The Quick Read: A Texas homeowner generally cannot take cash out of a primary residence with a VA-guaranteed loan, so the question of fitting the funding fee inside the fee cap rarely gets to matter. State home-equity rules treat the VA guaranty as extra collateral, and that stops the file before pricing comes up. A VA purchase loan, a VA streamlined refinance, and a non-cash refinance into VA are different stories. Some conventional and home-equity routes do reach the equity.
Key Takeaways
- The deciding barrier is the guaranty, not the fee cap. The cap is a second problem layered on top.
- The Texas two-percent fee cap and the VA funding fee collide on paper. That is arithmetic, not a published ruling.
- VA purchases, streamlined refinances, and refinances that put no cash in your pocket sit outside the barrier.
- Fee-exempt veterans skip the fee but not the guaranty problem.
- Your realistic cash-out paths in Texas run through non-VA products.
Why the Title’s Premise Doesn’t Hold
The working idea behind this title is appealing. If the VA funding fee fits under the Texas cap on fees, the loan should close. It sounds like a budgeting puzzle.
It isn’t. Across the wholesale programs Lendmire places VA files with, the hard stop on a Texas homestead cash-out is not pricing. It is structure. The state treats a cash-out against a homestead as a special kind of home equity loan, and that loan may not carry collateral beyond the home itself. The VA guaranty counts as that extra collateral.
Federal rules, by contrast, are generous. The VA cash-out can reach 100% of the appraised value including the financed fee, and it can refinance any loan type into VA. But a federal ceiling is not a state green light. Where Texas homestead law says no, VA’s 100% never comes into play.
If you are weighing the federal program on its own terms, Lendmire’s VA cash-out refinance program page covers the mechanics outside Texas homestead rules.
What a Texas “Cash-Out” Actually Is
Texas does not treat a cash-out as an ordinary refinance. A Texas homestead cash-out is a home equity loan under Article XVI, Section 50(a)(6) of the Texas Constitution, often called an “A6” loan. That section lays out the rules: lien position, limits on fees, and a bar on extra collateral.
The Texas Attorney General took up the VA question directly in Opinion KP-0183. The conclusion is plain. The VA guaranty serves as collateral other than the homestead, which precludes a VA cash-out refinance in Texas. The same opinion says Section 50(a)(6) does not apply to a traditional VA purchase-money mortgage or a refinance loan.
Read that second sentence twice. Texas does not ban VA lending. It bars VA lending that pulls equity out of the homestead.
How the Loan Is Tested, Step by Step
An explainer helps most when it shows the order of the tests. Here is how a Texas VA cash-out file would run, and where it breaks.
1. Classification. Does the loan take equity out of a Texas homestead? If yes, it is an A6 loan.
2. The guaranty test. An A6 loan cannot be secured by anything but the homestead. A VA guaranty is treated as additional security, so the file fails here.
3. The fee-cap test. This is the second layer. If the loan survived step two, the fees charged to the borrower would still have to fit under the cap.
4. The VA side. VA’s own cash-out rules need full credit underwriting, a net tangible benefit, and seasoning. The VA’s residual income test is the controlling measure, and the 41% debt-to-income figure is a guideline, not a hard cap.
Most borrowers expect step three to be the obstacle. It is step two.
Where the Two Percent Cap Fits
The Texas fee limit is real, and it is worth understanding even though the guaranty blocks the loan first. Under 7 TAC §153.5, an equity loan may not require the owner to pay origination, evaluation, maintenance, recording, insurance or servicing fees above two percent of the original principal. Bona fide interest-related charges are treated as interest, not fees. Certain third-party charges, such as an appraisal, a survey and title charges, are excluded from the cap.
Now set that beside the VA funding fee on a cash-out refinance: 2.15% for first use and 3.3% for later use, as VA News publishes them. Either figure sits above the Texas cap on its own. Even if the guaranty issue did not exist, the fee would exhaust or exceed the cap before any lender or title charges were counted.
Be clear about what this is. No VA or Texas source applies the funding fee to the cap line by line. This is arithmetic, not a ruling. It is also why the lender blogs that claim “it works if the fee fits under the cap” are chasing the wrong problem.
| Test | What it asks | Who sets it |
|---|---|---|
| Guaranty | Is there collateral beyond the home? | Texas |
| Fee cap | Do covered fees stay at or under the cap? | Texas |
| Net tangible benefit | Does the refinance help the borrower? | VA |
| Residual income | Is there enough monthly income left? | VA |
Three Veterans, One Barrier
Run the math in words, not dollars.
First-use veteran. The fee on a cash-out is 2.15%. Financed into the loan, it raises the balance and the loan-to-value. It is already past the Texas cap line before a single lender charge is added.
Repeat-use veteran. The fee is 3.3%. The gap to the cap is wider, and the added balance matters more for the equity left in the home.
Fee-exempt veteran. A veteran receiving compensation for a service-connected disability, along with the other exempt groups, owes no funding fee. The cap arithmetic improves. The guaranty problem does not change. The file still fails at step two.
That last case surprises people. Waiving the fee removes one obstacle and leaves the one that matters.
Why the Fee Still Matters Elsewhere: Type I and Type II
The funding fee does have a formal role in VA’s own cash-out rules. Under VA Circular 26-19-05, a Type I cash-out is a loan, including the funding fee, that does not exceed the payoff. A Type II is one where the loan, including the fee, exceeds the payoff.
This is the one place the fee is explicitly “in the amount.” A financed fee can tip a loan from Type I to Type II. That affects how the loan is tested and how much equity is left behind. Lendmire’s piece How Much a VA Cash-Out Nets After the Funding Fee and Closing Costs walks through the effect in plain terms.
Where the Rule Breaks: The Named Edge Cases
The Texas barrier is narrow. Here is what falls outside it.
VA purchase loans. A purchase-money VA mortgage is not an equity loan. The program’s 100% financing, no mortgage insurance, and no VA loan limit with full entitlement all apply, subject to lender guidelines.
The IRRRL. The streamlined refinance takes an existing VA loan to a lower rate or from adjustable to fixed. It takes no equity out and pays off no other debts, so it avoids the A6 problem entirely. It carries a 0.5% fee unless you are exempt, a net tangible benefit, and seasoning of the later of 210 days from the first payment and the sixth payment.
Refinancing a non-VA loan into VA with no cash out. A refinance that puts no equity in your pocket is not an A6 loan. Whether a file is labeled a cash-out for VA fee purposes is a separate question, so ask a loan officer how a given file would be classified.
An existing Texas home equity loan. Since 2018, borrowers may refinance an A6 loan into a non-home-equity loan. According to the Texas Bankers Association, the refinance cannot close before the first anniversary, and no funds beyond the debt, costs and reserves may be advanced. The trade-off is real. The Texas Finance Commission disclosure notes that a non-home-equity refinance loses certain protections, such as court-order-only foreclosure and non-recourse status.
A rental or second home. VA requires you to live in the home, so a VA cash-out on a property you do not occupy is not available.
Common Misconceptions
- “The fee just has to fit under the cap.” The guaranty stops the loan first.
- “Texas allows VA cash-out, capped at 80%.” Some lender pages say so. The Attorney General’s opinion says the loan is precluded. Treat the opinion as the rule.
- “Texas bans all VA refinancing.” No. Purchase loans and traditional refinances are outside the bar.
- “VA lets me borrow up to 100%, so I can.” The federal ceiling is not the state answer.
- “Once an A6 loan, always an A6 loan.” A conversion path exists, with conditions.
- “FHA and VA are blocked for the same reason.” They are not. FHA mortgage insurance is likely not prohibited extra collateral, but premiums must sit inside the Texas fee cap, which makes those loans impractical. VA is blocked by the guaranty.
What Your Options Look Like in Practice
If you want cash out of a Texas homestead, you are choosing among non-VA paths. Each has costs you should compare on a Loan Estimate.
| Path | Keeps VA guaranty? | Reaches equity? |
|---|---|---|
| VA purchase | Yes | Not a cash-out |
| VA IRRRL | Yes | No |
| Texas A6 cash-out | No | Yes, within state limits |
| Home equity loan or HELOC | Existing VA loan stays | Yes |
Giving up VA has a price. You lose the guaranty and VA’s no-mortgage-insurance feature. A conventional Texas cash-out also carries a lower combined loan-to-value cap than VA’s 100%, along with the consumer protections of an A6 loan.
The most common good answer for a veteran with a low first-mortgage balance is to keep the VA loan and borrow against equity with a second lien. Lendmire’s piece VA Cash-Out vs HELOC for Debt When the First Mortgage Is Worth Keeping lays out that choice.
A practical checklist before you apply:
- Confirm the property is your primary residence and a Texas homestead.
- Ask whether you want cash in hand or just a new loan type.
- Check your funding-fee status (first use, later use, or exempt).
- Ask any lender which of the four paths in the table fits your file.
- Compare Loan Estimates side by side.
Key Terms Defined
A6 loan: A Texas home equity loan under Article XVI, Section 50(a)(6) of the state constitution, used for cash-out against a homestead.
Additional collateral: Security for a loan beyond the home itself. Texas bars it on A6 loans.
Funding fee: A one-time VA charge on most VA loans, which can be financed into the balance and is waived for exempt veterans.
IRRRL: The VA streamlined refinance, limited to lowering the rate or moving from adjustable to fixed, with no cash out.
Net tangible benefit: VA’s test that a refinance must give the borrower a real advantage.
Residual income: What is left of your monthly income after debts and living costs. It is VA’s controlling test.
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. Everything here is subject to lender guidelines and full file review, and nothing in it is a commitment to lend.
Frequently Asked Questions
Can I get a VA cash-out refinance on my Texas home?
Generally no, on a primary-residence homestead. State law treats the VA guaranty as additional collateral, which precludes the loan. A VA purchase loan or a streamlined refinance is still available.
Does the Texas fee cap apply to VA loans?
It applies to Texas home equity loans, which is what a cash-out would be. It does not govern a VA purchase loan or an IRRRL. The funding fee on a cash-out, at 2.15% or 3.3%, sits above the cap by itself.
Can I refinance a conventional loan into VA in Texas?
A refinance that takes no equity out is outside the equity-loan rules. Ask a loan officer how the file would be classified, since VA fee treatment can differ from the state’s view.
Can I move out of a Texas home equity loan into a VA loan?
There is a path, but it has conditions. The refinance cannot close before the first anniversary, and no extra funds beyond the debt, costs and reserves may be advanced. You also give up certain protections of the home equity loan.
Are cash-out proceeds taxable?
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see VA loan programs.
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References
1. Texas Attorney General Opinion KP-0183
2. 7 TAC §153.5, Two Percent Fee Limitation
3. VA News, Funding Fee: Who Pays, Who Is Exempt
5. Texas Bankers Association, Home Equity to Non-Home Equity Refinancing
This article is part of Lendmire’s VA Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: VA Cash-Out Refinance Rules for a Texas Homestead · VA IRRRL vs VA Cash-Out Requirements for a High-DTI Veteran · VA Cash-Out Refinance Requirements for Cap, Seasoning and Fees
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.