The Quick Read: The “fee included” part of the title is only half the story, because state law blocks the VA cash-out itself on a Texas homestead. Nationally, a VA cash-out refinance can finance its funding fee inside the new loan. Purchase loans and rate-and-term VA refinances are a different matter and remain options, subject to lender guidelines.
Why Does the Fee Question Not Settle Anything in Texas?
Texas law decides first. The fee question comes after, and only if the loan can exist at all.
Here is the sequence a broker walks through. First, what does VA allow nationally? Second, does Texas allow that loan on a homestead? Third, if not, what are the options? Most online pages blur the second step. Some say Texas allows VA cash-out as long as it stays under 80%. Others say it is flatly unavailable. The primary source supports “unavailable,” so that is the position this article takes.
Financing the fee does not change the answer. The problem is not the size of the loan. It is the nature of the loan, and the next sections explain why.
What Does VA Allow Nationally?
Outside Texas homestead rules, the VA cash-out reaches 100% of the appraised value, including the financed funding fee. It can refinance any loan type into a VA loan. Both a net tangible benefit test and a seasoning rule apply. Across the wholesale programs Lendmire places VA loans with, full-entitlement files start at a 580 decision score, and residual income is the controlling test. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
The funding fee is a one-time charge, a percentage of the new loan. Per a VA program notice 26-23-06, Exhibit B, a cash-out refinance carries 2.15% for first use and 3.3% for subsequent use. A VA streamline refinance carries 0.5%. VA News confirms the fee is generally either financed into the loan or paid at closing, and that veterans receiving compensation for a service-connected disability are exempt, as are certain other groups. Confirm the current table on va.gov before you plan around it.
Financing the fee is convenient, but it is not free. It raises the balance, so the percentage lands on a bigger number. A larger balance also means more interest over the life of the loan. On a national VA cash-out, the financed fee must still fit under the property’s reasonable value, which the VA appraisal sets.
If you want the program overview first, Lendmire’s VA cash-out refinance program page covers how the product works outside Texas homestead rules.
What Does Texas Do to That Loan?
Texas treats any cash-out against a homestead as a special kind of home equity loan. It is created by the state constitution, Article XVI, Section 50(a)(6), so Texans often call it a “Texas cash-out.” That section stacks its own rules on top of whatever the loan program says. Chief among them is a ceiling: the new loan plus every other lien on the home cannot exceed 80 percent of fair market value, per the Texas Constitution text.
The same section bars securing the loan with any additional real or personal property beyond the homestead. This is where VA runs into trouble. The VA guaranty counts as additional collateral. The Texas Attorney General’s opinion KP-0183 describes a Texas cash-out as a home equity loan under that section. It also records the state mortgage-lending regulator’s position that veterans with VA loans cannot obtain a cash-out refinance of this kind in Texas. An AG-hosted copy of the opinion adds that this section does not govern a traditional VA purchase or refinance loan.
Put together, the result is this. VA cash-out on a homestead is blocked. VA purchase loans and rate-and-term refinances are not caught by the same section. That distinction matters more than any other here.
Side by side
| Topic | VA national rule | Texas homestead rule |
|---|---|---|
| Maximum loan | 100% of appraised value | 80% combined, all liens |
| Funding fee | Can be financed | Does not apply, since the VA cash-out is blocked |
| Extra collateral | The VA guaranty is standard | Barred beyond the homestead |
| Net tangible benefit | Required | Separate Texas rules also apply |
How Does the Fee Math Work Step by Step?
Walk through it in plain terms, using percentages instead of dollars.
1. Start with value. The VA appraisal sets the property’s reasonable value. Nationally, the new loan including the financed fee cannot pass 100% of it.
2. Subtract the payoff. The loan being refinanced comes off first, along with other liens and closing costs.
3. Add the fee. The 2.15% or 3.3% applies to the new loan amount. Financing it makes the loan bigger, which makes the fee bigger.
4. What is left is your cash. Net cash is the new loan minus the payoff, the fee and closing costs. It is not “the equity.”
Now apply Texas. A Texas homestead cash-out has a hard 80% combined limit, so every financed cost shrinks the cash you receive. At 100% financing, you would have far more room. At 80%, a financed fee and closing costs eat into a smaller pool.
That comparison is the real lesson behind “fee included.” Even if a Texas VA cash-out were allowed, the fee and costs would sit under a much tighter ceiling than the VA’s. And the guaranty problem keeps the loan from getting that far.
A national VA borrower distinguishes two cash-out types. In a Type I cash-out, the new loan, fee included, does not exceed the payoff of the old loan. In a Type II, it does. In Texas, the cash-out question is settled before that sorting begins.
Where Does the General Rule Break?
Five edge cases come up in real files.
You already have a Texas home equity loan. Refinancing one is itself a new Texas home equity loan, unless it fits a specific exit in Section 50(f)(2). That exit lets certain existing equity loans be refinanced into non-equity loans. Reported conditions include a waiting period, no additional cash taken, and the 80% combined limit.
You already have a VA loan. An existing VA loan does not change the rule. A cash-out is still blocked. An IRRRL, which refinances an existing VA loan to a lower rate or from adjustable to fixed, is a different product. It carries no cash and no VA appraisal, and nothing in the opinion treats it as a home equity loan. It needs a net tangible benefit and the required seasoning.
Fee exemption does not change the result. If you receive VA compensation for a service-connected disability, the VA funding fee does not apply to your loan. That does not unlock the Texas block.
The property is not your homestead. The state’s equity rules apply to homesteads. VA loans require you to live in the home, so this rarely helps a VA borrower. Occupancy decides the leverage, and a VA loan is built for the home you live in.
You are comparing VA with other programs. FHA works differently under Texas law. Do not assume what is true for one government program applies to another.
What Can a Texas Veteran Do Instead?
You have several workable paths. Which one fits depends on what you want the money for and what you owe now.
| Your goal | Likely path | Watch for |
|---|---|---|
| Lower the payment on a VA loan | IRRRL | Net tangible benefit, seasoning |
| Switch loan type, no cash | VA rate-and-term refinance | Appraisal sets the value |
| Cash from equity | Conventional Texas cash-out | 80% combined limit |
| Cash, keep the first loan | Second lien | Same 80% combined limit |
| Leave an equity loan | Section 50(f)(2) exit | Conditions must be met |
| Buy another home | VA purchase loan | Entitlement remaining |
The honest tradeoff is simple. Giving up a VA loan to take a conventional Texas cash-out means giving up VA terms, including 100% financing and no mortgage insurance. The VA purchase and rate-and-term loans keep those advantages. A conventional cash-out gives you cash, but under an 80% ceiling and different underwriting.
This is a genuine toss-up for many veterans. If the first loan is a good one, a second lien may preserve it while still reaching some equity. If the first loan is expensive or adjustable, replacing it may be the stronger play. The deciding factor is usually how much cash you need compared with what you give up.
What Does Timing Look Like on a Texas Home Equity Loan?
Texas cash-out loans carry timing rules a normal refinance does not have. The lender must give you written notice, and the loan cannot close until a statutory waiting period after that notice passes. The constitution also allows only one of these loans on the home at a time. A spacing rule limits how soon after one closes another can follow, with an emergency exception. The Texas Constitution text on Justia lays out the notice requirement.
Cash-out of any kind also means full underwriting and a new appraisal. Your Loan Estimate and Closing Disclosure show the terms at each stage. Compare them line by line.
Key Terms Defined
Homestead: The home you live in as your primary residence, which Texas protects with extra rules.
Section 50(a)(6) loan: The Texas constitution’s home equity loan, commonly called a “Texas cash-out.”.
Funding fee: A one-time VA charge, a percentage of the loan, that can be financed or paid at closing.
IRRRL: The VA’s streamlined refinance for an existing VA loan, with a 0.5% fee unless exempt.
Net tangible benefit: A test showing the refinance actually helps you, such as a lower rate or a safer loan type.
Residual income: The money left each month after major obligations, which VA treats as the controlling test.
Type I and Type II cash-out: Type I stays at or under the old loan’s payoff, fee included. Type II goes over it.
What Should You Check Before You Apply?
Bring these questions to your loan officer.
- Is the loan I want a Texas home equity loan, or a purchase or rate-and-term refinance?
- What do I owe now, and does it include an existing equity loan or line of credit?
- If I am fee-exempt, is my exemption documented on my certificate of eligibility?
- How much cash do I need, and does an 80% combined limit cover it?
- Do I lose VA terms such as 100% financing and no mortgage insurance by switching?
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Can a Texas veteran take cash out of a homestead with a VA loan?
Not under the state regulator’s position, as recorded in the Attorney General’s opinion. A Texas cash-out is a home equity loan, and the VA guaranty counts as additional collateral that the constitution does not allow. Some websites claim an 80% VA cash-out is possible, but the primary source does not support that.
Does financing the VA funding fee change the Texas answer?
No. The obstacle is the guaranty, not the loan size. On a loan that is allowed, a financed fee does raise the balance and the total interest. It must also stay under the applicable value ceiling.
Can I still refinance a VA loan in Texas?
Yes, for the right products. The AG opinion says the home equity section does not govern a traditional VA purchase or refinance loan. An IRRRL and a rate-and-term refinance remain options, subject to lender guidelines and file review.
What if I already have a Texas home equity loan?
Refinancing it is generally a new home equity loan, unless it fits the Section 50(f)(2) exit. Ask your lender to verify those conditions against the constitutional text. Do not assume a VA refinance will take you out of it.
Does a funding-fee exemption help me get cash out?
A funding-fee exemption does not remove the Texas block on VA cash-out of a homestead.
If You Are Weighing Your Options
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. As a mortgage broker, Lendmire arranges these loans through wholesale lenders, and every option is subject to lender guidelines and full file review.
Texas homestead rules reward asking the legal question before the fee question, since the answer to the first decides whether the second ever matters.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA Circular 26-23-06, Exhibit B
2. VA News: borrowers can deduct funding fees
3. Texas Constitution Article XVI, Section 50
4. Texas Attorney General Opinion KP-0183
5. Texas Attorney General Opinion KP-0183 (AG-hosted copy)
6. Texas Constitution text on Justia
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 Cash-Out Occupancy Rules With Partial or Restored Entitlement · VA Cash-Out Seasoning and Fee Rules With Restored Entitlement · VA Cash-Out Entitlement Rules for an Existing VA Loan 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.