The Quick Read: This is not a routine product, and anyone who tells you otherwise is skipping steps. Two rule sets stack on top of each other: FHA’s limit on cash-out refinances and Texas’ strict limits on borrowing against a homestead. The appraiser counts only the land that supports your house, so extra acres add little borrowing power. Whether a lender can actually close the structure is a separate question, and you should ask it first.
What You Need to Know First
- FHA cash-out tops out at 80% of the home’s adjusted value. The 96.5% figure you may have seen belongs to purchases, not cash-out.
- You must have owned and lived in the home for 12 months before the case number is assigned.
- Texas counts every lien on the home toward its own 80% test, not just the new loan.
- Acres the appraiser treats as excess are left out of the value. They do not support the loan.
What Is an FHA Cash-Out Refinance, Exactly?
An FHA cash-out refinance replaces your current mortgage with a new FHA-insured loan that is larger than what you owe. You keep the difference, after costs. It is a refinance of the home you live in. It is not a second loan stacked on top.
Here is the envelope Lendmire’s team works within on the FHA cash-out refinance program:
- Leverage: up to 80% loan-to-value (LTV, the loan as a share of the home’s appraised value) on a home you have owned and lived in for 12 months before the case number.
- Credit: the wholesale programs Lendmire places FHA loans with start at a 580 decision score.
- Insurance: an upfront mortgage insurance premium of 1.75% of the base loan, which is financed into the loan. On top of that comes an annual premium of 0.15% to 0.75% of the balance, depending on term, loan amount and LTV.
- Ratios: the base pair is 31/43 (housing costs / total debts, as a share of income). Documented compensating factors can stretch that to 40/50 at the top tier. The automated finding governs most files.
- Limits: county loan limits apply and change every year.
At 80% LTV on a thirty-year loan, the annual premium ends after eleven years. Above 90% it lasts the full term. A cash-out never reaches 90%, so the shorter schedule is the one that applies. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Every figure here is subject to lender guidelines and a full file review. None of it is a commitment to lend.
Why Texas Changes the Answer
Texas adds a second layer of rules, and FHA rules do not replace it. The loan must satisfy both.
The federal layer is HUD’s cap. HUD Mortgagee Letter 2019-11 cut the maximum FHA cash-out from 85% to 80% of adjusted value, citing risk to the FHA insurance fund. HUD Handbook 4000.1 Update 7.5 lists that 80% change as part of the handbook.
The state layer is older and tougher. The Texas Constitution protects a homestead from forced sale for nearly all debts. It allows only a short list of liens. A cash-out loan on a homestead falls under one section of that list, known as 50(a)(6). Any lien that does not fit a permitted category can be void.
Per the Texas House Research Organization’s analysis of SJR 60, that section also:
- Caps total debt against the home at 80% of its fair market value. All liens count, not only the new loan.
- Limits lender fees to a small percentage of the loan, with exclusions for third-party items such as the appraisal and survey.
- Barred equity loans on homesteads designated for agricultural use before the 2017 amendment. Secondary sources report that bar was lifted at the start of 2018. Confirm the current text with a Texas professional.
The two 80% figures match, so the leverage caps do not collide. The fee cap is where friction can show up, because FHA adds an upfront premium that some commentators count against it.
That brings us to the honest part. Several industry commentaries say FHA cash-out is not available on a Texas homestead, but the question is not clearly settled by a HUD or Texas agency document.
So do not assume the product exists on your property, and do not assume it doesn’t. Ask a broker whether a wholesale lender will close this exact structure. If the answer is no, the options table later here shows where to go next.
How Much Land Counts as a Homestead?
A Texas homestead is limited by size, not by value. The limit depends on whether the property is urban or rural and on who lives there.
| Situation | Typical limit |
|---|---|
| Urban homestead | Up to 10 acres |
| Rural, family | Up to 200 acres |
| Rural, single adult | Up to 100 acres |
| Rural tracts | Need not be contiguous |
Those limits come from FindLaw’s summary of Texas homestead law. Confirm them against the statute for your parcel. Whether land is urban or rural is decided under the state property code, not by how it feels when you drive up.
Here is the catch. Homestead protection and loan eligibility are different tests. Your 150 acres may all be legally protected, and the appraiser may still count only part of it toward the loan. Some lenders add their own acreage ceilings on top of the legal one, and those overlays vary.
How the Loan Is Underwritten, Step by Step
Step 1: Classify the property. The lender first asks whether the land is urban or rural and whether the acreage fits the legal limit. Expect a survey request. If you own adjoining land, lenders often want proof that the homestead is its own parcel.
Step 2: Screen the property for FHA. FHA lends on owner-occupied principal residences of one to four units. The property has to be primarily residential and properly zoned. A working farm, a business operating from the barn, or a heavily commercial use can sink eligibility. Texas and FHA do not define “residential” in the same way, so a property can pass one test and fail the other.
Step 3: Appraise it. This step sets the number both rule sets use. HUD’s glossary describes excess land as land not needed to serve or support the existing home, possibly with a different best use, and possibly sellable separately. The appraiser has to support any excess-land conclusion with analysis.
In plain words: land that serves the house counts. Land that could be split off and sold as its own parcel generally does not. A back pasture that cannot be divided is more likely to stay in the value.
Step 4: Find the ceiling. The maximum loan is 80% of adjusted value, as FHA measures it. Texas runs its own 80% test on fair market value. These two values can differ, and the lower one controls what you can do.
Step 5: Subtract what you owe. Take the 80% ceiling, then subtract every lien: the current mortgage, any second lien, and any other recorded debt. What remains, less costs, is your cash.
Step 6: Follow the Texas process. You receive a required notice, then a mandatory waiting period before closing. Closing happens at a lender, attorney or title company office. After signing comes a right-to-cancel period before funds are released. These steps are built into Texas law, so no lender can skip them. Texas equity loans are also non-recourse for the borrower in most cases, meaning the lender looks to the home, not to your other assets.
A Worked Example, in Percentages
Say you own a rural homestead with a house, a shop and pasture. This is a hypothetical, shown in shares of appraised value with no dollar figures.
- The appraiser values the house and the land that supports it at 100 units.
- The pasture behind the house cannot be divided, so it stays in that number.
- A second 20-acre tract you own next door is separable. It is excluded entirely.
- The ceiling is 80% of those 100 units.
- Your existing mortgage and a farm-improvement lien total 55%.
- That leaves 25% of value as the gross cash-out, before costs.
Now change one fact. If the appraiser also excluded the pasture, the base shrinks, and the ceiling shrinks with it. The 55% in liens stays put. Your cash could drop sharply even though you did nothing different.
Notice what did not matter: how many total acres you own. Only the value the appraiser counts moves the answer.
Structures and Variations
The straight cash-out. This is the structure above. It requires the 12-month ownership and occupancy history.
An FHA streamline. If you already hold an FHA loan and only want to change its terms, the streamline refinances it with no appraisal, a limited credit review, and a net tangible benefit. The insurance premium continues. No cash comes out, so acreage largely stops mattering.
FHA rate-and-term with an appraisal. This refinance reaches 97.75% on a principal residence occupied for the previous twelve months. It also takes no cash out of the home.
“Once an equity loan, always an equity loan.” In Texas, refinancing an existing 50(a)(6) loan is generally treated as a new equity loan. There is one exit, called a 50(f)(2) conversion. Per the state’s rule proposal, it needs one year since the original closing, no additional cash, 80% LTV, and a required disclosure. Confirm the final rule with a Texas professional.
Where the General Rule Breaks
Some situations run against what you would expect:
- Agricultural designation. Older equity-loan bans tied to agricultural use were reportedly lifted, yet some lenders still treat agricultural designation as ineligible. A lender’s overlay is not law, but it decides what that lender will do.
- Mixed use. A home with a significant business component may fall outside FHA’s primarily-residential test.
- Barns and outbuildings. These are judged on use. A hay barn that serves a hobby is different from one that supports a commercial operation.
- Rental income from an extra dwelling. Under FHA handbook guidance, rent from an accessory dwelling reportedly cannot be used to qualify on a cash-out. Verify that against HUD’s own current handbook.
- A co-borrower who does not live there. FHA allows a non-occupant co-borrower on a purchase. On a cash-out, that person’s income reportedly cannot be used to qualify. Same advice: verify.
- Existing HELOC or reverse mortgage. Many lenders bar a new equity loan while one is open.
- Second homes and rentals. Occupancy decides leverage. FHA cash-out is for the home you live in, so a second home or rental does not fit.
What the Decision Looks Like in Practice
Expect to answer three questions in order. Does the property pass both rule sets? Is there enough value left after liens to make the loan worth the premium and costs? Can a lender close it?
Texas files with acreage often turn on one item in the middle of the file. Plenty of borrowers learn at the appraisal stage that the excluded land was the part they were counting on. A survey and a conversation with the appraiser’s lender before ordering can save a lot of disappointment.
Because FHA adds an annual insurance premium for eleven years at this leverage, compare the monthly cost of the structure against your alternatives, not against your current loan alone. Ask for a Loan Estimate on each option and compare them side by side.
If FHA does not fit, here is how the neighbors compare. None is better in every case.
| Your situation | Option | Tradeoff |
|---|---|---|
| Want cash, FHA won’t close | Conventional Texas cash-out | Needs the equity and the credit; stricter overlays |
| Keep current first loan | Second-lien home equity product | A second payment; counts toward the 80% total |
| Need a lower payment only | FHA no-cash-out refinance | No cash; may lead to a later equity loan |
| Already hold an FHA loan | FHA streamline | No appraisal; no cash out |
Your Next Step
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. Bring your survey, your current loan statement and a list of any other liens. The conversation is easier when the acreage question is answered first.
Key Terms Defined
Adjusted value: the appraised value FHA uses for its loan-to-value test, based on the home and the land that supports it.
Excess land: acreage the home does not need, which could be split off and used or sold separately. Its value is left out of the appraisal.
50(a)(6) loan: a Texas home equity loan secured by a homestead, governed by a section of the state constitution.
Cash-out refinance: a new mortgage larger than the old one. You receive the difference, after costs.
Loan-to-value (LTV): the loan balance as a percentage of the home’s appraised value.
Mortgage insurance premium (MIP): FHA’s insurance charge, paid partly upfront and partly every year.
Lien: a recorded legal claim against property that secures a debt.
Survey: a professional map of your parcel’s boundaries and acreage, often required on rural tracts.
Frequently Asked Questions
Does FHA put a cap on acreage?
No acreage figure appears in the FHA material reviewed here. Value and use drive the file. The appraiser counts land that supports the home and leaves out land that could be separated and used on its own. Separately, Texas law limits how much land can be a homestead, and some lenders add their own limits.
Can I take cash out of a Texas homestead with an FHA loan today?
It depends on whether a lender can close it. Federal and state rules both have to be met, and sources disagree on whether the combination works in practice. Ask a broker to check with wholesale lenders before you order an appraisal or a survey.
How much cash can I actually get?
Take 80% of the appraised value, then subtract every lien and the costs of the loan. Acreage the appraiser excludes adds nothing. Under FHA’s cash-out, the cap is 80% of adjusted value. Texas applies its own 80% test to fair market value.
Does an existing FHA loan help or hurt?
It can help if you only need a lower payment, since a streamline needs no appraisal and takes no cash out. It does not help with cash. Cash-out requires a fresh appraisal, 12 months of ownership and occupancy, and a new case number.
Does a farm or ranch use make me ineligible?
It can. FHA wants a primarily residential property. Commercial or agricultural use can count against it, and some lenders treat agricultural designation as ineligible even though Texas has relaxed its own rule. A broker can screen your property before you spend on an appraisal.
For your own numbers, request a scenario review with Lendmire.
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.
For the program’s current guidelines, see FHA loan programs.
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. HUD Mortgagee Letter 2019-11
2. HUD Handbook 4000.1 Update 7.5
3. Texas House Research Organization, SJR 60 bill analysis
4. FindLaw, Texas Homestead Laws
5. HUD Handbook 4000.1 Glossary
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: How to Close a Texas FHA Cash-Out on an Existing FHA Loan · Can You Get an FHA Cash-Out When Conventional Is Too Costly? · Can a Conventional or FHA Borrower Do a VA Cash-Out in Year One?
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
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.