The Quick Read: FHA cash-out limits in Texas come down to two tests: a combined loan cap of 80% of your home’s appraised value, and a debt-to-income ratio you have to clear. Paying off cards and installment loans at closing can lower that ratio, but the larger mortgage payment pushes it back up. Texas adds its own homestead rules on top, and whether an FHA cash-out fits inside them is the part you should confirm before you plan around it.
Key Takeaways
- The FHA cash-out cap is 80% of value, and the new loan must also cover your old payoff, closing costs and the financed upfront premium.
- You generally need to have owned and lived in the home for 12 months before the case number is assigned.
- The base ratios are 31/43. Documented compensating factors can stretch them to 40/50 at the top tier, and the automated underwriting finding governs most files.
- Debt consolidation moves unsecured debt onto your home. That is the real trade-off.
- Texas homestead rules add process, not extra room. Confirm FHA fit with a Texas-licensed lender before you rely on it.
Key Terms Defined
Cash-out refinance: a new mortgage that pays off your old one and gives you the extra equity as cash.
LTV (loan-to-value): your loan balance divided by the home’s appraised value, shown as a percentage.
CLTV (combined loan-to-value): the same idea, but it adds every loan secured by the home, including a second mortgage or HELOC.
DTI (debt-to-income): your monthly debt payments divided by your gross monthly income. The housing ratio counts only the home payment. The total ratio counts every recurring debt.
Compensating factor: a documented strength in your file, such as cash reserves or a steady job history, that supports a higher ratio.
Homestead: the home you live in, which Texas protects with its own constitutional rules for loans that pull out equity.
What Is the FHA Cash-Out Limit?
The limit is 80% of the home’s appraised value. HUD, the agency that runs FHA, cut the cash-out cap from 85% to 80% in Mortgagee Letter 2019-11. Its stated reason was to reduce risk to the FHA insurance fund from growing balances on cash-out loans.
Two points trip people up.
First, the cap is combined. A second mortgage or HELOC that stays on the home uses up room under 80%. It does not add to it.
Second, 80% is a ceiling, not what you receive. The new loan has to cover your old payoff, your closing costs and the financed upfront mortgage insurance premium. Cash to you is what remains.
At least 20% of the home’s value must stay as your equity after closing. That is the cushion. A bigger loan shrinks it if home values soften.
This is the framework behind Lendmire’s FHA cash-out refinance program, which reaches 80% LTV on a home you have owned and lived in for 12 months before the case number. Every figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
How Does the Loan Amount Work, Step by Step?
Think of it as a short equation. The new loan equals your old payoff, plus closing costs, plus the financed upfront premium, plus the cash you take out. That total must stay at or below 80% of appraised value.
The upfront premium is 1.75% of the base loan, and it is financed into the balance. Across the wholesale programs we place FHA files with, that premium and the annual premium are standard mechanics, not optional add-ons. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV it lasts the full term. At or below 90% LTV it ends after eleven years. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Here is a modeled example in percentages only. Say your home appraises at 100% of value, and your current mortgage balance is 65% of that. The 80% cap leaves 15 points of room. The upfront premium on a base loan at the full 80% is 1.4% of home value. Closing costs come out of the same room. What is left is the cash available to pay debts.
Your appraisal sets the whole picture. A lower appraisal shrinks the room even if your balance never changed.
Some lenders require payoffs to go straight to creditors at closing. That is a common lender practice, not an FHA rule, so ask your loan officer how your file will handle it.
Who Passes the Eligibility Gates?
Before the ratio conversation starts, you have to clear the gates. The FHA cash-out is for a principal residence only. A second home or rental does not qualify for this program: occupancy decides the leverage.
Across the programs we work with, the typical gates are:
- You own and occupy the home as your principal residence.
- You owned and lived there for 12 months before the case number was assigned.
- Your mortgage payments are current.
- A decision score of 580 or higher, which is where the wholesale programs we use start.
HUD’s rulebook for these loans is Handbook 4000.1. Individual lenders can set tighter credit or ratio limits, which is why the numbers you see online often disagree.
If you recently had a late payment, a forbearance plan or a credit event, the waiting periods matter. HUD’s waiting periods, for example two years from a chapter 7 discharge and three years from a foreclosure, are HUD rules, not a promise from any broker. Some households fail these gates before DTI is ever looked at.
How Does a High DTI Change the Answer?
A high DTI does not automatically end the conversation, but it changes the path. The base pair is 31/43: housing no more than 31% of income, total debt no more than 43%. Documented compensating factors can reach 40/50 at the top tier. Most files run through FHA’s automated underwriting system first, and that finding governs.
If the automated system returns an approval, the file gets reduced documentation. If it comes back as a referral, a person underwrites it manually, and the 31/43 base and 40/50 stretch come into play. HUD’s archived reference guide notes that the extra compensating-factor justification for ratios above 31/43 does not apply to loans the automated system rates acceptable. It is an older, archived reference, so treat it as background rather than today’s rulebook.
One honest caveat: HUD does not publish a single maximum DTI for automated approvals. Be skeptical of any site quoting an exact top number as if it were a rule. Lenders can also add their own limits. If you have already been turned down, Lendmire’s piece Can a High-DTI Homeowner Qualify for an FHA Cash-Out After a Denial? walks through what can change.
A Before-and-After Debt Consolidation Example
Run the numbers on this hypothetical. These are modeled assumptions, not market data, and they use points of income rather than dollars.
- Your total DTI today is 52%. Card and installment payments make up 9 points of that.
- You pay those debts off at closing. The 9 points drop out of the total ratio.
- The new, larger mortgage payment, with mortgage insurance included, adds 4 points.
- Your new total ratio is about 47%.
That is better, but still above 43%. At 47% you would need a strong automated finding or documented compensating factors to reach the 40/50 stretch. Notice also that the housing ratio went up, even as the total came down.
HUD has no simple rule on exactly how paid-off debts are counted, so how a specific lender treats them is part of your file review. Ask for that answer in writing before you apply.
What Changes in Texas?
Texas treats a loan that pulls equity out of a homestead as a special category, usually called a 50(a)(6) loan after the state constitution. Fannie Mae’s Selling Guide describes these loans as limited to a one-unit principal residence that is the borrower’s homestead.
Lender guides commonly report several other Texas requirements. These include an 80% combined cap, a cap on certain lender fees, a waiting period between application and closing, and one such loan per 12 months. Borrowers should confirm these items with a Texas-licensed lender rather than rely on a general article. The state’s own regulator holds the final word.
Here is the practical read. FHA’s cap and the Texas cap both sit around 80%. The Texas rules add process (fees, waiting, closing requirements), not extra borrowing room. So Texas does not open up more debt-consolidation cash.
FHA insurance on a Texas homestead equity loan depends on the loan type and the specific program rules, so the answer is not the same for every borrower. Because those rules can change, confirm eligibility with a Texas-licensed lender during your file review rather than relying on a general web page, including this one.
Once a home has had a Texas equity loan, later refinances generally stay in that category unless specific conditions are met. That affects your options down the road, so ask about it up front.
Where Does the General Rule Break?
A few edge cases change the answer.
- Recent purchase. If you have owned the home under 12 months, FHA cash-out is off the table. Other programs may fit.
- Rental or second home. FHA cash-out is for the home you live in. That is the whole answer.
- Manufactured home. It has special rules, including how long it has been permanently installed. Check before you apply.
- A parent’s income. Income from someone who does not live in the home generally cannot be used on a cash-out. A file that leans on that income can fall apart.
- Existing FHA loan, no cash needed. The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It requires a net tangible benefit, and the premium continues. It does not let you consolidate debt.
- Rate-and-term instead. If you need a better loan structure rather than cash, the FHA rate-and-term with an appraisal reaches 97.75% on a principal residence you have occupied for the previous twelve months.
What Does the Decision Look Like in Practice?
Start by counting your debts, not your equity. List each debt, its payment, and whether it is a card, installment loan or collection. Then ask three questions.
Does the cash cover the debts I want gone? If the 80% room, after payoff, costs and premium, is short, pay off the largest monthly payments first. Those do the most for your ratio.
Does the ratio clear? Run the before-and-after check above. If the total ratio still sits too high, a conventional cash-out may carry different ratio rules.
Is it worth the risk? This is the one I would not skip. Consolidation does not erase debt. It moves it from unsecured accounts into a bigger loan secured by your home.
The Consumer Financial Protection Bureau reports that paying off other debts is the most common reason people do a cash-out refinance, cited by more than half of borrowers each year from 2014 to 2019. The same release warns that paying non-mortgage debt with mortgage debt can raise foreclosure risk. If you cannot keep up with a card, the bank cannot take your house. If you cannot keep up with the mortgage, it can.
Balances can also creep back. If the cards fill up again after payoff, you carry both the new mortgage and new card debt. Many borrowers pair a payoff with a plan to keep the cards quiet.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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. Bring a debt list, your current balance and a rough sense of your home’s value. That is enough to test the 80% room and the ratio before you commit to anything.
Frequently Asked Questions
What is the maximum amount I can take out with an FHA cash-out?
The new loan, including your old payoff, closing costs and the financed upfront premium, must stay at or below 80% of appraised value. Any second lien that stays on the home counts toward that same cap. Your cash is whatever is left after those items.
Can I do an FHA cash-out on a Texas homestead?
Texas has its own homestead rules for equity loans, and those rules can affect whether an FHA cash-out fits a particular property. A Texas-licensed lender can confirm whether FHA fits your specific file, subject to lender guidelines and full review.
Does a high DTI rule me out?
Not automatically. The base ratios are 31/43, and documented compensating factors can reach 40/50 at the top tier. The automated underwriting finding governs most files, and lenders can set tighter limits than HUD.
Can I use the cash to pay off credit cards?
Yes. FHA cash-out proceeds are not limited to specific purposes, and debt payoff is a common use. Many lenders send the payoffs directly to creditors at closing, though that is lender practice rather than an FHA rule.
Do I need to have lived in the home for a certain time?
Generally yes. The FHA cash-out reaches 80% on a home you owned and occupied for 12 months before the case number was assigned. Exceptions exist, such as inherited property, so ask about your situation.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see FHA loan programs.
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References
1. HUD Mortgagee Letter 2019-11
3. HUD archives: DTI reference guide
4. Fannie Mae Selling Guide: Texas Section 50(a)(6) Loan Eligibility
5. CFPB: cash-out refinance borrowers news release
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: Can You Refinance a Texas Homestead FHA Cash-Out Into Better Terms? · FHA Cash-Out vs Conventional Cash-Out for a High Debt Ratio · Texas Homestead Rules for an FHA Cash-Out Refinance
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.