The Quick Read: No. A second lien does not lift a Texas homestead over the FHA cash-out cap, because both the FHA ceiling and the Texas ceiling count every lien on the home together. A second loan uses up room under those limits. It never adds any. On a Texas homestead, an FHA cash-out refinance is also rarely available at all, so confirm with a licensed loan officer before you plan around it.
Why the Answer Is No
Two separate ceilings apply at once, and a second lien sits inside both.
The first is FHA’s. HUD Mortgagee Letter 2019-11 lowered the maximum loan-to-value and combined loan-to-value on cash-out refinances to 80 percent. It applies to case numbers assigned on or after September 1, 2019. The word “combined” matters. The 80 percent covers the new first mortgage plus any other lien that stays on the home or gets added.
The second is Texas’. Article XVI, Section 50 of the Texas Constitution governs borrowing against a homestead. For the equity-loan category, the new loan plus every other lien may not exceed 80 percent of the home’s fair market value. The Texas Constitution text is public, and it lists which subsections cover home equity, home improvement and reverse mortgages.
Think of it as one bucket. Both rules measure the same bucket, and a second lien is just another scoop out of it. A bigger existing second means less cash-out, whichever structure you choose.
Does FHA Cash-Out Even Work on a Texas Homestead?
FHA cash-out on a Texas homestead is rarely available, and explanations for why vary. Here is how to read the mixed signals.
Some industry material says a Texas equity loan cannot be written as a government-insured loan, though FHA and VA rate-and-term refinances are allowed. Other material says FHA insurance is not barred, but the structure doesn’t fit the state’s fee limits, so lenders don’t offer it. None of these is an official ruling you can lean on.
The practical read from the wholesale side: treat FHA cash-out on a Texas homestead as limited and lender-dependent. Don’t build a plan around it until a licensed loan officer confirms it for your file. If the answer is no, your realistic paths are a rate-and-term refinance, a conventional equity product that follows Texas rules, or leaving the current loan in place.
What the FHA Cash-Out Program Looks Like Elsewhere
Outside the Texas homestead question, the FHA cash-out refinance reaches 80% LTV on a home you’ve owned and occupied for 12 months before the case number is assigned. Across the wholesale programs Lendmire places FHA files with, the starting decision score is 580, subject to lender guidelines and full file review. You can see how the pieces fit on Lendmire’s FHA cash-out refinance program page.
Mortgage insurance applies too. The upfront premium is 1.75% of the base loan and is typically financed. The annual premium depends on term, loan amount and LTV. Those costs sit on the FHA first mortgage only.
Compare that with the no-cash-out options. An FHA Streamline refinances an existing FHA loan with no appraisal and a net tangible benefit. An FHA rate-and-term with an appraisal reaches 97.75% on a principal residence you’ve occupied for the previous twelve months. Those follow different math from cash-out. They are worth a look if you only want to change your loan, not pull equity.
How the Combined Limit Gets Counted
The count runs in a fixed order. Walk through it before you assume you have room.
1. Appraisal sets the denominator. FHA measures the 80% against the lender-ordered appraisal’s adjusted value. Texas separately measures against fair market value on the closing date.
2. Add every lien. That means the new first mortgage, the financed upfront mortgage insurance premium, and any second lien or HELOC that remains.
3. Test both ceilings. If the total exceeds 80% under either rule, the cash-out amount has to shrink.
4. Check eligibility. The FHA handbook for single-family loans, HUD Handbook 4000.1, limits standard cash-out to owner-occupied principal residences with the required ownership, occupancy and payment history.
Picture a homeowner whose first mortgage is paid down to about half the home’s value, with a home equity line sitting behind it. Add the line balance to the new loan and the total has to stay under 80% of value. If the line is large, there may be very little cash left to take out. Paying off the second at closing frees the room, but then it’s part of the new loan anyway.
Is There Any Way a Second Lien Helps?
A second lien helps in one narrow case: you want to keep a low-cost first mortgage and add money behind it, instead of replacing the first. That is a separate decision from an FHA cash-out. It doesn’t beat the cap. It just avoids touching the first loan.
In Texas, that second loan is itself an equity loan under the constitution. Fannie Mae’s Selling Guide shows how the state ceiling works in the conventional market: an 80% maximum for any Texas equity loan, and a HELOC as subordinate financing is not permitted there. That is a conventional rule, not an FHA one. It does show that the state cap shapes what lenders can do, whoever backs the loan.
Texas also allows only one equity loan at a time, per lender guides. Several of those guides also describe a waiting period after the lender’s notice, a cap on lender fees, and a closing at a lender, title company or attorney office. The constitution itself spells out the office-closing rule. The state’s Office of Consumer Credit Commissioner publishes regulatory commentary if you want the regulators’ reading.
Old Rules That Still Circulate
Plenty of web pages still quote outdated FHA limits. Don’t let them mislead you.
- 85%. FHA cut its cash-out cap from 85% to 80% effective September 1, 2019, per HUD’s announcement.
- Existing seconds staying regardless of total debt. That was a 2009 re-subordination rule. It is superseded and no longer governs cash-out.
- 125% combined LTV. An archived HUD guide carried this figure. Treat it as history.
Those old numbers are the main reason people believe a second lien can stretch the limit. It can’t.
Common Misconceptions
| Belief | Reality |
|---|---|
| A second lien gets me past 80% | Both rules count all liens together |
| FHA still allows 85% | Cut to 80% in 2019 |
| 80% is just a lender choice | In Texas it comes from the constitution |
| Texas bans home equity loans | Texas permits them, with strict conditions |
| Paying off my equity loan resets everything | Not automatically; exit conditions apply |
Already Have a Texas Equity Loan?
Texas treats the equity-loan label as sticky. A refinance of an existing equity loan can exit that category under Section 50(f)(2), but only under specific conditions: at least a year after the existing loan, no new cash, and a combined LTV of 80% or less on the refinance date. Check the current text before you rely on this, because the conditions are technical. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
To find out whether your current first mortgage used the equity slot, don’t trust memory. Pull the closing documents and a title commitment. A title commitment also shows liens you may have forgotten, such as an old home improvement loan or a judgment, which count toward the combined total.
Which Path Fits You?
| Your situation | Likely direction |
|---|---|
| Want cash, FHA first, Texas homestead | Limited; confirm with a loan officer |
| Want a lower loan cost, no cash | FHA Streamline or rate-and-term |
| Have an existing equity loan | Review the exit conditions first |
| Want cash and keep a good first | Separate equity loan, within the 80% cap |
| Property isn’t your primary home | FHA owner-occupancy rules apply |
A rental or second home falls outside both the FHA owner-occupancy rules and the Texas homestead rules, so occupancy decides the leverage and the program.
What Goes Wrong When a Lien Breaks the Rules
Equity debt is secured by your home. The State Bar of Texas notes that defaulting on a home equity loan could mean losing your home. A lien placed in violation of the constitutional rules also creates title problems that can follow you into a later sale or refinance. That is why lenders and title companies check the lien count so closely.
A second lien also adds a separate payment on top of your first mortgage. Budget for both, plus the FHA mortgage insurance on the first. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Homestead: the Texas primary residence that gets constitutional protection from most liens.
Combined loan-to-value (CLTV): all loans secured by the home, added together, divided by its value.
Equity loan: a Texas loan that takes cash against a homestead, which includes cash-out refinances and home equity lines.
Subordinate financing: a loan that sits behind the first mortgage in repayment priority.
Rate-and-term refinance: a refinance that changes the rate or term without taking extra cash out.
Frequently Asked Questions
Can I take a HELOC after an FHA cash-out refinance?
Not above the cap. Any HELOC balance counts toward the combined 80% limit, and in Texas a home equity line is itself an equity loan with its own conditions. Ask a licensed loan officer how your first mortgage’s history affects the line.
Does paying off my second lien at closing help?
It frees room under the combined limit, but the payoff comes out of the new loan, so it reduces your cash-out dollar for dollar. It simplifies the lien picture without creating extra equity.
Is an FHA cash-out refinance available on any Texas home?
It is limited on a homestead and lender-dependent, so confirm before you plan around it. FHA owner-occupancy rules also exclude properties you don’t live in as a principal residence.
What does FHA require for a cash-out refinance?
Ownership and occupancy of the home for 12 months before the case number, a lender-ordered appraisal, and an 80% LTV ceiling, plus a 1.75% upfront premium and an annual premium. Credit and income are reviewed subject to lender guidelines.
Why can’t a lender just exceed 80% in Texas?
Because the limit is in the state constitution, not in lender policy. For the equity-loan category, no program or lender can write around it.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
2. Texas Constitution, Article XVI, Section 50
3. Fannie Mae Selling Guide B5-4.1-03
4. Office of Consumer Credit Commissioner
5. HUD announcement of the cash-out change
6. State Bar of Texas, home equity guidance
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 a Paid-Off Home Exceed the FHA Cash-Out Cap With a Second Lien? · Can You Challenge a Low FHA Cash-Out Appraisal With a Second One? · Can You Get an FHA Cash-Out When Conventional Is Too Costly?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.