The Quick Read: A Texas homestead cash-out is treated as a special “home equity” loan, with its own constitutional limits. Those limits cap the new loan plus all other liens at 80% of the home’s value. They also cap the fees the lender can charge. FHA’s own cash-out cap is also 80%, so the leverage lines up. The fee cap is where it breaks down: FHA mortgage insurance is expensive enough that an FHA cash-out on a Texas homestead is rarely offered in practice. Borrowers usually end up with a conventional cash-out, a second lien, or an FHA loan that takes no cash out.
That answer surprises people, because FHA cash-out works in most states. This article walks through why Texas is different and how each rule affects the numbers. It also covers where the general rule bends and what to do if you want equity from a Texas home.
Key Terms Defined
Homestead: The home you live in as your primary residence. Texas gives it special protection from forced sale.
A6 loan (Section 50(a)(6)): The Texas name for a cash-out loan or home equity loan secured by a homestead. Lenders often say “Texas A6.”.
Cash-out refinance: A new mortgage that pays off the old one and gives you extra cash from your equity.
Combined loan-to-value (CLTV): All the mortgage debt against the home, added together, divided by the home’s value.
Upfront mortgage insurance premium: The one-time FHA premium, 1.75% of the base loan, usually financed into the balance.
Rate-and-term refinance: A new loan that replaces the old one without paying you cash from equity.
What Is a Texas Homestead Cash-Out, Exactly?
It is a loan type defined by state law, not by a lender’s marketing. The Texas Constitution protects a homestead from forced sale except for a short list of debts. A cash-out loan is allowed only if it meets the conditions in Article XVI, Section 50 of the Texas Constitution.
Here is the part that trips people up. The label on the loan does not decide whether Texas treats it as an A6 loan. State law decides. Freddie Mac’s Guide points out that a loan that looks like a no-cash-out refinance can still fall under the Texas equity rules. So a lender cannot rename its way around the framework.
Two things follow from this:
- Every cash-out on a Texas homestead plays by the same state rulebook, whatever the loan program.
- FHA rules sit on top of that rulebook. A loan has to pass both sets of tests.
How an FHA Cash-Out Is Underwritten, Step by Step
An FHA cash-out has to clear two gates. Walking through them in order shows where the pressure points are.
Step 1: Classify the transaction. Is cash leaving the closing table to you? If so, on a Texas homestead it is an A6 loan. If not, you may be in rate-and-term territory (see the edge cases below).
Step 2: Test the FHA gate. Across the wholesale programs Lendmire places files with, an FHA cash-out reaches 80% loan-to-value. The home must be your principal residence, owned and occupied for 12 months before the case number is assigned. A cash-out needs a full appraisal. The no-appraisal shortcut belongs to the FHA Streamline, which cannot pay you cash. FHA’s policy rulebook is HUD Handbook 4000.1, and every FHA lender follows it.
Credit and income follow the normal FHA structure. The base debt ratios are 31/43, and documented compensating factors can stretch them to 40/50 at the top tier. Wholesale programs start at a 580 decision score. All of it is subject to lender guidelines and full file review.
Step 3: Test the Texas gate. The new loan plus every other recorded lien must be at or below 80% of fair market value on the day the loan is made. The owner and lender also sign a written acknowledgment of that value. The Fannie Mae Selling Guide says the Texas 80% limit controls over its own guide and over automated underwriting findings. In other words, a system approval does not override the constitution.
Step 4: Count the fees. Texas caps the charges that originate, evaluate, maintain, record, insure or service the loan at 2% of the loan amount. Appraisal, survey and base title charges generally sit outside that cap. Commentary from Texas law practitioners reads mortgage insurance as inside it. This is the step that decides most FHA files, and it gets its own section below.
Step 5: Wait out the Texas clock. The loan cannot close until the 12th day after the later of your application or your receipt of the state’s required notice. This is a legal waiting period, and it exists for your protection.
Step 6: Close in the right place. Under the Texas rules adopted by the Finance Commission, a homestead cash-out can close only at the lender’s office, an attorney’s office or a title company. No signing at the kitchen table.
Step 7: Rescission. After signing, the owner and spouse have 3 days to cancel without penalty.
Why the Fee Cap Is the Real Problem
The leverage matches, but the fee math does not. This is the core of the article.
FHA charges an upfront mortgage insurance premium of 1.75% of the base loan. Then there is an annual premium, between 0.15% and 0.75% of the balance depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV, the annual premium lasts the full term. At or below 90%, it ends after eleven years. These are program facts, not prices. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Now set that against a 2% fee cap. If the insurance premium counts inside the cap, the upfront premium alone uses most of the allowance. That leaves a sliver for everything else that counts, such as origination charges. Texas law practitioners read the rule that way, and their analysis suggests an FHA-insured equity loan is legally possible but impractical without a large lender credit.
This is an economics problem, not a flat legal ban. That is why lender websites disagree. Some say FHA cash-out is available in Texas, and others say it is not. The pages claiming availability do not point to HUD or Texas primary authority.
(One caution: the legal commentary behind this reading is secondary, and lender overlays change. If a lender tells you it will do one, ask to see how the fee cap is handled before you apply.)
How Much Cash Can You Actually Take Out?
The 80% rule counts all liens, not just the new loan. Think of the value of your home as 100%. The new loan, including any financed insurance premium, must fit inside 80%. That is the same on either side of the FHA and Texas gates.
Picture a homeowner whose current mortgage balance equals 55% of the appraised value. Before costs, the room for new money is about 25% of value. Financed costs, including the 1.75% upfront premium on the base loan, come out of that room too. A homeowner at 70% of value has only about a tenth of value to work with, and costs shrink it further.
Two things shape the answer:
- The appraisal sets everything. A lower appraisal shrinks the cap directly. A higher one expands it.
- Existing liens count. A second mortgage or HELOC on the home counts toward the 80%. And only one A6 loan can be secured by the home at a time.
Lendmire’s team sees this pattern in cash-out files across the 16 states where it brokers consumer loans. The borrower’s first number is almost always “how much equity do I have,” and the better question is “how much room is left under the cap after existing liens and financed costs.” Texas just makes the cap a legal fact instead of a lender preference.
Where the General Rule Bends
Several situations sit at the edge of the main rule. Each is worth knowing before you apply.
Rate-and-term with no cash out. If your current loan is not itself an A6 loan, a refinance that takes no cash out generally sits outside the home equity framework. FHA offers a rate-and-term refinance with an appraisal that reaches 97.75% on a principal residence occupied for the previous twelve months. That is far more leverage than a cash-out, but you get no cash.
Refinancing out of an old equity loan. A prior A6 loan follows the home. Texas allows a refinance of an existing A6 loan into a regular loan only when specific conditions are met, such as no cash beyond the payoff and actual costs, a limit of 80% LTV, a required notice and a waiting period. The Texas Legislature’s analysis of the 2017 amendment explains the structure. “Once an A6, always an A6” is a decent shorthand, and the exit has rules. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
One-year spacing. If your home secured an equity loan within the past year, a new one generally cannot close until a year has passed from the earlier closing. There is an exception for states of emergency.
FHA Streamline. If you already hold an FHA loan, the Streamline refinances it without an appraisal, with a limited credit review and a net tangible benefit. Cash back is not part of it. Before anyone tells you it is available on a Texas homestead, confirm it counts as a no-cash-out refinance under the state rules.
Co-signers. Texas treats a guarantor or surety as prohibited additional collateral. Generally only owners, or a spouse or family member sharing the homestead, can sign the note. FHA allows non-occupant co-borrowers on some purchase files, but that flexibility does not carry over to a Texas cash-out.
Non-homestead property. The constitutional rules apply to the homestead. FHA cash-out is limited to owner-occupied principal residences anyway, so for this program occupancy decides the leverage.
What Are the Alternatives to FHA Cash-Out in Texas?
For most Texans who want equity and currently have an FHA loan, the choice comes down to a few paths. The right one depends on what the money is for and what you would give up.
| Option | Cash to you? | Key trade-off |
|---|---|---|
| Conventional Texas cash-out | Yes | 80% combined cap; Texas rules apply |
| Second-lien equity loan or HELOC | Yes | Keeps your first loan; counts toward 80% |
| FHA rate-and-term | No | Higher leverage; no equity cash |
| FHA Streamline | No | No appraisal; keeps FHA premium |
Here is how to think about the choice.
- You want cash and your first loan is a good one. A second lien leaves the first mortgage alone. It also counts toward the 80% and brings its own Texas rules.
- You want cash and the whole loan needs to change. A conventional cash-out replaces everything in one loan, within the same 80% cap. You also give up the FHA structure, which matters if your credit has been rebuilt or your down payment was thin.
- You do not need cash, you want a better loan structure. FHA rate-and-term or the Streamline fits. They work without the A6 constraints because no equity cash leaves the table.
This is genuinely a toss-up in some files. A conventional cash-out may carry a lower cost than an FHA loan with its premiums, but a borrower with a lower credit score may find conventional pricing harder to reach. Run both side by side.
What the Lender Looks For
Underwriting on a Texas cash-out has two layers: the state’s rules and the program’s rules. A lender checks the items below, and each one falls under one layer or the other.
1. Occupancy. Twelve months as your principal residence before the case number, for FHA.
2. Value. A full appraisal and the signed fair-market-value acknowledgment.
3. Total liens. Every recorded lien added together, tested against 80%.
4. Ratios and credit. The automated finding governs most files, with the base 31/43 pair and room to go higher with documented compensating factors.
5. Fee structure. Whether the charges fit inside the 2% cap.
6. Notice timing. Proof that the state notice and waiting period were honored.
7. Closing location. An allowed office, with the right parties present.
A loan that fails the state tests risks problems with the validity of the lien, which is why lenders are careful here. That caution protects you too.
Protections Built Into the Texas Rules
The state rules cost some flexibility, and they give some protection back. A Texas A6 loan cannot carry a prepayment penalty. No additional collateral can secure it. In most cases it is non-recourse, meaning the lender looks to the home, not your other assets. The 12-day notice period and 3-day rescission give you time to read, ask questions and back out.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Common Misconceptions
- “FHA allows 85%, so I can borrow 85% in Texas.” The FHA cash-out cap is 80%, and the Texas cap is also 80%. The older 85% figure is out of date.
- “Texas bans FHA cash-out.” The better description is that the fee cap makes it impractical, not that a law flatly forbids it.
- “The 80% limit is lender policy, so an exception is possible.” It is in the constitution. A lender cannot waive it.
- “I can sign at home.” Closing has to happen at the lender’s office, an attorney’s office or a title company.
- “The waiting period starts at closing.” Timing varies by file and lender, and the required waiting period is measured from application or notice delivery, not from the closing itself.
- “Refinancing my old equity loan is a plain rate-and-term.” Prior A6 status carries rules into the new loan.
What Your Decision Looks Like in Practice
Start with the purpose. If the cash is the goal, expect a conventional cash-out or a second lien to be the working paths. If a lower-cost structure is the goal and you can skip the cash, FHA rate-and-term or Streamline may fit.
Then check the basics before you apply: how long you have owned and lived in the home, what liens are recorded, and what an appraiser is likely to say about value. Work out the room under 80% after liens and financed costs. Ask any lender who offers an FHA cash-out in Texas to show how the fees fit under the state cap.
You can read about the national mechanics on Lendmire’s FHA cash-out refinance program page. 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. All figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Can I get an FHA cash-out refinance on my Texas home?
Rarely, and only on a homestead if a lender can make the fee cap work. The 80% leverage limits match, but FHA mortgage insurance has to fit inside Texas’ 2% fee cap. That is hard to do in practice. Expect conventional or second-lien options to be the usual path. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Does Texas allow more than 80% on a cash-out?
No. The new loan plus all other liens against the homestead cannot exceed 80% of fair market value on the day the loan is made. That is a constitutional limit, so a lender or an automated approval cannot override it.
How long do I wait after applying?
Texas does not allow closing until the 12th day after the later of your application or your receipt of the state notice. If the home secured an equity loan in the past year, a new one generally cannot close until a year has passed from the earlier closing. After signing, you also have a right to rescind, and the timing of funding depends on the file and the lender.
Can I do an FHA Streamline in Texas and take cash?
No. The Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It does not pay you cash. A lender should confirm it counts as a no-cash-out refinance under the Texas rules before you rely on it.
Does an FHA rate-and-term refinance avoid the Texas equity rules?
Generally, if your current loan is not already an A6 loan and no cash comes to you. FHA rate-and-term can reach 97.75% on a principal residence occupied for the previous twelve months. If the existing loan is an A6, the conversion conditions apply.
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.
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References
1. Texas Constitution, Article XVI, Section 50
2. Freddie Mac Guide, Section 4301.7
3. HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook
4. Fannie Mae Selling Guide, Texas Section 50(a)(6) Loan Considerations
5. Texas Register, adopted rules, 7 TAC Chapter 153
6. The Texas Legislature’s analysis of the 2017 amendment
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: FHA Cash-Out Refinance for Homeowners Choosing Between Programs · Can You Refinance Out of FHA With a Conventional Cash-Out Refinance? · How to Document a Manually Underwritten FHA Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.