A home equity loan is a new loan taken out against the equity a homeowner has built up in their home by paying down their mortgage over time. The size of the loan is determined by the difference in the market value of the home and the remaining balance on the mortgage.

Because home equity loans require mortgage holders to put their house at risk if they default on the loan, these loan types are relatively tightly regulated. A number of laws control how home equity loans are advertised, sold, and managed. Some of these are federal and some operate at the state level.

Every state in the United States has laws that apply to home equity loans in some way, and some states have gone much further than the federal government in seeking to 澳洲幸运5官方开奖结果体彩网:regulate home equity loans. We'll look at Texas as a case study.

State Laws on Home Equity Loans

While 澳洲幸运5官方开奖结果体彩网:home equity loans allow homeowners to access the capital in their homes, they can be risky endeavors. The reason is that they require your house to act as collateral against the loan. If you default on your loan, the lender can cease your home and s💟ell it 🦩to recuperate their loss.

Because of this risk, and the risk that borrowers may end up inﷺ a cycle of never-ending debt by taking out loans to pay off existing debt and then spending even more, home equity loans are heavily regulated.

All states have home equity loan laws. Because these laws are constantly changing, borrowers can access updated information in the annual publication, "Pratt’s State Regulation of Second Mortgages and Home Equity Loans." You can also consult a trusted lender.

As this book states, state laws on home equity loans app🎐ly to almost every aspect of thes🥂e loans. There are state-level laws that apply to second mortgages in all of these categories:

• Advertisements
• Application Practices
• Bad Check Charges
• Balloon Payments
• Brokering Second Mortgage Loans
• Consumer Protection
• Credit Line/Revolving Credit Loans
• Disclosures
• Discrimination
• Fees and Charges
• Home Equity Loans
• Insurance
• Interest and Usury
• Late Charges
• Licensing
• Plain English
• Predatory Lending
• Prepayment
• Prohibited Loan Terms
• Record Retention
• State Regulators

Lenders must be aware of these rules and follow them. For borrowers, they are only likely to become relevant if you think that you have been mis-sold a home equity loan. However, it’s best to consult an attorney in this case, because state rules on what lenders can and can’t do are constantly changing.

State Laws on Home Equity Loans in Texas

Texas is an instructive example of just how detailed state laws can be when it comes to home equity loans. The state was the last in the U.S. to allow home equity loans—they became legal in 1997—and they are regulated under a Texas Constitution statute known as Section 50. This section of the constitution protects consumers from predatory lenders by dictating strict provisions under which lenders must operate, with serious penaltieওs for non-adherence.

Section 50 regulates many aspects of how home equity loans work in Texas. It sets a state limit on the maximum amount that homeowners can borrow, limits them to one loan, and requires that their lender perform a detailed process of due diligence to make sure that the loan is responsible.

There are also strict laws related to how home equity loans can be sold and advertised, and how their terms are explained to borrowers. These terms are also outlined in the Texas Home Equity Early Disclosure document, which must be given to borrowers who take out a home equity loan in the state.

Though Texas’ laws on 澳洲幸运5官方开奖结果体彩网:home equity loans are unusually strict, the state is not unusual in its regulation. If you are considering a home equity loan, it’s worth researching the laws in place in your home state. In most cases, these are designed to protect borrowers against taking out loans that they will find difficult to pay back.

The Bottom Line

Home equity loans can be unsuitable for some borrowers🌠 because they come with the risk of losing your house. There are many federal and state-level laws that apply to home equity loans. These cover many aspects of how these loans are advertised, sold, and managed, and state regulations in this area are constantly changing. 

If you think you’ve been mis-sold a home equity loan, you should first contact the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD). If you think a lender has acted against the laws in your state, contact your state regulator or a local attorney.