spouse is on the original mortgage they are still responsible for the debt and any delinquent or negative credit reporting will be reflected on both spouses credit report. 

Often this is the last hurdle in a divorce and can be a very emotional transaction that requires attention to detail and empathy.  Most lenders and loan officers are not even aware of this type of transaction.  Our years of experience will make this work for you.

Owelty Lien Refinance and a Texas Cashout Refinance, What is the Difference?

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 states, 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)  Most 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 complex than an Owelty transaction and there are a myriad of ways that the transaction can go awry.  There are multiple waiting periods, documentation differences, and intricate requirements that can cause a delay or otherwise upset a borrower's expectations when they are not administered by a capable Texas Lender.

If you are in need of an Owelty Lien to finish the split of assets in your divorce, contact us today.  No matter where you are in Texas, we can handle your process.  To get started -  Apply Now

Certified Divorce Lending Specialist 

Your Local, Direct, 5 Star Rated Mortgage Lender

Office:  (214) 945-1066

Service First Mortgage  NMLS 166487

6800 Weiskopf Ave #200, McKinney, TX 75070


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Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

This is good information for divorcing couples in Texas. Thanks for sharing.

Jan 17, 2017 10:23 AM #1
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Equity is very theoretical. It does not account for seller's closing costs and cost of sprucing the house up for resale.

Oct 11, 2017 09:46 AM #2
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Richard Woodward NMLS#217454

Service Beyond Expectations! Your Texas Lender
7711 San Jacinto Place, Ste 100 Plano, Texas 75024
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