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Quizzes > Quizzes for Business > Finance

Texas Home Equity Loan Compliance Quiz

Assess Your Home Equity Loan Compliance Knowledge

Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art depicting a trivia quiz on Texas Home Equity Loan Compliance

Ready to master Texas home equity loan compliance? This interactive quiz challenges legal professionals and finance students alike to test their knowledge of state-specific equity loan rules, fees, and disclosures. Whether you're studying for licensing or brushing up on compliance essentials, you'll gain deeper insight into borrower rights and documentation requirements. Feel free to compare your skills with related Texas Civil Procedure Rules Quiz or hone compliance strategies with an I-9 Compliance Quiz . Customize this quiz for your needs in our quizzes editor.

What is the maximum combined loan-to-value (CLTV) ratio allowed for home equity loans under Texas Constitution Article XVI Section 50?
100%
80%
50%
90%
Under Article XVI Section 50, total liens against homestead property, including the proposed home equity loan, may not exceed 80% of the appraised value. This CLTV cap protects borrowers by ensuring they retain a minimum equity buffer.
After closing a home equity loan, what minimum equity must a Texas borrower retain in their homestead?
15%
20%
25%
10%
Texas law requires that after all liens are recorded, the homeowner retains at least 20% equity in the homestead. This ensures the borrower is not over-leveraged beyond the statutory 80% CLTV limit.
Are prepayment penalties permitted on Texas home equity loans?
Yes, within the first year only
Yes, up to 2% of outstanding balance
Yes, if disclosed
No, prepayment penalties are prohibited
The Texas Constitution explicitly prohibits prepayment penalties on home equity loans to allow borrowers the right to repay early without additional charges. This protects consumers from being locked into high-cost credit.
Who must prepare or review the loan documents for a Texas home equity loan?
The lender's loan officer
A notary public
An attorney licensed in Texas
A licensed title agent
Texas law requires that home equity loan documents be prepared or reviewed by an attorney licensed in Texas to ensure compliance with the constitutional amendment. This safeguard helps prevent unauthorized or noncompliant loan terms.
How many days before closing must the required home equity disclosure be delivered to the borrower?
3 days
20 days
12 days
7 days
The constitution mandates a 12-day waiting period after delivery of the special home equity disclosures before closing can occur. This provides borrowers a meaningful period to review terms and consider their options.
Which property type is eligible for a Texas home equity loan?
Vacation homes
Rental investment property
Principal homestead only
Any real property in Texas
Texas home equity loans may only be made on a borrower's principal homestead, as defined by state homestead law. Other property types do not qualify under Article XVI Section 50.
What is the maximum combined loan-to-value ratio (CLTV) a borrower can reach when taking a home equity loan?
85%
80%
70%
75%
Article XVI Section 50 caps the CLTV of all liens against the homestead at 80%. This ensures homeowners maintain at least 20% equity after closing.
Under the Texas Constitution, what is the maximum aggregate amount of lender fees (excluding title policy premium) on a home equity loan?
2% of the loan principal
1% of the loan principal
5% of the loan principal
3% of the loan principal
The constitutional amendment limits lender fees - including origination and attorney's fees - to 3% of the loan principal. Fees beyond that cap are not permitted under Texas law.
Which document is used to establish a borrower's homestead status in a Texas home equity loan application?
Homestead affidavit
Appraisal report
Title insurance policy
Deed of trust
A homestead affidavit is signed by the borrower to certify that the property is their principal residence. This document is critical to meet eligibility requirements under Article XVI Section 50.
Under Texas law, which fee must a lender never charge on a home equity loan?
Prepayment penalty
Origination fee
Appraisal fee
Reconveyance fee
Texas Constitution Article XVI Section 50 specifically prohibits prepayment penalties on home equity loans. All other listed fees, if disclosed and within statutory limits, are permissible.
After closing a home equity loan, what typical lien position does the home equity lien occupy?
First lien position
Second lien position
Third lien position
Subordinate to all liens
Home equity liens are generally recorded after the original mortgage and therefore occupy the second lien position. They remain subordinate to any existing first lien.
Which mandatory disclosure must be provided at least 12 days before closing a Texas home equity loan?
Loan Estimate
Good Faith Estimate
Home equity notice under Article XVI Section 50
Truth-in-Lending statement
Article XVI Section 50 requires a specific home equity disclosure detailing the constitutional provisions, costs, and borrower rights delivered at least 12 days prior to closing. Federal disclosures like the Loan Estimate do not fulfill this constitutional requirement.
Who must perform the appraisal for determining LTV on a Texas home equity loan?
The county tax assessor
A licensed appraiser
The lender's loan officer
The borrower
Texas law mandates that a licensed, certified appraiser perform the appraisal to establish the property's market value for CLTV calculations. This ensures an objective and compliant valuation.
Which document is not specifically required under Texas home equity law but may be requested by lenders?
Borrower's federal income tax returns
Title policy commitment
Homestead affidavit
Appraisal report
While lenders often request tax returns for underwriting, Texas Constitution Article XVI Section 50 does not mandate submission of federal income tax returns. The other documents are constitutionally or statutorily required.
A borrower has an existing first lien of $150,000 on a property appraised at $250,000. What is the maximum home equity loan they can take under Texas law?
$50,000
$75,000
$60,000
$40,000
Texas law caps CLTV at 80%, which equals $200,000 on a $250,000 appraisal. Subtracting the $150,000 existing lien leaves $50,000 available for a home equity loan.
Under Article XVI Section 50, what is the maximum fee an attorney may charge for title examination on a home equity loan?
$800
$200
$400
$600
The constitutional amendment caps the attorney's fee for title examination at $400. Any higher attorney fee for this service would violate state law.
Which of the following is not a permissible charge on a Texas home equity loan?
Appraisal fee
Prepayment penalty
Points up to 3% of the loan principal
Reconveyance fee up to $50
Texas law prohibits any prepayment penalties on home equity loans under Article XVI Section 50. The other charges are allowed if within the prescribed caps.
What is the maximum fee allowed for reconveyance of a home equity lien upon full repayment in Texas?
$150
$100
$0
$50
Article XVI Section 50 permits a reconveyance fee but limits it to $50. This fee covers the cost to release the lien once the loan is fully repaid.
According to Article XVI Section 50 disclosures, the required statement must include a summary of which of the following?
Current federal interest rate averages
Local property tax rates
Borrower's credit score requirements
Provisions of Article XVI Section 50
The constitution mandates that the disclosure statement summarize the amendment's provisions, including CLTV caps, fee limits, and borrower rights. Other financial details are not constitutionally required.
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Learning Outcomes

  1. Analyze Texas home equity loan regulations and eligibility criteria.
  2. Identify Texas Constitution Article XVI Section 50 compliance requirements.
  3. Evaluate permissible fees, charge limits, and disclosure obligations.
  4. Apply documentation standards for borrower rights and lien priorities.
  5. Demonstrate mastery of state-specific compliance best practices.

Cheat Sheet

  1. Understand the 80% Loan-to-Value (LTV) Limit - Think of your home's value as a pie: Texas law lets you borrow up to 80% of its fair market value, keeping a 20% slice reserved for safety. So on a $200,000 home, your total mortgage debt can't exceed $160,000. Read the full article on National Mortgage Professional
  2. Recognize the 12-Day Cooling-Off Period - After you apply for a home equity loan, you get a mandatory 12-day "think-it-over" window before closing. This gives you plenty of time to brew coffee, review the fine print, and make sure you're 100% comfortable. View the FAQs at Texans Credit Union
  3. Identify Permissible Fees and the 2% Cap - Lenders can charge up to 2% of your loan amount in fees (appraisals and title insurance are extra). On a $100,000 loan, that's a maximum of $2,000 in fees, so you won't get hit with surprise costs. Learn more at Alston & Bird
  4. Know the Approved Closing Locations - You can only close your home equity loan at a lender's office, title company, or attorney's office - not at your kitchen table. This rule protects you by ensuring an official, supervised closing environment. Details from Texas Land Title Association
  5. Understand the Prohibition of Additional Collateral - In Texas, your homestead is the only collateral you can use for a home equity loan. You can't offer up your car or boat as a backup, so lenders focus solely on your house's value. Read Mortgage Law Insights
  6. Be Aware of the One-Year Rule Between Loans - After you close a home equity loan, you must wait 12 full months before taking out another one on the same property. This cooldown prevents over-leveraging your home and keeps debt manageable. Learn more on National Mortgage Professional
  7. Recognize the No Prepayment Penalty Clause - Texas law says you can pay off your home equity loan early without fear of penalty fees. Pay it off ahead of schedule and watch your interest savings grow - no extra charges attached! Check the FAQs at Texans Credit Union
  8. Understand the Documentation Requirements - You're entitled to your signed application and a HUD-1 Settlement Statement at least one day before closing. This gives you time to double-check all figures and terms before you commit. Review the guidelines on National Mortgage Professional
  9. Know the Repayment Structure - Home equity loans must be repaid in regular, equal installments - no more often than every 14 days and no less often than monthly - starting within two months of closing. This keeps your payment schedule predictable. See repayment details on National Mortgage Professional
  10. Be Aware of the Agricultural Property Exception - Since January 2018, agricultural properties in Texas can also secure home equity loans. If you've got farmland or ranchland, you can tap into that equity just like a regular homestead. Find out more at Alston & Bird
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