FHA Cash-Out Loan Cap and Fee Limits on a Texas Homestead

The Quick Read: Two separate ceilings apply to an FHA cash-out loan on a Texas home, and the stricter one controls. FHA caps the loan at 80% of the home’s value, and Texas law caps both the combined debt and the fees a lender can charge. Together they make this loan legally constrained and rarely practical, though not flatly illegal.

How Do the FHA and Texas Limits Stack?

They stack. Neither one replaces the other. A loan has to fit under the FHA ceiling and the Texas ceiling at the same time, so the lower number wins.

Think of two doors in a hallway. The FHA door is 80% wide. The Texas door is also 80% wide, but it adds a second gate for fees. You only get through if you clear both.

Texas treats a cash-out on your primary home as a special kind of loan. The state wrote protections for homeowners into its own constitution, and a lender cannot waive them. That is why advice from other states does not carry over. An 80% limit here is not a lender’s preference. It is the law.

What Does an FHA Cash-Out Loan Look Like?

An FHA cash-out loan replaces your current mortgage with a larger one and hands you the difference in cash. Across the wholesale programs Lendmire places files with, the FHA cash-out refinance program reaches 80% LTV on a home you have owned and lived in for the 12 months before the case number is assigned. Subject to lender guidelines and full file review.

Three other pieces shape the file:

• Upfront premium. FHA charges 1.75% of the base loan, and it is usually financed into the balance.
• Annual premium. It 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%, it ends after eleven years.
• Ratios. The base pair is 31/43, meaning housing cost over income and total debt over income. Documented compensating factors can stretch that up to 40/50 at the top tier. For most files, the automated underwriting finding governs.

Here is the practical catch. Those mechanics work cleanly in most states. In Texas, the state’s own limits sit on top, and they change the math.

Why Does Every Lien Count Against 80%?

Because the cap measures all debt on the home, not just the new loan. HUD’s Mortgagee Letter 2019-11 lowered the FHA cash-out limit to 80% of adjusted value. It applies the same 80% to the combined loan-to-value, which counts every lien. A leftover second mortgage or home equity line of credit (HELOC) uses up room instead of adding any.

The letter also explains the history. FHA had earlier cut the cap from 95% to 85%, then went to 80% to reduce risk to the insurance fund. So if you read that FHA cash-out goes to 85% or 95%, that is old information.

Texas lands on the same number from a different direction. The Texas Constitution’s homestead section limits total debt against the homestead to 80% of its fair market value. A lender cannot lift it, and neither can a mortgage investor.

Two measuring sticks are in play. FHA uses adjusted value. Texas uses fair market value. The appraisal feeds both, so expect the lower reading to set your ceiling.

What Counts Toward the 2% Fee Cap?

Fees that are necessary to originate, evaluate, maintain, record, insure or service the loan count. Under 7 Tex. Admin. Code §153.5, those fees together cannot exceed 2% of the original principal. Interest and certain other bona fide charges sit on top of the cap rather than inside it.

An earlier version of the rule allowed 3%. That higher figure is outdated, so a source quoting it is stale.

The rule also pulls in some third-party charges. If the borrower must pay a third party for an origination task, such as an attorney’s document-prep fee, it counts. Here is how the common items sort:

Whether they count depends on who performs the service and what the rule says about “necessary” costs. Ask the lender to classify each line in writing. Do not guess.

Another point surprises many borrowers. A lender in Texas cannot make up a shortfall by adding fees. Whatever sits over the cap has to be absorbed by the lender or removed from the loan. That is a large part of why this loan is hard to deliver.

Does the FHA Premium Count Toward the Cap?

Whether FHA cash-out on a Texas homestead is available at all is a contested question. Several consumer and lender sites say it is simply unavailable. One Texas mortgage-law analysis reads it differently: FHA insurance is probably legally permissible, but its premium counts against the 2% cap. That would make the loan uneconomic without a large lender credit.

Here is the math, and treat it as an inference, not a rule. The FHA upfront premium is 1.75% of the base loan. The Texas cap is 2% of the original principal. The two measure slightly different loan amounts, so they are not identical. Still, if the premium counts, it uses most of the cap. That leaves a sliver for origination, processing and every other covered charge.

“The math is tight” is the fair summary. A lender would need to deliver the loan with almost no covered fees, or cover the gap itself. Many lenders choose not to.

That is why “legally constrained and rarely practical” beats both “illegal” and “easy.” Before you spend time on an application, ask whether a lender will take the file after running this fee test. Availability is a lender decision, subject to program guidelines.

What Does the Math Look Like in Practice?

Run the numbers in percentages of your home’s value. Dollar amounts will differ, but the structure holds.

Say a homeowner’s first mortgage sits at 50% of the home’s value, and there is no other lien. Both limits cap total debt at 80%. That leaves 30 points of value between the old balance and the ceiling.

Now subtract what comes out of that room before you see a dime:

• Any financed closing costs.
• The financed upfront premium, which is 1.75% of the base loan and adds to the new balance.
• Any other lien that stays in place.

What remains is your cash. It is meaningfully smaller than “30% of my equity.” Confirm with the lender how the financed premium interacts with the LTV test before relying on a number.

Notice also that the new loan replaces your entire mortgage, not just the cash portion. If your current loan carries a low rate, the new one may not. A cash-out refinance can swap a lower-cost loan for a higher-cost one, and FHA adds annual mortgage insurance to the monthly bill. Weigh that against the cash you need.

Where Does the General Rule Break?

A few named edge cases change the answer.

A refinance that takes no equity out. A Texas rate-and-term refinance on a homestead generally does not trigger the equity-loan rules. The FHA rate-and-term option reaches 97.75% on a principal residence occupied for the previous twelve months. Only the no-cash path gets that much room.

A refinance of an existing Texas equity loan. Historically, refinancing one of these loans put you back in equity-loan territory. A later Texas rule created an exit: under set conditions, an earlier equity loan can be refinanced into an ordinary no-cash-out loan. Lender summaries cite about a year of seasoning, no cash beyond closing costs, an 80% limit and a special notice. Treat those as a conversation starter, not a checklist, and ask the lender to confirm.

A second Texas equity loan. Only one of these loans can be secured by the home at a time. Borrowers who took a Texas cash-out recently, or who want to keep a HELOC, should expect problems.

VA versus FHA. The state’s rule in 7 Tex. Admin. Code §153.8 bars a guaranty or surety on an equity loan. A VA loan carries a federal guaranty, so it runs into that rule. FHA insurance is a premium rather than a guaranty of the borrower’s debt, which is why the law-firm analysis reads it as probably permissible. The two programs are not treated the same.

Occupancy. FHA cash-out is for an owner-occupied principal residence, and the Texas rules protect the homestead only. A second home or a rental falls outside both, and occupancy decides the leverage.

FHA Streamline. A Streamline refinances an existing FHA loan with no appraisal and a limited credit review, and it requires a net tangible benefit. It is not a cash-out loan, so the cash-out cap does not apply. It is a separate decision.

Hawaiian Homelands. Section 247 loans are exempt from the 80% change. That rarely matters in Texas but explains why the exemption appears in the HUD letter.

What Does the Decision Look Like?

Start by deciding whether you need cash or a better loan. Those are different goals, and a Texas cash-out costs more to set up than a plain refinance.

Next, confirm the basics against your file:

1. You have owned and lived in the home for the 12 months before the case number. 2. Total debt after the loan stays at or below 80% of the appraised value. 3. Your ratios fit the program, from 31/43 up to 40/50 with documented compensating factors. 4. The lender will deliver the loan under the 2% fee cap and tell you how it treats the premium.

Then read the paperwork. Your Loan Estimate and Closing Disclosure list every charge. Ask the lender to mark which ones count toward the cap and which fall outside it. Be wary of a lender who cannot sort them or who dodges the question.

Other protections travel with a Texas equity loan. They include a mandatory waiting period, an in-person closing and consent from your spouse. These come from the state constitution. They are part of why the process feels slower than in other states.

Treat the whole thing as a tradeoff, not a verdict. The stronger play for some homeowners is the cash-out. For others, it is keeping the current loan and finding the money elsewhere. Only the numbers on your file settle it.

Key Terms Defined

Cash-out refinance. A loan that replaces your mortgage with a larger one and pays you the difference.

LTV and CLTV. Loan-to-value is the loan as a share of the home’s value. Combined LTV adds every lien on the home.

Homestead. Your primary home, which Texas law protects with extra rules.

Upfront mortgage insurance premium. An FHA charge of 1.75% of the base loan, usually financed into the balance.

Annual mortgage insurance premium. A yearly FHA charge, paid monthly, that ranges from 0.15% to 0.75% of the balance.

Seasoning. The waiting period a loan or ownership has to meet before the next step.

Fee cap. The Texas ceiling on lender-controlled fees: 2% of the original principal.

Weighing a Cash-Out on Your Texas Home

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. Lendmire is a mortgage broker, not the lender, and every figure above is subject to lender guidelines. Nothing here is a commitment to lend. For your own numbers, request a scenario review with Lendmire.

For current guidelines and terms, see Lendmire’s FHA loan programs page.

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.

References

1. HUD Mortgagee Letter 2019-11

2. Texas Constitution, Article XVI, Section 50

3. 7 Tex. Admin. Code §153.5

4. 7 Tex. Admin. Code §153.8