The Quick Read: Closing costs are not the main obstacle for a Texas veteran. Texas homestead law is. A standard VA cash-out that puts equity in your hands on a Texas primary residence is generally not available, and Texas lenders underwrite to that position. Real paths still exist: a VA refinance that returns no cash, a Texas home equity loan, or a home equity line. The costs differ on each, and this article walks through all three.
Key Takeaways
- Nationally, a VA cash-out reaches 100% of appraised value. On a Texas homestead, state law changes the picture, so confirm current treatment with a licensed Texas lender before you plan around any number.
- The VA funding fee on a cash-out is 2.15% on first use and 3.3% after. It is waived for veterans who receive disability compensation.
- On Texas home equity loans, a state cap limits what the lender can charge in fees. That helps with the “high closing costs” worry.
- The right choice depends on the rate you hold now, the cash you need, and how long you will keep the home.
Why Closing Costs Aren’t the Real Obstacle in Texas
Most veterans searching this topic assume the problem is cost. The bigger problem is whether the loan type is allowed at all.
Texas treats a loan that hands equity to the owner of a homestead as a special kind of home equity loan. It carries its own rules, and those rules collide with how a VA loan works. A VA loan comes with a federal guaranty. Texas has read that guaranty as extra collateral, and Texas does not allow extra collateral on a homestead equity loan.
You will find lender pages that say a Texas VA cash-out works if it is “structured correctly.” You will find others that say flatly it is impossible. They contradict each other because some describe the national VA rules, some describe Texas law, and some are selling a product.
Across the wholesale programs Lendmire places VA files with, the national envelope is wide. It offers 100% financing, no mortgage insurance, and no VA loan limit with full entitlement. Texas homestead law is the filter that narrows it for a cash-out. Plan around the filter, not the brochure.
What Texas Law Says (and How Firm It Is)
The Texas Attorney General addressed this directly in Opinion KP-0183. The opinion treats a “Texas cash-out” as a home equity loan under Article XVI, Section 50(a)(6) of the Texas Constitution. The request behind it included a conclusion from the state’s mortgage regulator that veterans with VA loans cannot obtain a cash-out refinance of that kind in Texas.
The reasoning, as commonly summarized, is simple. Section 50(a)(6)(H) bars a home equity loan from being secured by anything beyond the homestead. A VA guaranty counts as something beyond the homestead.
An attorney general opinion is advisory. It is not a statute. In practice, lenders in the state follow it, so the working answer is settled even if the technical legal answer is not. Read the opinion yourself, and ask any lender who tells you otherwise to show you how the loan is structured.
How a VA Cash-Out Works, Step by Step
This is the national process. The Texas limits above sit on top of it. Lendmire’s VA cash-out refinance program page covers the program itself.
1. Eligibility. You need a certificate of eligibility from VA. Service requirements are VA’s rules, not the lender’s.
2. Occupancy. The home must be your primary residence.
3. Disclosure. For applications under the current rule, the lender issues an initial cash-out disclosure. A final one follows before closing, as described in the VA cash-out user guide.
4. Appraisal. A VA appraisal sets the reasonable value. That value drives the maximum loan.
5. Net tangible benefit. The new loan must help you in a measurable way. Under VA Circular 26-19-05, that means it removes monthly mortgage insurance, shortens the term, or lowers the rate on the loan being refinanced.
6. Seasoning. If you are refinancing an existing VA loan, you must have held it long enough. The wholesale programs measure this as the later of 210 days from the first payment and the sixth payment.
7. Underwriting. The lender does a full credit and income review. Residual income is the controlling test. That is the money left each month after major obligations and living costs. The 41% debt-to-income figure is a guideline, not a cap. A higher ratio needs residual income well above the VA table.
8. Credit. VA sets no minimum credit score. The wholesale programs Lendmire works with start at a 580 decision score. Some lenders set a higher floor.
Everything above is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
What the Texas Fee Cap Does to Closing Costs
The “high closing costs” worry has a partial answer in Texas. On a home equity loan, the state limits what a lender can charge to originate, evaluate, record, insure, or service the loan. The cap is 2% of the original principal amount.
The cap has carve-outs. Bona fide discount charges and interest sit outside it. So do certain third-party items, such as the appraisal, the survey, and state-regulated title insurance. The Texas Finance Commission’s rule on the two percent limitation also says optional charges are not fees under the limit.
Read that carefully. The cap does not make a Texas loan cheap. It limits one category of fees. Third-party costs, prepaid items, and anything optional can still add up. When you review your Loan Estimate, ask which line items fall inside the cap and which fall outside.
Your Real Options as a Texas Veteran
| Path | Cash to you? | What to know |
|---|---|---|
| VA refinance, no cash out | No | Can replace a non-VA loan with a VA loan |
| VA IRRRL (streamline) | No | Can switch an adjustable loan to a fixed one; 0.5% fee unless exempt |
| Texas home equity loan | Yes | State fee cap and limits on borrowing apply |
| Home equity line of credit | Yes | Keeps your first mortgage in place |
| Conventional cash-out | Yes | Standard conventional rules; mortgage insurance may apply |
Each row answers a different question.
If you want cash, the VA loan you hold today is not the tool. A home equity loan or line is. If you want a better first mortgage and no cash, a VA refinance can do that. The “cash-out” label can confuse people here, because a refinance from a non-VA loan into a VA loan is sometimes grouped under it even when no money comes back to you.
If you hold a low first-mortgage rate, think hard before replacing it. A cash-out resets the whole balance at today’s terms. A line of credit leaves the first mortgage alone and borrows only what you need. Lendmire’s piece Can a High-Closing-Cost Texas Owner Hold a HELOC and Cash-Out Lien? works through that tradeoff.
Where the General Rule Breaks
A few edge cases change the answer.
- The IRRRL. It is a streamline refinance of an existing VA loan. It returns no cash, so the cash-out problem does not apply. It needs a net tangible benefit and the same seasoning.
- Non-VA loan into VA, no cash. Several lenders offer this. The restrictions bite when money is paid out to you.
- An existing Texas equity loan. Refinancing out of one has its own rules, including waiting periods. Ask the lender how your current lien is treated.
- Occupancy. Both VA cash-out and Texas homestead rules assume you live in the home. A second home or rental does not qualify for either.
- Type I and Type II. VA sorts cash-out refinances into two types. Type I applies to VA-to-VA loans where the new loan does not exceed the payoff. It adds a fee recoupment test and a rate-reduction test. Your lender certifies these.
- Funding fee exemption. Veterans who receive compensation for a service-connected disability, and certain survivors, pay no funding fee.
Keeping Closing Costs From Eating the Deal
Start with the one cost you can sometimes erase.
The VA funding fee is a one-time charge. VA explains that it applies to refinances unless you are exempt. One exemption is receiving VA disability compensation. On a cash-out, the fee is 2.15% on first use and 3.3% on later uses, as VA News also reports. The fee can be financed, so it need not come out of your pocket at closing. Financing it raises your balance, though.
Check your exemption status before you do anything else. If you receive disability compensation, the fee drops to zero.
Then work through these:
- Ask for the Loan Estimate early. Compare line items, not just totals. Lenders set their own closing costs, and VA does not.
- Separate lender fees from third-party fees. You can shop some third-party services. Others are fixed.
- Check what is optional. Optional charges are not required to close.
- Watch prepaid items. Interest and escrow deposits depend on when in the month you close.
- Count net proceeds. The equity you can reach is not the cash you get. Costs and the financed fee come out first. Lendmire’s article How Much a VA Cash-Out Nets After the Funding Fee and Closing Costs lays out that math.
One more note on reading cost claims. Pages that quote a flat percentage of the loan as “typical” are averaging across states and loan types. Your file will land wherever its own line items put it.
What the Decision Looks Like in Practice
Picture a Texas veteran with a low first-mortgage rate, a need for cash for repairs, and meaningful equity. A full VA cash-out is not the tool in Texas, and replacing a low-rate mortgage would raise the cost of the whole balance anyway. A home equity line, which borrows only what the repairs need, is usually the cleaner fit.
Now picture a veteran with a non-VA loan carrying mortgage insurance, who wants it gone and does not need cash. A VA refinance that returns no money could remove that insurance. VA loans carry none. That alone can satisfy the net tangible benefit test.
Last, picture a veteran who receives disability compensation. The funding fee disappears, which changes the break-even on every option above.
Ask yourself three questions:
1. Do I need cash, or do I want a better loan?
2. What will I give up if I replace my current mortgage?
3. How long will I keep this home?
If you will move soon, a higher-cost loan never pays back. If you will stay a long time, a lower-cost structure can.
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.
Key Terms Defined
Funding fee: A one-time VA charge on most VA loans, which can be financed and is waived for exempt veterans.
Net tangible benefit: The measurable gain a VA refinance must deliver, such as removing mortgage insurance, shortening the term, or lowering the rate.
Seasoning: The waiting period a lender requires after your first payment before you can refinance.
Residual income: The money left each month after major obligations and living costs, which is VA’s controlling underwriting test.
Homestead: Your primary residence, which Texas law protects with special limits on borrowing against it.
IRRRL: VA’s streamline refinance of an existing VA loan, with no VA appraisal and no cash out.
Frequently Asked Questions
Can I get a VA cash-out refinance on my Texas home?
Generally not in the form that puts cash in your hands on a homestead. Texas has treated a VA guaranty as extra collateral, which the state’s home equity rules forbid. A VA refinance that returns no cash is still available. Confirm current treatment with a licensed Texas lender.
Why do some websites say it works up to a set loan-to-value?
Some describe the national VA rules, and some describe a structure they say avoids the Texas problem. The attorney general’s opinion points the other way, and lenders underwrite to it. Treat any page that skips that conflict with caution.
Does the Texas fee cap lower my closing costs?
It limits one category: fees to originate, evaluate, record, insure, or service a Texas home equity loan. Certain third-party costs are excluded from that cap. Your Loan Estimate shows what falls where.
Can I avoid the VA funding fee?
Yes, if you are exempt. Veterans who receive compensation for a service-connected disability, and certain survivors, owe no funding fee. Everyone else pays 2.15% on a first-use cash-out or 3.3% after, and it can be financed.
Is a VA IRRRL a cash-out?
No. It refinances an existing VA loan to a lower rate or from adjustable to fixed, with no VA appraisal and no cash back. It carries a 0.5% fee unless you are exempt, plus a net tangible benefit and seasoning.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Texas Attorney General, Opinion KP-0183
3. VA Circular 26-19-05 (cash-out refinance)
4. Texas Finance Commission, 7 TAC §153.5 (two percent fee limitation)
5. VA: VA funding fee and loan closing costs
6. VA News: Funding fee, who pays and who is exempt
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 IRRRL vs VA Cash-Out Requirements for a High-DTI Veteran · Can a Texas VA Cash-Out Be Refinanced Later for Better Terms? · VA Cash-Out Refinance Rules for a Texas Homestead
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.