The Quick Read: A home equity line can sit as a second lien behind your current FHA mortgage on a Texas homestead, which lets you keep the first loan untouched, while an FHA cash-out refinance instead replaces that first loan with a new, larger one. Which path fits depends on your combined leverage, your credit profile, and how much you value the first loan you already have.
- A line leaves the FHA first loan in place. A cash-out replaces it.
- Texas homestead rules cap combined debt at 80% of value either way, and the line’s full limit counts, not just what you draw.
- Both tools are owner-occupant products. Neither is a rental-property loan.
- Texas Lendmire-network lines run in first or second lien position, so a second lien behind an FHA first is a normal structure.
- If the equity you want sits in a rental, the comparison changes. That is a DSCR conversation.
The Honest Answer First
The line is usually the better fit for a homeowner with a first loan worth keeping and a modest, specific cash need. The cash-out is usually the better fit for someone who wants one payment, a larger sum, and is happy to reset the first loan.
How large a line the equity supports in Texas.
An equity line is sized by combined loan-to-value, occupancy, and credit — not by rental coverage. Switch the occupancy or the credit band and the ceiling moves with it.
Investment-property lines require a 700 minimum credit score; second-home lines start at a 640 minimum and primary-residence lines at 600, and the combined-LTV ceiling steps down as the credit band drops on primary-residence and second-home lines and holds on investment-property lines; the line cap steps down on primary-residence lines and holds at every tier on investment-property and second-home lines.
A debt-to-income ratio above 45% requires 680+ credit. Profiles under 640 are limited to single-family homes. At least 75% of the approved line is drawn at closing. Ceilings, floors, and caps update from Lendmire’s centralized guideline source.
Line estimate
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. The rate is an editable assumption; equity-line pricing is variable through both the draw and repayment periods and never converts to fixed. Occupancy and credit drive the ceiling together: an investment property tops out at 70% combined LTV (minimum credit 700, line cap $500,000); a second home tops out at 90% combined LTV (minimum credit 640, line cap $500,000), with the ceiling stepping down as the credit band drops (the cap holds at every tier); a primary residence tops out at 80% combined LTV (minimum credit 600), and its $750,000 maximum line is available only at 75% combined LTV or below with a 700-or-better credit profile (720 on the longer-runway program) and a full appraisal. Lines above $500,000 require a full appraisal. Credit, debt-to-income, property type, and full underwriting review all affect the final line.
Neither is clearly better. The line keeps your existing FHA terms and adds a second lien that moves with the market. The cash-out gives you one lien, but it resets the loan and typically brings a new FHA insurance charge. Texas adds its own twist: both tools count as home equity loans, and only one can exist at a time.
One more point for investors. Everything here applies to the home you live in. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines, so it cannot tap homestead equity. We come back to that near the end.
Side-by-Side
The FHA column reflects published industry norms. The HELOC column reflects the programs Lendmire’s wholesale network places, with Texas overlays where they apply. Both are subject to lender guidelines and full file review.
| Factor | FHA cash-out refinance | HELOC behind FHA first |
|---|---|---|
| What happens to the first loan | Paid off and replaced | Stays in place |
| Review basis | Borrower income, credit, debts | Borrower income, credit, debts, 50% DTI maximum |
| Documentation | Full file plus FHA appraisal | Often automated valuation at or below $500,000 |
| Occupancy | Owner-occupied principal residence | Texas primary residence (homestead) |
| Entity vesting | Individual borrower | Individual or revocable living trust |
| Leverage test | Combined cap on adjusted value | 80% combined cap in Texas |
| Timeline | Full refinance process plus Texas notice period | Shorter file, same Texas notice period |
| Reserves | Set by lender | Set by lender |
How Texas Treats Both Options
A Texas homestead can only be pledged for the kinds of debt the state allows, and both a cash-out refinance and a HELOC fall in the home equity category. The Texas Real Estate Research Center at Texas A&M explains that the new principal, added to every other debt secured by the home, may not exceed 80% of fair market value. It also says these loans cannot be made on a second home or a rental.
That 80% cap is why the comparison matters. Your FHA first balance already uses part of it. Whatever room remains is what a line or a cash-out can use.
- Only one home equity loan can exist at a time.
- A second one cannot close within a year of the first.
- Closing happens at the office of the lender, a title company, or an attorney.
- The loan cannot carry a prepayment penalty.
There is also a mandatory waiting period after the lender gives written notice. Both tools share it, so it does not separate them.
Texas also sets a minimum draw size on lines. On Lendmire-network lines, subsequent draws after closing carry a $4,000 minimum in Texas. Out-of-state HELOC habits do not carry over cleanly.
What the FHA Side Looks Like
FHA cash-out is a refinance of your principal residence. Under HUD Mortgagee Letter 2019-11, the maximum loan-to-value and combined loan-to-value on an FHA cash-out refinance is 80% of adjusted value. That is a market-wide FHA rule, not a Lendmire-network figure. Because it is a combined measure, any other lien that stays on the home counts toward it.
Industry norms for FHA cash-out also expect at least one borrower to have owned and lived in the home as a principal residence for a year before the case number is assigned. They expect the existing mortgage to have been paid on time and to be seasoned for several months. Those are FHA’s conditions. Your lender will confirm the details.
Here is the catch for Texas. Whether an FHA cash-out is available on a Texas homestead depends on whether the FHA lender and servicer will originate it. Some lenders do not offer it on Texas homesteads even though the 80% figures line up. Get availability confirmed in writing before you plan around it.
An FHA cash-out also usually means a new FHA first loan with a reset term and a new upfront insurance charge. That matters if your current loan has a payment history and balance profile you like.
What the HELOC Side Looks Like
Across the wholesale network Lendmire works with, a standalone line can be placed in first or second lien position. That means it can sit behind your existing FHA mortgage. FHA does not issue lines, and the line is not FHA-insured. It is a separate lien underwritten to the line lender’s guidelines.
On a Texas primary residence, the combined ceiling on this network is 80% CLTV, and the ceiling depends on credit tier:
- At 640 and above, the ceiling is 80% combined, on lines up to $500,000.
- At 620 and above, it is 70% combined, on lines up to $400,000.
- At 600 and above, it is 60% combined, on lines up to $400,000.
The higher tiers in the general matrix never apply to a Texas primary residence. A line above $500,000 is available only on primary residences, caps at 75% CLTV, and requires a full appraisal.
Other terms to know:
- Draw structures. Two exist, a 3-year interest-only draw followed by 17 years of full repayment, and a 5-year interest-only draw followed by 25 years of repayment.
- Draw at closing. At least 75% of the line is drawn at closing.
- Floating pricing. Pricing floats during both the draw and repayment periods and does not convert to fixed.
- Qualifying payment. Lenders qualify the borrower on the interest-only payment calculated on the maximum draw.
- Credit. The program floor is 600. Report age and tradeline standards vary by program.
Two Texas points matter most. First, the 80% test counts the line’s maximum, not the balance you actually draw. A line sized at its limit uses that much of your combined room from day one. Second, the Texas homestead rules, including the waiting period, the one-at-a-time rule, and seasoning, bind primary residences. Properties over 10 acres are not eligible, and a property listed for sale, or listed within the past 60 days, is ineligible in Texas.
When the HELOC Is the Better Fit
A line makes the most sense when the FHA first loan is worth keeping and the cash need is moderate. Think of a homeowner with a first-lien position they like, a combined balance well under the Texas cap, and a use for the funds that does not require a lump sum all at once.
It tends to fit when:
- Your combined leverage is already moderate. If the FHA first uses roughly half your value, a line can take part of the remaining room. A cash-out would need to refinance the whole first balance to do the same thing.
- You want to avoid resetting the first loan. The line does not touch the FHA loan’s term or insurance structure.
- Your credit profile reaches the 640 tier. That tier is what unlocks the 80% combined ceiling in Texas.
- Your funds will be used in stages. Subsequent draws are allowed after closing, though at least 75% of the line is drawn at closing and Texas draws carry the $4,000 minimum.
- A lighter file helps. Lines at or below $500,000 ordinarily run automated valuation with no traditional appraisal, though a higher CLTV may require a secondary valuation.
It is the weaker fit in some situations. The structure floats and never converts to fixed. At least 75% is drawn at closing, so you carry most of the line from the start. And if your FHA first was itself a Texas cash-out or home equity loan, the one-at-a-time rule generally blocks a second equity lien. Ask your lender how the existing first was originated before you assume the line is available.
Lendmire’s piece Bank Statement Cash-Out vs HELOC on a Paid-Off Texas Homestead covers the version of this decision with no first loan in the way.
When the FHA Cash-Out Is the Better Fit
An FHA cash-out is usually the stronger choice for a homeowner who wants a single lien and is comfortable replacing the current loan. It also fits someone whose borrower profile or home value has improved enough that the new first loan suits them better than the old one.
It tends to fit when:
- You want one lien instead of two. One payment and one servicer can be simpler than a first loan plus a floating second.
- You want a larger, one-time sum. A cash-out delivers the funds at closing, within the 80% combined cap.
- The old first loan is not worth keeping. If its terms are not helping you, replacing it costs you less.
- Your credit does not reach the line’s higher tiers. FHA is generally built for a wider range of credit profiles. Confirm the specific minimums with your lender.
It is the weaker fit when the existing FHA loan has terms you want to protect, when you are close to the one-year occupancy mark and have not reached it, or when your lender will not originate Texas FHA cash-out at all. Also remember what a Texas cash-out is under state law: a home equity loan. Taking one uses the one-at-a-time slot, and a later line is blocked while it stays in place.
A Combined-Leverage Walkthrough
Run this in percentages. Say your home is worth 100 units and your FHA first balance is 50% of that value. Texas caps all liens at 80%, so you have 30 points of room.
- Line path. You choose a line limit up to those 30 points, subject to your credit tier. The full limit counts toward the cap even if you draw only part of it. The FHA first stays at 50.
- Cash-out path. The new FHA loan must fit within 80% of adjusted value. Part of it pays off the old first loan, and the rest is your cash. Any other lien that remains counts toward the same cap.
The room is similar. The difference is what happens to the first loan. The line adds debt on top. The cash-out swaps the first lien for a new one. A calculator is available on the page to size the HELOC case. Treat it as an illustrative estimate, not a quote.
Where This Stops: Rentals and DSCR
Neither tool taps rental equity. Both are owner-occupant products, and the Texas protection that governs them applies to homesteads. Most investors who meet this question are in one of three spots:
1. House hacker. You bought a two- to four-unit property with an FHA loan and live in one unit. Your equity lives on the home you occupy, so the tools above apply.
2. Converted primary. You moved out and rented the home. Occupancy must be real, not a label. Once the home is truly non-owner-occupied, you move into investor territory.
3. Rental owner with equity elsewhere. Equity in a non-homestead rental follows investment lending rules, not the homestead cap.
For investment property, the network does place lines. They are available on investment properties at 700 and above, with a 70% CLTV ceiling and a $500,000 maximum, on the 5-year draw with 25-year repayment only. They are individual or revocable-trust vesting only. An LLC-titled rental is a different case, and a DSCR cash-out may fit instead, subject to program terms.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage.
For rental purchases, most DSCR files across the network land at 75% to 80% LTV. Cash-out refinances top out around 75% LTV, with about six months of seasoning as the common expectation. A 1.00 coverage ratio is where select programs start, and stronger coverage opens better leverage and terms. Coverage below 1.00 is a separate path, available through select lenders in the network with leverage and terms adjusted. Most programs want a score near 660, and 700 and above unlocks the strongest leverage tiers. Clearing the coverage ratio is not the same as positive cash flow, since repairs, vacancy, and management sit outside the calculation.
Lendmire’s complete DSCR loans guide walks through how those numbers work. If you are weighing a floating second lien against a fixed refinance on a rental, the comparison in Lendmire’s piece on variable HELOCs versus fixed cash-out behind a DSCR first lien picks up where this article stops.
Key Terms Defined
Second lien: A loan that sits behind your first mortgage and is repaid after it if the property is sold or foreclosed.
CLTV: Combined loan-to-value, which adds every lien on the home and divides by its value.
Texas home equity loan: The state’s name for a cash-out refinance or line secured by a homestead, subject to the 80% cap and one-at-a-time rule.
Adjusted value: The value FHA uses to test its loan-to-value cap on a cash-out refinance.
Draw period: The stretch when a line is interest-only and you can borrow against it, before full repayment starts.
The Verdict
For most homeowners with an FHA first loan on a Texas homestead, the choice comes down to one question: is the first loan worth keeping? If yes, and your credit reaches the 640 tier, a line behind it is usually the cleaner route. If no, or if you want one lien and a lump sum, a cash-out is usually the cleaner route, provided your FHA lender will originate it in Texas.
The flip points are specific. If your first loan was already a Texas equity loan, the line is probably blocked. If you have not reached the occupancy mark, the cash-out is blocked. If your combined leverage is near the 80% ceiling, neither tool has much room, and waiting for equity to build may beat either one.
Tax treatment can depend on how the funds are used and how the property is held. Keep clear records and speak with a qualified tax professional before relying on any deduction.
If you are weighing a home equity line against a cash-out refinance and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals. Qualification is subject to lender guidelines and full file review. This is not a commitment to lend.
Frequently Asked Questions
Can I get a HELOC while keeping my FHA mortgage in Texas?
Often yes. FHA does not issue lines, but a separate line lender can place a second lien behind your FHA first mortgage. The Texas 80% combined cap and the one-equity-loan-at-a-time rule still apply. Whether your FHA first was a purchase loan or a prior cash-out matters.
Is FHA cash-out allowed on a Texas homestead?
It depends on the lender. FHA caps cash-out at 80% of adjusted value, which matches the Texas cap, but some FHA lenders and servicers do not originate Texas FHA cash-out. Ask in writing before you build a plan around it.
Does a line count toward the 80% limit if I only draw part of it?
Yes. In Texas the line’s maximum counts toward the combined cap when it is established, not just the balance you draw. On Lendmire-network lines, at least 75% is also drawn at closing.
Can I use either option on a rental I own?
Neither Texas homestead tool applies to a rental. Texas home equity rules cover the homestead. Rentals follow investment lending rules, including DSCR cash-out or an investment-property line on this network at 70% CLTV with a 700 minimum credit profile.
Can I take a line and a cash-out at the same time?
No. Texas allows only one home equity loan at a time, and a second cannot close within a year of the first. Choose the one that fits your plan, then plan the sequence.
A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage that arranges home equity lines of credit through wholesale lending partners in its 16 full-service states. Lines on primary residences, second homes and investment properties are each reviewed individually by the lender under the program’s occupancy, credit and combined-loan-to-value guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Texas A&M Real Estate Research Center: What to Know About Home Equity Loans in Texas
2. HUD Mortgagee Letter 2019-11
This article is part of Lendmire’s home equity line of credit program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Cash-Out Refinance vs HELOC in Texas With a Low First Mortgage · How to Compare a VA Cash-Out and HELOC With a Disability Rating · FHA Cash-Out vs Second Lien for an Owner With a HELOC
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.