In a community property state like Texas, there are unique equity laws which can complicate the process of refinancing after final divorce.
This is where an Owelty Lien (referred to in other states as a Divorce Buyout) can come into play. An owelty lien is not a Texas Cash Out. While a Texas Cash Out can be done following divorce – and there are circumstances when it’s the best option – clients appreciate lower rates and higher “debt-to-income” limits of a refinance with an Owelty lien. A Texas Cash Out also has time restrictions (waiting periods) that a refinance with Owelty does not have. Another reason divorcing homeowners prefer the refi with Owelty lien is that subsequent refinances on the property do not have to be treated as “cash outs” under Texas equity laws.
Using the Owelty lien, the person who keeps the home can pay out the departing spouse’s equity (that dollar amount is paid off – along with the balance owed on the existing mortgage) with the new loan or “refinance.” Often this procedure keeps retirement funds intact and/or allows investments to stay in the market. The departing spouse has a sum of money to use for a down payment on a new residence or some other purpose.
If you choose to work with a Divorce Lending Specialist, s/he will help you decide which program suits your needs best. There are times when a cash out loan is necessary:
· When the party keeping the home wants to access cash to make improvements, finance a life event for a child, etc.
· When the parties owe money to someone else
It’s important to note that paying off joint debts and paying attorney fees are allowed under the refinance with Owelty and do not trigger a cash out requirement.