Texas HELOC Fee Cap for an Owner in a High-Cost Closing State

The Quick Read: The Texas HELOC fee cap limits the fees a lender can charge to set up a line against a Texas homestead to 2 percent of the original principal amount. It covers only your own primary home. It never reaches a rental, a second home, or a property you own in another state. If you live in a high-cost closing state and own a Texas rental, the cap does not protect you, and your rental equity options follow program terms instead.

• What is capped: fees to originate, evaluate, maintain, record, insure, or service the line, charged once at setup.
• What sits outside: a third-party appraisal, a licensed survey, the state base title premium, a title exam report priced below that premium, and per diem interest.
• Where it applies: a Texas primary residence only. Rentals and second homes are not covered.
• What it can’t do: no credit score, reserve balance, or lender policy can waive it. It is written into the state constitution.
• What to do with a rental: compare rental HELOC and DSCR cash-out costs line by line, because no cap travels with them.

Key Terms Defined

Each is defined once here and used freely afterward.

• Homestead: the Texas primary residence you live in, which carries special constitutional protections.
• Original principal amount: the starting size of the credit that the 2 percent is measured against.
• Per diem interest: interest that accrues daily between funding and the first payment cycle.
• CLTV: combined loan-to-value, meaning all liens on the property added together and divided by its value.
• DSCR: debt service coverage ratio, which divides the property’s monthly rent by its monthly debt obligation.
• PITIA: principal, interest, taxes, insurance, and any association dues, the full monthly obligation that rent has to cover.

What the Cap Covers (and Why It Exists)

The cap is a ceiling on lender-controlled setup fees: 2 percent of the original principal amount of the credit. It lives in the state constitution, so no lender, score, or reserve balance can waive it. Fees to originate, evaluate, maintain, record, insure, or service the line all count, unless a named exclusion applies.

The purpose is simple. Texas wanted to stop a lender from carving a large slice out of a homeowner’s equity in fees. The Texas A&M Real Estate Research Center explains that many home equity rules are written into the constitution itself rather than into ordinary lending law. That is why the rules feel so rigid. A lender cannot negotiate around them.

The constitutional wording is reproduced in the Texas Legislative Reference Library’s analysis of S.J.R. 60, the amendment bill that set the current fee-cap language. That analysis confirms the cap sits in the fee provision of the home equity section. It also confirms the four third-party carve-outs covered below.

The cap has a history, and old advice still floats around. Voters lowered the cap from 3 percent to 2 percent while excluding certain third-party fees. A loan originated before that amendment took effect carried the old 3 percent cap. If a page tells you the cap is 3 percent, it is describing an older loan.

Inside vs. Outside the Cap

Only a closed list of items sits outside the cap. Everything else a lender charges that is not interest counts toward the 2 percent. The constitution, as reproduced in the Texas Constitution text for Article XVI, Section 50, names four third-party exclusions. The implementing rule, 7 Tex. Admin. Code § 153.5, adds how points and daily interest are treated.

Three details trip people up.

First, the title exam exclusion has a ceiling. The report is excluded only if it costs less than the base premium. Price it higher and the excess is a fee.

Second, certain lender charges are excluded only if they are bona fide. The rule treats a charge that truly buys a cheaper loan as interest, which falls outside the cap. A charge labeled that way that buys you nothing is a fee wearing a costume.

Third, any charge that is not interest is a fee under the cap. That sentence settles most arguments about where an odd line item belongs. If it is not on the excluded list and not interest, assume it counts.

The cap is also not a limit on your total closing bill. Appraisal, survey, and title costs sit outside it. On a high-value home, those outside items can be the largest part of the bill. Think of it this way: the cap controls what the lender keeps, not what the whole transaction costs.

How the Texas HELOC Fee Cap Works on a Revolving Line

On a Texas homestead HELOC, the fees are charged once, when the line is established. The constitutional notice text, as reproduced by Justia, says fees may be collected only at establishment and that the lender may not charge a fee on any advance. The Texas A&M research center says the same.

So the cap does not reset with each draw. One setup, one cap. Draw ten times and nothing new gets charged.

That raises a fair question about the measuring stick. The constitutional text measures the cap against the original principal amount of the extension of credit. How that base applies to a revolving line, where you may draw only part of the limit, is a question for the lender’s counsel. Ask for the answer in writing before you sign. Do not assume.

The cap scales with the size of the line. A larger line raises the ceiling on capped fees, while appraisal, survey, and title costs rise on their own track outside it. For an owner of a high-value home, that gap is where surprises live.

Other HELOC conditions come bundled with the cap on a homestead line:

• Each advance must be at least $4,000.
• Advances cannot be taken with a credit card, debit card, or solicitation check.
• Advances stop if the balance exceeds 80 percent of the value set on the day the line is established.
• The lender cannot unilaterally amend the terms.
• The lender must give a separate written notice before closing, with timing that varies by file and lender, and the loan cannot carry a prepayment penalty, per the Texas A&M research center.

Across Lendmire’s wholesale network, the Texas primary-residence ceiling is 80 percent CLTV, matching the constitutional ceiling. Tiers above that never apply to a Texas primary. Texas also layers a 12-day waiting period, a one-lien-at-a-time rule, and 12-month seasoning onto primary-residence lines.

Where the Cap Stops: Rentals, Second Homes, and Out-of-State Owners

The cap attaches to the collateral, not to the person. If the property is not your Texas homestead, the cap does not apply. The Texas A&M research center says these loans may not be taken out on a secondary residence or a rental or investment property. Texas does not block equity loans on rentals. The homestead rules simply do not attach to them.

That cuts several ways.

A Texas rental or second home. The cap, the pre-closing notice, and the constitutional 80 percent ceiling do not attach. A rental line or DSCR cash-out follows the lender’s own program terms. That does not mean a lender can charge anything it likes. Other disclosure and fee rules still apply, so read the fee sheet closely.

An owner who lives elsewhere. An out-of-state owner has no Texas homestead. A Texas rental is not covered by the cap. The state where the rental sits governs the lien and recording. If you borrow against your own home in a high-cost closing state, that state’s recording and closing costs apply instead of anything Texas-specific. Lendmire’s piece Bank Statement HELOC Recording Costs for an Owner in a High-Cost State covers that side. So does its piece How to Get a Bank Statement HELOC in a High-Cost Closing State.

A former Texas homestead. If a property ever carried a homestead equity lien, later payoffs and refinances may stay under homestead law. Have title counsel confirm this against the constitutional text before you assume the old rules fell away. It is a genuine trap.

Entity title. A homestead belongs to a natural person. Across the network, an LLC cannot hold title on a rental HELOC either. A property already deeded to an LLC needs a vesting change first, or a DSCR cash-out instead.

One more point: a strong file cannot buy its way out. Credit score and reserves do not waive the fee cap or the 80 percent ceiling. These are constitutional limits, not lender preferences.

What a Rental Equity Line Looks Like Instead

Texas splits an investor’s portfolio in two. Your own Texas residence is the constrained asset. Your rentals are not. The three equity paths look different.

The rental line is a real product with its own limits. Across Lendmire’s wholesale network, an investment-property line is a standalone first or second lien. It runs up to $500,000 total, with 70 percent CLTV as the investment-property ceiling and a 700 minimum credit score. There is no higher investment tier.

The structure is a 5-year interest-only draw followed by a 25-year repayment. At least 75 percent of the line is drawn at closing. Title must sit with an individual or a revocable living trust. Subject to lender program eligibility, an LLC or irrevocable trust cannot hold title on this product.

Texas adds two property rules. Texas properties are limited to 10 acres. A property listed for sale, or listed within the past 60 days, is ineligible. The 12-day wait, the one-lien rule, and the 12-month seasoning bind primary residences only. Texas second homes and investment properties are eligible as non-homestead transactions. A second-home line follows its own credit-tiered table with a 640 minimum score. Manufactured homes, co-ops, condotels, and log homes are not offered. Everything here is subject to lender guidelines and full file review.

(Draw minimums are a quirk: Texas subsequent draws carry a $4,000 minimum, the same number the constitution sets for homestead advances.)

Lendmire’s HELOC placement covers 16 full-service states, Texas among them. That is narrower than its DSCR footprint, so check availability by state early.

Reading a Quote Against the Cap

On a homestead line, treat the lender’s fee sheet like a crossword. Sort every line into one of three piles: capped fees, excluded items, and interest. Total the capped pile and compare it to 2 percent of the line’s original principal amount. If it exceeds that, the quote is wrong, not clever.

A quick checklist:

1. Ask for every charge itemized. Origination, processing, underwriting, and document prep all go in the capped pile.

2. Test the points. Ask what the points buy. If the answer is vague, they may not be bona fide.

3. Check the title lines. Only the state base premium with endorsements and an exam report priced below that premium sit outside.

4. Look for fees on draws. Any fee tied to an advance is barred on a homestead line.

5. Watch for “free” offers. A line marketed as low-fee can still carry third-party costs outside the cap. Total everything, not just the lender’s share.

If a quote lands over, send it back with the itemization and ask for a corrected sheet. Don’t absorb the difference. The cap is a legal ceiling, not a negotiating position.

The same discipline matters more on a rental line, because there is no ceiling to test against. You compare the fee sheet against other quotes, not against a statutory number. This is a genuine toss-up for many investors: the homestead cap protects you on the home, but the rental line is where the larger dollars usually sit, and no cap watches over them.

When the Rental Itself Becomes the Better Collateral

For a pure rental, many investors skip the HELOC and go straight to a DSCR cash-out refinance. DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines.

The numbers vary by file, but patterns repeat across the network:

• A cash-out refinance on a standard rental tops out around 75 percent LTV, with about 6 months of seasoning as the common expectation.
• Coverage of 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
• Credit floors vary by scenario in parts of the network. Most programs want around 660, and 700 or better unlocks the strongest leverage tiers.
• Loans run up to $3,000,000 on standard programs (smaller balances available through select lenders), and above $2,500,000 the network generally holds to 30-year fixed structures.
• Reserves vary by lender, leverage, loan size, and transaction type. About 6 months of PITIA is common, and larger loans typically step up.

Clearing 1.00 is not the same as positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation. A deal can clear the ratio and still lose money at the kitchen table.

A pattern from this kind of file: investors with a Texas homestead and several rentals often discover their more affordable-looking option is the one with the cap, and then find the cap only covers the house they live in. The better comparison is total cost and leverage across all three paths, not the headline fee limit on one of them. For the full picture of how these loans work, see Lendmire’s complete DSCR loans guide.

Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.

Next Step

If you are considering a home equity line and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals. Reach the team at 828-256-2183.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker that arranges financing through select wholesale lenders. It never lends directly. Its DSCR investor programs cover 41 markets, including Washington, D.C. Qualification on those loans rests primarily on property-level rental income, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Texas A&M Real Estate Research Center: What to Know About Home Equity Loans in Texas

2. Texas Legislative Reference Library: S.J.R. 60 Bill Analysis

3. Cornell Legal Information Institute: 7 Tex. Admin. Code § 153.5

4. Justia: Texas Constitution, Article XVI, Section 50