Texas Chapter 13 Cash-Out Refinance on VA Loans

This blog will cover the Texas Chapter 13 cash-out refinance mortgage guidelines on VA loans. Homeowners can qualify for FHA and VA loans during and after Chapter 13 bankruptcy. Dale Elenteny of GCA Forums Mortgage Group is a Texas Chapter 13 cash-out refinance loan expert. Here is what Dale Elenteny had to say:

Texas has a special rule and law. It is a state-specific law regarding the Texas Chapter 13 cash-out refinance guidelines. You cannot do a cash-out refinance mortgage in Texas on government loans. You can do cash-out refinance mortgages with conventional, portfolio, and Non-QM loans.

Homeowners cannot do a 100% cash-out refinance on VA loans in Texas. Texas Chapter 13 cash-out refinance on VA loans is not allowed, creating homeowners in an active Chapter 13 bankruptcy who want to do a Chapter 13 bankruptcy buyout. The following paragraphs cover the Texas Chapter 13 cash-out refinance on VA loans.

Chapter 13 Bankruptcy Mortgage Guidelines on FHA and VA Loans

Homebuyers and homeowners can qualify for an FHA or VA loan in Chapter 13 one year after entering the repayment plan. Regarding the BK Chapter 13 bankruptcy, borrowers will be eligible for a home purchase or rate and term VA or FHA loan after twelve months under a payment plan with bankruptcy judge approval or the plan is completed. Mike Gracz of GCA Forums Mortgage Group explains Texas Chapter 13 cash-out refinance mortgage guidelines as follows:

Borrowers can do a rate and term refinance on VA loans in Texas. VA loans in Texas and do a Chapter 13 Bankruptcy buyout.

VA does not have a true rate in term loans other than its IRRRL, which is the payoff of an existing VA loan with no cash back. VA considers all other refinance as cash-out, even though the borrower does not receive cash. In Texas, VA will not allow cash back on a cash-out refinance. However, they can use the cash-out program to pay off an existing lien or mortgage if they do not receive any cash in hand. Therefore, the loan must meet the cash-out refinance requirements.

Texas Chapter 13 Cash-Out Refinance Guidelines To Pay Off Existing Lien or Mortgage

Seasoning:

The note date for all refinance loans must be on or after the later of 210 days after the first monthly payment was made on the mortgage being refinanced. Dale Elenteny of GCA Forums Mortgage Group said the following about modified loans in Texas:

On modified loans, the seasoning must be measured from the first payment date due date listed on the modification agreement, not from the first payment due date of the original loan). The date on which six full monthly payments have been made on the mortgage being refinanced. The borrower may not prepay the loan to meet this requirement.

For modified loans, the new note date must be on or after the later of 210 days after the first modified monthly payment was due on the mortgage being refinanced and the date on which six modified payments have been made on the mortgage being refinanced.

Net Tangible Benefit To Refinance in Texas

The new loan is shorter than the loan being refinanced. Dale Elenteny of GCA Forums Mortgage Group is an expert on VA loans in Texas. The borrowers need a tangible net benefit to refinance a VA loan in Texas.

The new mortgage rate on the new mortgage loan is lower than the interest rate on the refinanced loan. If the loan being refinanced had an adjustable interest rate or was modified, the current interest rate must be used when determining if this requirement has been met. The new mortgage payment on the new loan is lower than on the refinanced loan.

The new mortgage loan results in an increase in the borrower’s residual income. The new mortgage refinances a bridge loan to construct, fix or repair the owner-occupants primary home. The new mortgage loan balance is equal to or less than 90% of the reasonable value of the home. The new loan refinances an adjustable-rate loan to a fixed-rate loan. Of course, VA loans are QM mortgages, so the veteran must qualify with income and credit being verified. The broker is not likely to get an AUS approved/eligible until two years have passed since the bankruptcy since DU does not recognize a difference between a Chapter 7 or 13 Bankruptcy on credit.

Texas Chapter 13 Cash-Out Refinance On VA Loans (FAQs)

Under the Texas Chapter 13 bankruptcy law, a veteran who has already declared or is currently managing a Chapter 13 bankruptcy in Texas can do a cash-out refinance by taking a new VA loan that is more than the existing loan he has (Close-Borrow and Top-Up), and the new funds replace the old one.

Q2: Who qualifies for this refinance?

A: Eligibility usually involves the veteran possessing a VA loan, having adequate equity in the home, and being part of a Chapter 13 bankruptcy repayment plan. The lenders analyze your bankruptcy repayment plan, payment records, and financial health. Each case is unique when reviewed, and not all cases under Chapter 13 may opt for a cash-out option due to VA regulations.

Q3: How does a Chapter 13 bankruptcy affect the refinance process?

A. This is the case when some form of debt restructuring is in effect. There is some form of repayment agreement with the lenders. The lenders want to verify that the borrower has made some payments towards the repayment plan and is moving towards getting out of bankruptcy. The bankruptcy plan should be up to date. In most cases, a court’s green light or an assurance that the plan is on course is mandatory before one can opt for a cash-out refinance.

Q4: What are the key benefits of a cash-out refinance on a VA loan in this context?

Answer:

• Access to Funds: The qualified veteran can use the funds to pay off debts with high interest rates or other essential expenses.
• The Potential for Lower Rates: Refinancing may still be appealing during a Chapter 13 repayment period due to the usually lower interest rates offered by VA loans.
• Streamlined Process: Even though specific VA loan programs require auxiliary forms of underwriting, there may be less rigid qualifications for circumventing bankruptcy court. However, supplemental documentation concerning the bankruptcy will be necessary.

Q5: What particular aspects of Texas might ponder this refinance choice?

Answer:

• State-Specific Regulations: While Chapter 13 is controlled with a federal lens, some state-level particularities, such as judicial conservatism and the property homestead exemption within Texas, may affect how it might play out within the Texas scope.
• Lender expertise: Not every lender follows the same trends in Texas. Partnering with knowledgeable lenders dealing with state-specific VA loans and bankruptcy issues is prudent.

Q6: What kinds of documents are needed?

Answer:

• Documentation proving the current status of the VA loan
• Documentation proving adequate home equity, such as appraisal
• Court documents about Chapter thirteen bankruptcy, which include repayment schedules alongside present payment confirmation
• Financial documents, including bankruptcy, credit reports, or other detailing documents justifying bankruptcy circumstances
• Verification of income and employment history,

Q7: In what ways are interest rates and terms different under this program?

Answer:

• Highly Competitive Rates for VA Loans: VA loans have a reputation for lower interest, and even a cash-out refinance offers enticing conditions.
• Rate Adjustments: For borrowers with Chapter 13 bankruptcy, terms will likely be modified, considering the additional risk posed. Adjustments will be made based on an overall assessment of your finances, including repayment history, to reach the final rate and terms.

Q8: Are there any risks or downsides to pursuing this option?

Answer:

• Equity Reduction: A cash-out refinance reduces your stake in your property by converting some equity into cash.
• Extended Repayment: If more funds are borrowed, this could lengthen the duration of your loan or increase monthly payments, particularly for those in Chapter 13.
• Complex Approval Process: The intersection of VA policies and bankruptcy rules may create a more complicated approval process.
• Impact on Bankruptcy: You must not violate the terms of your Chapter 13 plan, so ensure that refinishing does not affect the discharge.

Q9: What should I consider before proceeding with this refinance option?

Answer:

• Consult professionals: Develop a strategy by talking to a VA lender and then a bankruptcy lawyer, especially if you are considering a cash-out refinance.
• Review Your Finances: Assess your financial situation regarding your ability to take on additional mortgage payments under your Chapter 13 plan.
• Long-Term Goals: Assess the impact on your overall financial picture, including home equity and credit profile, after leaving bankruptcy when cash is available now.

Q10: Where can I find additional resources or assistance?

Answer:

• VA Loan Specialists: Get in touch with specific lenders who work with VA loans and specialize in dealing with borrowers undergoing bankruptcy.
• Legal Aid: Contact local legal aid clinics or bankruptcy lawyers in Texas who can assist with Chapter 13 case specifics.
• Government Resources: The U.S. Department of Veterans Affairs and other government sites have information and materials that can help clarify available options.

This FAQ explains the basics regarding the Texas Chapter 13 Cash-Out Refinance on VA Loans. As each case differs, bespoke guidance from experienced professionals is imperative to navigate this intricately tailored process.