The Quick Read: The closing stage runs on two separate clocks: a Texas pre-closing wait and a federal post-signing cancellation window. FHA cash-out reaches 80% loan-to-value on a home you have owned and occupied for 12 months before the case number, and Texas adds its own homestead rules on top. Most delays come from late notices, a missing signer, or an appraisal that lands short of the 80% line. Every figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
Does the FHA Cash-Out Apply to Your Texas Home?
It applies when the home is your principal residence and you have owned and lived in it for the previous 12 months. Across the wholesale programs Lendmire places FHA files with, that is the gate. The loan tops out at 80% of the home’s adjusted value, so at least a fifth of the value stays as equity.
HUD set that cap in Mortgagee Letter 2019-11, which cut the limit from 85 to 80 percent. HUD said the change was meant to limit risk to the FHA Insurance Fund from rising insured balances on cash-out loans. The same cap is reflected in HUD Handbook 4000.1. If you still see 85% quoted somewhere, it is out of date.
Texas does not replace FHA rules. It stacks a state layer on top. A cash-out against a Texas homestead falls under a section of the state constitution that sets its own notice, timing, signing and closing-location rules, which you can read in the text of Texas Constitution art. XVI §50. The FHA underwriting and the Texas rules both have to be satisfied on the same file. Miss either one and the loan does not close.
A quick screen before you apply:
- The home is your primary residence, not a second home or rental.
- You have owned and lived in it for the previous 12 months.
- Your mortgage payments were made on time for those 12 months.
- You expect the appraised value to support 80% or less, counting any other liens.
- Every owner and spouse can attend an in-person signing.
If rental or second-home financing is on your mind, occupancy decides the leverage, and FHA cash-out is an owner-occupied product only.
What Are the Steps From Application to Funding?
Seven stages, in this order: screening, the Texas notice, the case number and appraisal, underwriting, the final terms preview, closing, and the cancellation window. Here is how each one works inside a file.
1. Eligibility screen. The loan officer checks occupancy, the 12-month ownership history and the payment record. Where the mortgage does not show on the credit report, the lender asks for a verification of mortgage or bank statements proving each payment was made in the month it was due.
2. Texas notice. Closing cannot happen before the 12th day after the later of the application date or the date each owner signs the notice. A late notice restarts that clock. This is the stage where most timelines slip.
3. FHA case number and appraisal. The appraisal sets the adjusted value used for the 80% test. If the home was bought within the past year, the lesser of appraised value or purchase price drives the loan-to-value, and many lenders will not allow a cash-out at all inside that window.
4. Underwriting. The lender reviews credit, income, debt ratios and the new payment, including mortgage insurance. The base ratio pair is 31/43 with no compensating factors. Documented compensating factors can reach 40/50 at the top tier, and the automated finding governs most files. Available terms vary by lender, borrower profile, property type, and full underwriting review.
5. Final terms preview. Texas lenders typically provide an itemized look at final terms ahead of closing. Because this is a consumer mortgage, the Loan Estimate and Closing Disclosure timing rules also apply. Read both against each other.
6. Closing. Texas homestead cash-out closings are generally held at a lender, attorney or title company office, not at the kitchen table. All owners and spouses sign. You leave with copies of the final application and the executed documents.
7. Cancellation window and funding. After signing, the federal right of rescission runs. Funds are not released, other than into escrow, until it ends.
Two Clocks, Not One
The Texas wait happens before closing; the federal cancellation window happens after. They are separate rules from separate authorities, and one does not shorten or replace the other.
| Clock | Source | When it runs | What it controls |
|---|---|---|---|
| Texas notice wait | State constitution | Before signing | Earliest allowed closing date |
| Right of rescission | Federal rule | After signing | Earliest allowed funding |
Under Regulation Z section 1026.23, the rescission period runs three business days from the last of three events: signing, delivery of the required disclosures, or delivery of the rescission notice. Each owner with an interest in the home has the right to cancel. The business-day count can straddle a weekend or holiday, so check the calendar before you promise anyone a date.
The Federal Reserve’s Consumer Compliance Outlook notes that if the lender never delivers the notice or the material disclosures, the right can extend to three years. That is why lenders treat the paperwork carefully. Gaps here are the lender’s problem, but they become your delay.
Anyone who needs cash by a fixed date should build in both pauses. Plan the date backward from the funding you need, not forward from the day you apply.
What Happens on Closing Day?
You sign in person at a lender, attorney or title company office, with every owner and spouse present. A few Texas details catch people off guard.
Documents cannot contain blanks for substantive terms. There is no wage assignment and no confession of judgment. A spouse who is not on the loan still signs the required documents. Proxy signing is not the workaround people hope it is, so an absent spouse, a traveling owner or a deployed borrower can stall the whole file.
What to bring:
- Government photo ID for every signer.
- Any items the title company requested in advance.
- Your signed copy of the Texas notice, if you were asked to keep one.
- Your Closing Disclosure and Loan Estimate for comparison.
Behind the scenes, the title company pays off the old mortgage, applies the new FHA loan, and prepares your cash disbursement for release after the cancellation window. You do not receive cash at the table.
What Does This Do to Your Loan?
You replace the old loan with a larger FHA loan that carries mortgage insurance. Across the programs Lendmire places, the upfront premium is 1.75% of the base loan and is usually financed into the balance. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and loan-to-value. On a thirty-year loan above 90% LTV, it lasts for the term. At or below 90%, it ends after eleven years.
HUD lowered the annual premium for most new borrowers in Mortgagee Letter 2023-05, as summarized by NCSHA. Because the schedule varies by file, treat the premium as a mechanical part of the payment, not a number to guess at.
Another consequence is easy to miss: Texas equity loans are generally described as non-recourse and limited to one at a time. Ask your loan officer how a cash-out designation follows the property into any later refinance before you commit.
Where the General Rule Breaks
A handful of situations change the standard path. These are the ones that surface most.
- Recently purchased home. Under HUD’s archived refinance guidance, a home owned under a year uses the lesser of appraised value or price, and many lenders set a seasoning floor on top. Do not assume you can cash out soon after closing on a purchase.
- Inherited home. The same HUD archive page treats inheritance as an exception to the ownership seasoning if you have lived in the home as your primary residence since inheriting it. It is legacy guidance, so the current handbook wording needs confirming on your file.
- Late payments. A late payment in the prior 12 months can block a cash-out even when the equity is there. Some lenders set stricter overlays than HUD does.
- Forbearance or modification. These need the plan document and proof of payments made under it.
- Non-occupant co-borrower. On a purchase, one is allowed. On a cash-out, lenders generally expect the owner-occupant to carry the loan, so confirm early.
- Existing Texas equity loan. Refinancing one can keep the loan in the same state-regulated category. Ask before assuming you can go back to a standard structure.
- Streamline instead. If you already have an FHA loan and only want to lower the payment, an FHA Streamline needs no appraisal, only a limited credit review and a net tangible benefit. It uses a different seasoning test, according to the FDIC’s streamline summary.
For the program itself, see Lendmire’s FHA cash-out refinance program page.
Delays and How to Head Them Off
Most delays are paperwork and scheduling, not underwriting. Fix these early.
| Problem | Usual cause | Fix |
|---|---|---|
| Closing date moves | Notice signed late | Sign the Texas notice at application |
| Value comes in short | Appraisal under the 80% line | Ask for reconsideration with recent nearby sales |
| Signer cannot attend | Spouse or owner away | Schedule around every signer |
| Payment history flagged | Payment made in the next month | Gather bank statements early |
| Funding date slips | Rescission spans a holiday | Count business days on a calendar |
Documents worth gathering before you apply: photo ID, 12 months of mortgage payment proof, income documents, homeowner’s insurance, and any modification or forbearance paperwork. Also confirm who holds title, so every owner is on the signing list.
Key Terms Defined
Adjusted value: The appraised value as FHA adjusts it, used to measure the 80% loan-to-value cap.
Homestead: The home you live in, which Texas protects with special lien rules.
Right of rescission: Your federal right to cancel a refinance on your home after signing, for a short period set by federal rules.
Seasoning: How long you must own, occupy or pay on a home before a loan option opens up.
Combined loan-to-value: The total of all liens on the home divided by its adjusted value.
Net tangible benefit: The measurable gain FHA requires on a streamline refinance.
Frequently Asked Questions
Can I close a Texas FHA cash-out in a week?
No. The state constitution bars closing before the 12th day after the later of your application date or the date each owner signs the notice. The federal cancellation window then runs after signing. Both pauses apply to every file.
Is the Texas wait the same as the three-day cancellation window?
No. The Texas wait comes before signing and controls the earliest closing date. The federal window comes after signing and controls when funds can be released. One does not count toward the other.
How much equity do I have to keep?
At least about a fifth of the home’s adjusted value. FHA cash-out reaches 80% loan-to-value, counting any other liens. Your appraisal decides where the line falls.
Can I sign at home or by proxy?
Generally not. Texas homestead cash-out closings are typically held at a lender, attorney or title company office, and owners and spouses sign in person. Confirm the exact requirements with your title company before scheduling.
Does a late mortgage payment end my chances?
A late payment can affect your chances. Payments are reviewed for the prior 12 months, and some lenders apply stricter overlays than HUD. One late payment may be explainable on a file, but a pattern usually is not. Subject to lender guidelines and full file review.
Next Step
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
3. Texas Constitution art. XVI §50
5. Federal Reserve’s Consumer Compliance Outlook
6. NCSHA summary of Mortgagee Letter 2023-05
7. HUD Archives, Refinances reference guide
8. FDIC FHA streamline summary
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How to Pay Off Debts at Closing on an FHA Cash-Out Refinance · How to Plan Your Exit From MIP After an FHA Cash-Out · How a Low Appraisal Limits an FHA Cash-Out at the Cap
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.