The Texas cash-out refinance rules are not lender policy. They are written into Article XVI, Section 50 of the Texas Constitution, which means no lender can waive them for you and no amount of shopping around will move them. Taking equity out of a Texas homestead caps your total borrowing at 80 percent of the home’s fair market value, limits what you can be charged to make the loan, and puts a fixed calendar between your application and your closing. This article is general information about how the provision works and is not legal advice.

Three pages on this site cover Houston equity borrowing and they answer different questions, so start in the right place. My HELOC in Houston guide is for homeowners who want a revolving line to draw on over time. My cash-out refinance on a Houston rental property guide is for investment property, where none of what follows applies because the property is not your homestead. This page is the one about the cash out refinance rules Texas applies when the house is the one you live in, and it covers the 80 percent ceiling, the fee cap, the waiting periods, the protections you receive in exchange, and the one legal path back out.

Texas Cash-Out Refinance Rules Begin With One Question: Is It Your Homestead?

Everything in Section 50(a)(6) attaches to the homestead, not to the borrower and not to the loan program. If the Memorial-area house you are refinancing is where you live, the whole framework applies to you. If it is a duplex you rent out in Spring Branch, none of it does, and your loan is underwritten under ordinary investment property guidelines instead.

The second thing to settle is whether you are actually taking cash out. Texas draws a hard line between a rate-and-term refinance, which simply replaces your existing purchase money loan plus closing costs, and an equity loan, which puts money in your pocket or pays off debt that was never secured by the house. Only the second one becomes a 50(a)(6). Paying off a credit card balance or a car loan with refinance proceeds makes it an equity loan even if you never see a check, which surprises a lot of homeowners who think of that as consolidating rather than cashing out.

This matters more than it sounds, because the character sticks to the loan. Once your homestead secures a 50(a)(6), that classification follows the mortgage until it is paid off or refinanced under a narrow exception described further down. My guide to when to refinance in Houston walks through the break-even math that should come before any of this.

The 80 Percent Ceiling Is the Firmest of the Texas Cash-Out Refinance Rules

The constitution says the new loan, added to the outstanding balances of every other lien recorded against the homestead, may not exceed 80 percent of the fair market value of the home. There is no mortgage insurance workaround and no exception program. Twenty percent of your equity stays in the house.

Work an example against this market. A homeowner in Oak Forest with a home appraising at $525,000 has an 80 percent ceiling of $420,000. If the existing first lien is $310,000, the theoretical cash available is $110,000 before closing costs and payoffs come out of it. Move the same math to a Katy house appraising at $360,000 with a $290,000 balance, and the ceiling of $288,000 sits below the current payoff, so there is no cash-out available at all until either values rise or the balance comes down.

Two practical notes on the value side. First, the number that governs is a lender-ordered appraisal of fair market value, not the appraised value on your Harris County or Fort Bend County tax notice. Homeowners who successfully protested their tax appraisal sometimes assume that lower figure will hurt them here, and it will not, because the two valuations are produced for entirely different purposes. Second, the constitution requires that you and the lender formally acknowledge the fair market value on the day the loan closes, which is why an appraisal dispute on a Texas equity loan has to be resolved before closing rather than after.

The 80 percent ceiling also lines up with where the federal programs already sit. FHA reduced its national cash-out maximum to 80 percent of adjusted value for case numbers assigned on or after September 1, 2019, so an FHA cash-out in Texas hits the same wall from two directions.

The 2 Percent Fee Cap, and the Four Charges It Does Not Count

Fees and charges to make the loan may not exceed 2 percent of the loan amount. On a $420,000 equity loan that is $8,400, and it has to cover origination, underwriting, processing, document preparation, and the rest of the lender and broker side of the file.

Four categories sit outside the cap, and knowing them prevents a lot of confusion when you compare two Loan Estimates. Excluded are a fee for an appraisal performed by a third party appraiser, a property survey performed by a state registered or licensed surveyor, the state base premium for a mortgagee policy of title insurance with endorsements, and a title examination report. Those four are real costs you will still pay. They simply do not consume your 2 percent.

This cap used to be 3 percent with no exclusions. Texas voters approved Proposition 2 in November 2017 and the change took effect January 1, 2018, lowering the cap to 2 percent while carving those third party charges out of it. The same amendment repealed the old prohibition on equity loans against agricultural homestead property, which matters for acreage homesteads in Montgomery and Waller counties, and it raised the ceiling on home equity lines of credit from 50 percent of value to the same 80 percent that applies everywhere else in the section.

One more consequence worth knowing: discount points you pay to buy down the rate generally count against the 2 percent cap, which means there is a ceiling on how far you can buy down a Texas equity loan before the structure itself stops you. For context on where rates sit and what a buydown is actually worth, my Houston mortgage rates guide covers the market side.

Texas Cash-Out Refinance Rules on Timing: 12 Days, One Business Day, One Year

The calendar is where these files most often slip, and it is entirely predictable if you plan for it. Three separate waiting periods stack.

Twelve days. The loan may not close before the twelfth day after the later of two events: the date you submit your application, or the date the lender gives you the constitutional notice describing your rights. If the notice arrives four days after your application, the clock runs from the notice. Build this into any deadline you are chasing, because a contractor’s start date or a debt payoff date does not shorten it.

One business day. Without your consent, the loan may not close before one business day after you receive a copy of your loan application, if it was not already provided, along with a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing. In practice this is the reason a last-minute change to your closing figures can push a Texas equity closing to the next day when the same change would be absorbed on the spot in another state.

One year. If your homestead has secured a 50(a)(6) within the past year, a new one cannot close before the first anniversary of the prior closing date. The only relief is narrow: you may request an earlier closing on oath because of a declared state of emergency. Along the same lines, only one 50(a)(6) loan may be secured by your home at any given time, so a Texas homeowner cannot layer a home equity second behind an existing equity first.

Add it up and a realistic Texas equity refinance timeline runs longer than a rate-and-term file on the same house. Plan on the appraisal, the twelve days, and the one-day review before you commit to paying anyone on a fixed date.

What You Get in Exchange: Protections Built Into the Section

The limits are not one-sided. Texas attaches homeowner protections to a 50(a)(6) that do not exist on an ordinary mortgage, and they are a real part of the trade.

No personal liability. The loan is without recourse for personal liability against you and your spouse unless the credit was obtained by actual fraud. If the house is ever lost, the lender’s remedy is the house.

Court-ordered foreclosure only. The lien may be foreclosed on only with a court order. Texas is otherwise a fast non-judicial foreclosure state, so this is a meaningful difference in how a default would unfold.

Where you sign. The loan may close only at the office of the lender, a title company, or an attorney at law. Mobile notary at your kitchen table is not permitted on these, which is a scheduling detail that catches people who assumed a signing could come to them.

Three days to rescind, no prepayment penalty, no extra collateral. You may rescind within three days after closing without penalty or charge. You may prepay at any time without penalty. No additional collateral may secure the loan, and payments must at least cover the accrued interest for each period, so negative amortization is off the table. If the lender fails to meet its obligations and does not cure the failure, the constitution provides for forfeiture of all principal and interest.

That no-additional-collateral provision has one consequence Houston veterans should hear directly. In 2018 the Texas Attorney General concluded, in Opinion KP-0183, that because a VA loan carries a federal guaranty and a guaranty is additional collateral, subsection (H) prohibits a VA cash-out refinance on a Texas homestead. VA purchase loans and VA rate-and-term refinances are unaffected. If you are a veteran in Houston looking to pull equity, expect the file to be structured as a conventional 50(a)(6) rather than as a VA loan.

The Way Back Out: Refinancing a 50(a)(6) After a Year

For two decades the working assumption in Texas was that once a loan was an equity loan, it stayed one forever. The 2017 amendment changed that by adding a path to refinance a 50(a)(6) into an ordinary non-home-equity loan, and it is one of the more useful provisions for a homeowner who took cash out at a higher rate and now wants a clean rate-and-term mortgage.

Four conditions have to be satisfied together. The refinance cannot close before the first anniversary of the date the equity loan closed. It cannot advance any additional funds beyond refinancing the existing debt and covering actual costs and reserves the lender requires, so no new cash. The new principal, added to other liens, cannot exceed 80 percent of fair market value. And the lender has to give you a specific written notice, delivered no later than the third business day after you submit the application and at least 12 days before the refinance closes, explaining what you are giving up.

Read that notice carefully rather than initialing past it. What you give up is exactly the list in the previous section: the non-recourse protection and the court-order requirement for foreclosure go away when the loan converts. For most homeowners a materially lower rate is worth it. It should still be a decision you make on purpose.

Which Page You Need: How the Texas Cash-Out Refinance Rules Sort Three Readers

Houston homeowners land on this topic from three very different situations, and the right answer is different for each.

You want a lump sum against the house you live in. That is the 50(a)(6) cash-out refinance described on this page. One new first lien, cash at closing, and every rule above applies.

You want to draw as you go. A line of credit is also governed by Section 50, with its own wrinkles: each advance must be at least $4,000, fees may be charged only when the line is established rather than on each draw, and the same 80 percent ceiling applies as of the day the line is opened. My HELOC in Houston guide is the page for that reader, and a line often fits a phased remodel better than a lump sum does. If the work is part of a purchase, my Houston renovation loans guide covers financing the repairs inside the mortgage instead.

The property is a rental. Then none of this governs your file, the 80 percent ceiling does not apply as a constitutional matter, and the limits come from the loan program rather than from the state. My cash-out refinance on a Houston rental property guide covers that path, including the trap that catches owners refinancing a house that used to be their homestead. For the full range of programs across the metro, the Houston home loans guide is the hub.

Frequently Asked Questions About Cash Out Refinance Rules Texas Homeowners Face