Texas cash-out refinance rules
Texas is the one state where the cash-out ceiling is written into the constitution rather than into an agency guideline, which means no lender, program or investor can go past it. Two things follow from that, and the second one changed recently: the 80% cap counts every lien against the homestead, not just the new loan — and since 1 January 2018 there has been a way to refinance out of a Texas home equity loan into an ordinary mortgage. Here is how both work.
80% is not your lender’s rule. It is Article XVI.
Texas home equity lending is governed by Section 50(a)(6) of Article XVI of the Texas Constitution — which is why the loans are universally called “A6” loans, and why Texas is the one state where the answer to “can you make an exception?” is genuinely no.
The cap itself is worth reading closely, because the wording is broader than most people assume. The loan must be of a principal amount that, when added to the aggregate total of the outstanding principal balances of all other indebtedness secured by valid encumbrances of record against the homestead, does not exceed 80% of fair market value on the date the credit is extended.
What that actually means
A Texas homestead worth $500,000. Existing first mortgage of $300,000. An existing solar lien of $25,000.
The constitutional ceiling
80% of $500,000 is $400,000 — and that is the ceiling for everything secured by the homestead, not just the new loan.
What is left for you
$400,000 less the $300,000 first and the $25,000 solar lien leaves $75,000 of room — and closing costs come out of that, not on top of it.
Outside Texas, that same borrower could take a $400,000 cash-out first and pay off the solar lien with the proceeds. In Texas the solar lien counts against the ceiling whether you pay it off or not, because the test is measured on the date credit is extended. Liens you forgot about will cost you dollar for dollar. Pull a title commitment early.
The same 80% applies to a Texas HELOC under Section 50(t) — the maximum principal of the line cannot exceed the (a)(6)(B) amount. There is no product that gets you around it. And note what the old 50% advance limit on Texas HELOCs has become: it was repealed. If you read somewhere that a Texas HELOC caps advances at half your home’s value, that page predates the change.
You can now refinance out of a Texas home equity loan.
The maxim had a real basis. Before 2018, Section 50(f) said that if any portion of the debt being refinanced was a home equity extension of credit, the new loan had to be a home equity loan too. There was no exit. Your homestead stayed capped at 80%, the 2% fee limit applied to every future refinance, and every one of them had to be non-recourse and judicially foreclosed. Once an A6, always an A6 — accurate, and permanent.
Then Texas voters passed Proposition 2 in November 2017, effective 1 January 2018. It added Section 50(f)(2), which lets you refinance a home equity loan into an ordinary, non-home-equity rate-and-term loan. Four conditions, all of them mandatory:
The four Section 50(f)(2) conditions
1 — Twelve months
The refinance cannot close before the first anniversary of the date the home equity loan closed. There is no emergency waiver on this one.
2 — No new money
No funds advanced beyond refinancing the existing debt plus actual costs and reserves required by the lender. Take a dollar of cash and you are back in A6 territory.
3 — Still 80%
The new principal plus all other homestead liens cannot exceed 80% of fair market value on the date of the refinance. The test moves with you; it is measured fresh.
4 — A specific written notice
Delivered within three business days of your application and at least twelve days before closing. It is a separate document with its own official title.
Meet all four and the loan comes out the other side as an ordinary Texas mortgage. The 80% cap no longer follows it. The 2% fee cap no longer applies. It prices like a normal rate-and-term refinance, because that is what it is.
What you give up, and why the notice shouts at you
This is not a free upgrade, and the required notice is blunt about it. In capital letters, it tells you the refinanced loan will permit the lender to foreclose without a court order, and will be with recourse for personal liability against you and your spouse. It also warns the new loan may contain terms that would not be permitted in a home equity loan at all.
Read what you are trading. An A6 loan is non-recourse — if the worst happens, the lender takes the house and cannot pursue you personally, unless you obtained the credit by actual fraud. And it can only be foreclosed by court order, which is slow and expensive for the lender and buys you time. Converting to a conventional loan hands both protections back in exchange for better pricing and a homestead no longer capped at 80%.
For most borrowers the trade is clearly worth it — you are not planning to default, and the pricing and flexibility difference is real money every month. But it is a genuine decision with a genuine cost, and you should make it knowingly rather than discover it in the notice three days before closing. Anyone who presents the conversion as pure upside has not read the form.
Two things I will not tell you, because nobody can
Whether the 80% test binds any future loan after the conversion, or applies only at that transaction; and whether a 50(f)(2) refinance can be done more than once. The constitutional text points toward “only at that transaction,” and the regulatory guidance, the agency selling guides and the lender matrices are all silent.
If your plan depends on the answer, that is a question for a Texas real estate attorney, not for a mortgage broker and certainly not for an article. I would rather tell you the edge of what is known than guess past it.
Two percent, and the four charges that sit outside it.
Texas caps the fees on a home equity loan. The same 2017 amendment that created the conversion path brought the cap down from 3% to 2% of the original principal amount and carved four categories out of the calculation. Both halves matter on a real file — the cap is tighter than it used to be, but four of the larger line items no longer count against it.
| Charge | Inside the 2% cap? |
|---|---|
| Origination, underwriting, processing, document prep | Yes |
| Recording, servicing set-up, credit report, flood cert | Yes |
| Appraisal by a third-party appraiser | No |
| Survey by a state registered or licensed surveyor | No |
| State base premium for the mortgagee title policy, with endorsements | No |
| Title examination report costing less than the base premium without endorsements | No |
| Bona fide discount points used to buy down the rate | No |
| Interest | No |
Note the fine distinction in the last two title items: the premium exclusion is measured with endorsements, and the title examination exclusion is measured against the premium without them. That is not a typo in the constitution, and it is the kind of detail that decides whether a file passes.
The cap has teeth. If a lender exceeds the limits and fails to cure within 60 days of being notified, it forfeits all principal and interest on the loan. That is why Texas lenders are cautious to the point of appearing obstructive on A6 files — the downside of getting it wrong is the entire loan.
The rules that decide when you can actually close.
- Twelve days, minimum. The loan cannot close before the twelfth day after the later of your application or delivery of the constitutional notice. This is a floor, not a target — and it is why a Texas cash-out never closes as fast as one in Pennsylvania or Florida.
- One business day before closing, you must receive a final itemized disclosure of the actual fees, points, interest and costs. Not an estimate. If it changes, the clock can restart.
- Three places only. Closing must occur at the office of the lender, an attorney at law, or a title company. Not your kitchen table, and not, in the ordinary case, a mobile notary at your workplace.
- Once every twelve months. No new A6 loan may close before the first anniversary of any prior A6 on the same homestead, whether or not that earlier loan is still outstanding.
- Both spouses sign. The lien requires the consent of each owner and each owner’s spouse — including a spouse who is not on the loan and not on title.
- Agricultural homesteads are back in. The old prohibition on home equity loans against agricultural-use homesteads was repealed. If you were told years ago that your place did not qualify, that answer may have expired.
One quiet consequence of the 12-day rule: it starts from the later of application or notice delivery. If a lender is slow getting the notice out, your clock has not started, no matter how long your file has been sitting. Ask for the date the notice was delivered, in writing, on day one. It is the single most useful thing a Texas borrower can do to keep a file moving.
There is no FHA or VA cash-out on a Texas homestead.
This surprises veterans in particular, and the reason is worth understanding because it is not the reason most lenders give.
VA — blocked by the guaranty itself
Section 50(a)(6)(H) says a home equity loan may not be secured by any additional real or personal property other than the homestead. The Texas Attorney General concluded in 2018 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. The state’s regulatory interpretations say the same thing: a guarantor or surety counts as additional property.
An Attorney General opinion is advisory rather than binding law, and it is fair to say so. But every lender in the state underwrites to it, so the practical answer is settled even if the legal one is technically not.
FHA — blocked by arithmetic, not by law
FHA is a different story with the same ending. FHA mortgage insurance is not a guaranty, so it is not prohibited additional collateral — an FHA-insured A6 loan is legal in principle. It fails on the 2% fee cap instead: the upfront mortgage insurance premium has to fit inside 2% of the loan amount, which generally requires lender credits large enough to make the loan uneconomic. So it is not written.
What this leaves you with. A Texas homestead cash-out is a conventional loan, at 80%, full stop. A VA or FHA borrower who needs equity in Texas is choosing between a conventional A6 at 80%, a second lien, or the 50(f)(2) conversion path if there is an existing A6 in the picture. Your VA and FHA purchase and rate-and-term options in Texas are completely unaffected — this restriction is specific to pulling cash out of a homestead.
Six agency rules that will shape your file.
- No appraisal waiver, ever. A new appraisal is required on a Texas A6 loan even when the automated underwriting system offers value acceptance. Budget for it; it is not negotiable, and it is one of the fees outside the 2% cap.
- Single-unit primary residence only. No two-to-four unit properties, no second homes, no investment property. The loan has to be against your Texas homestead.
- First liens only, fully amortizing, fixed rate or a five-, seven- or ten-year ARM plan. The three-year ARM is not eligible.
- No HELOC behind it. Subordinate financing in the form of a home equity line is not permitted alongside an agency A6 loan.
- Not assumable, at any point over the full term.
- No temporary buydowns. The 2-1 and 3-2-1 structures you might use on a purchase are off the table here.
One piece of good news buried in the current guidance: a loan is classified as cash-out or limited cash-out based on the transaction itself, not on the property’s history. A 50(f)(2) conversion is delivered as a limited cash-out refinance. The agencies followed the constitution — there is no permanent cash-out stain on a Texas property that once carried an A6 loan.
In Texas, my usual advice gets stronger, not weaker.
I tell borrowers everywhere that a second lien is usually the cheaper way to reach equity — that moving a low first mortgage to get at a slice of it re-prices every dollar you already borrowed. In Texas that argument gets sharper, because an A6 first mortgage costs you more than money. It brings a 2% fee cap that constrains how the loan can be structured, a twelve-day clock, a closing-location rule, and a permanent 80% ceiling on the homestead unless and until you convert out of it.
So the order of operations I would work through with you is: check whether a second lien or a Texas HELOC gets you there inside the same 80% ceiling with far less friction. If there is an existing A6 on the property, check whether a 50(f)(2) conversion is the actual answer — that one is genuinely under-used, and I have seen borrowers carrying A6 pricing for years who could have left it behind. Only then look at a new A6 first.
The number that decides which path wins is the blended rate across everything you owe, not the headline rate on any one loan.
Run the blended rate on your own numbers
Put in your current first mortgage, a proposed second, and anything else you are thinking of rolling in. It gives you the true weighted cost of each path — which is the only comparison that answers this question.
Open the blended-rate calculator →If you want the national picture on ceilings and seasoning first, how much equity you can actually take out covers every loan type. Texas sits underneath all of it as a harder floor.
Let’s find out which Texas path you are actually on.
Tell me what is on the homestead now — balance, rate, any second liens, and whether the existing loan is an A6. I will tell you whether a second lien, a conversion, or a new A6 is the cheaper road, and what the twelve-day clock does to your timeline.
Talk First
Text or email the situation — current balance and rate, roughly what the home is worth, what you need, and whether you have had a home equity loan before. One business day, no pressure.
Or Get Real Numbers
Send the full scenario and I will price the A6, the second lien and the conversion side by side — wholesale, not marked up — with the fee cap already accounted for.
Send my scenario →References are to Article XVI, Section 50 of the Texas Constitution and to the implementing interpretations at 7 Texas Administrative Code Section 153, as of July 2026, and to agency selling guide requirements current at the same date. The Attorney General opinion on VA loans is advisory and not binding law. Examples are illustrative; your ceiling depends on an appraised value and a title commitment, not on an estimate. Nothing here is legal advice — I am a mortgage broker, and Texas homestead law is an area where a Texas real estate attorney earns their fee. Forest Hills Mortgage · Matt Mergo · NMLS #563819. Equal Housing Opportunity.