The Quick Read: No, not in practice. Texas puts two hard limits on any loan that takes cash out of a homestead: total debt on the home stops at 80% of its value, and the fees you pay must fit under a small cap. FHA’s mortgage insurance eats most of that cap before anything else is counted. So FHA cash-out on a Texas homestead is generally not offered.
Texas FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.40% as of October 15, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $285,000 home value, a $157,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical rates for Texas. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed inside the Texas homestead cap; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages. On a Texas homestead the state constitution caps the whole loan, financed premium included, at the FHA figure and adds a waiting period, a prescribed closing location, and a fee cap.
That answer surprises people, because the national pages on FHA cash-out all say closing costs can be rolled into the loan. Outside Texas, that is often true. Inside Texas, a homestead is a special case.
Why Does Texas Block the Math?
Texas limits how much a lender can charge on a home equity loan, and FHA’s mortgage insurance does not fit inside that limit. Texas law caps the total fees at 2% of the loan. FHA charges an upfront premium of 1.75% of the base loan. That one item uses most of the allowance.
Run the arithmetic. A 2% cap minus a 1.75% premium leaves 0.25% of the loan for everything else the cap covers. Origination, processing, underwriting and similar charges all compete for that sliver. The FHA annual premium, which runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV, adds to the problem.
LTV is loan-to-value, the loan balance as a percentage of the home’s value.
A Texas law firm, Polunsky Beitel Green, reached the same conclusion. Its analysis says an FHA-insured home equity loan is legally possible in Texas. It also says the premiums count toward the cap, which makes such loans impossible without a large cost absorbed by the lender. That is a law firm’s reading, not an FHA rule. The practical word is “generally not offered.” The word is not “illegal.”
Here is what Lendmire sees on the broker side. Across the wholesale programs Lendmire places files with, Texas homeowners who ask for FHA cash-out are almost always steered to a conventional Texas home equity loan. The lenders are not being difficult. The fee cap leaves them no room.
The FHA cash-out refinance program itself is straightforward outside Texas. It reaches 80% LTV on a home you have owned and occupied for 12 months before the case number. Read more on the FHA cash-out refinance program page. That 80% matches Texas’ own ceiling, so the leverage is not the barrier. The fee cap is. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Key Terms Defined
FHA cash-out refinance: a new FHA-insured loan that pays off your current mortgage and gives you the leftover equity in cash.
Homestead: the home you live in as your principal residence. Texas gives it extra legal protection from creditors.
Texas home equity loan (Section 50(a)(6)): the Texas name for a loan that takes cash out of a homestead. The state constitution sets its rules, and a lender cannot waive them.
Mortgage insurance premium (MIP): FHA’s insurance on the loan. It has an upfront piece, financed into the loan, and an annual piece paid over time.
Rescission: your right to cancel certain refinances after signing. It applies to a refinance on your principal dwelling.
CLTV: combined loan-to-value, which counts every loan secured by the home against its value.
What Does “All Closing Costs” Actually Include?
“All closing costs” is not one bucket. Texas sorts charges into those that count toward the 2% cap and those that do not. The rule treats fees paid to anyone as fees, including third parties and insurers, unless a specific exclusion applies.
The state’s fee rule, 7 Texas Administrative Code §153.5, caps the fees “necessary to originate, evaluate, maintain, record, insure, or service” the loan at two percent of the original principal. It excludes a third-party appraisal, a licensed survey, the state base title premium, and a title exam report priced below that base premium. The same rule, in the Texas Credit Union Department’s published text, says premiums an owner must pay to insure an equity loan are fees subject to the limit, including mortgage insurance. It also covers fees paid or contracted for at the inception or closing of the loan.
| Cost type | Counts toward the 2% cap? | Rule behind it |
|---|---|---|
| Lender origination and processing | Yes | Fee-cap rule |
| Mortgage insurance premiums | Yes | Fee-cap rule |
| Third-party appraisal | No | Listed exclusion |
| Licensed survey | No | Listed exclusion |
| State base title premium | No | Listed exclusion |
| Title exam report below base premium | No | Listed exclusion |
Prepaid taxes, prepaid insurance and escrow deposits are a separate category. They are not fees for making the loan. Ask your lender how each one is treated, and look for them on a separate line of the Loan Estimate.
Older web pages still quote a 3% cap. A 2017 constitutional amendment cut it to 2% for loans made after it took effect.
What Does FHA Itself Allow on Cash-Out?
FHA caps cash-out at 80% of the home’s adjusted value. HUD’s Mortgagee Letter 2019-11 lowered the maximum LTV and CLTV on cash-out refinances to 80 percent. That is far below the 96.5% FHA allows on a purchase, where the minimum investment is 3.5% at a decision score of 580 or higher. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
So on a cash-out, you leave at least 20% equity in the home. Closing costs you finance count inside that same limit. Every dollar rolled in is a dollar of equity you cannot take out as cash.
HUD has no rule for Texas homestead loans in particular. The Texas limits come from state law. FHA’s own rules sit on top of them.
Your Real Options on a Texas Homestead
You have a few paths, and each handles cash and costs differently. The right one depends on whether you actually need cash, or just a better loan structure.
| Option | Cash back? | Costs reviewable? | Key constraint |
|---|---|---|---|
| Conventional Texas home equity cash-out | Yes | Within the 2% cap, plus excluded items | 80% total-debt limit |
| FHA cash-out | Generally not offered | Fee cap blocks it | MIP counts toward the cap |
| FHA no-cash-out refinance | No | Depends on the file | Classification decides the rules |
| VA cash-out | Barred on a homestead | Not applicable | Attorney General opinion |
Conventional Texas home equity is the usual route. Freddie Mac’s Guide treats these as conventional first liens that must use special Texas uniform instruments. They cannot be special-purpose cash-out refinances.
VA is different from FHA. A Texas Attorney General opinion found that the constitution prohibits a VA cash-out refinance on a homestead. That is a legal bar, not a pricing problem.
Another path is keeping your current first mortgage and adding a separate home equity loan or line behind it. That route keeps your first loan’s terms intact. It is also subject to the 80% combined limit.
There is also a path for homeowners who already have a Texas home equity loan. Under the state constitution, a refinance of that loan can be done without new cash if it meets a set of conditions. These include roughly a year since the equity loan closed, no new money beyond payoff plus actual costs, 80% LTV or less, and the required notice period. When all Texas requirements are met, Freddie Mac says such loans can be treated as “no cash-out” refinances. How FHA treats that path is a question for the lender. This article cannot confirm it.
Occupancy matters too. The homestead and cancellation rules attach to your principal dwelling. A vacation or second home is not one.
Worked Example, Three Ways
Costs can be paid in cash, deducted from proceeds, or rolled into the loan. The results differ in loan size and cash in hand. This is a modeled illustration, not a quote.
Assume your existing mortgage equals 50% of the home’s value. You want 20% of the value in cash. Closing costs equal 1.5% of the value. Texas’ 80% ceiling is the limit on all debt.
| Approach | New loan (% of value) | Net cash to you |
|---|---|---|
| Pay costs in cash | 70% | 20%, minus 1.5% paid out of pocket |
| Deduct from proceeds | 70% | 18.5% |
| Roll costs into loan | 71.5% | 20% |
All three sit under the 80% ceiling. The financed version has the biggest balance, and you pay mortgage insurance and interest on the added 1.5%. Paying cash costs you today but keeps the loan smaller.
On a Texas homestead, the financed version has a second test. The fees you finance must still fit under the 2% fee cap, after the listed exclusions. If they do not, the loan cannot close as structured. That is the test an FHA loan struggles to pass.
Roll Costs In or Pay Them? How to Decide
Roll costs in when cash is tight and your equity cushion is wide. Pay them when you want the smallest balance and can spare the cash.
Rolling in has a cost. The financed amount earns interest for the life of the loan, and it eats into your 20% equity cushion. A smaller cushion leaves less room if values soften.
Paying up front has its own tradeoff. You keep a smaller loan, but your cash is gone. Deducting from proceeds sits in the middle: no cash out of pocket, but a smaller check.
Put these questions to any lender:
- Which of my charges count toward the Texas fee cap?
- How is my mortgage insurance counted?
- What is my combined LTV after the new loan?
- Are prepaids and escrows listed separately?
- What does the Loan Estimate show as cash to close or cash to me?
Compare the Loan Estimate to the Closing Disclosure line by line.
What Waiting Periods Should You Expect?
Texas adds a mandatory notice period, and federal law adds a cancellation period. Both come before you receive funds.
Under the Texas Constitution, closing cannot occur before the 12th day after the later of the application date or the date the lender provides the required notice. Lenders cannot waive it. The Texas Real Estate Research Center at Texas A&M explains that these home equity rules are written into the constitution itself, which is why neither a lender nor FHA can change them.
After signing, federal law gives you three business days to cancel a refinance of your principal dwelling. Funds are not released until that period ends. Waiving it is allowed only for a bona fide personal financial emergency.
The appraisal matters too. Texas measures the 80% limit against fair market value on the date of the loan, counting every lien.
Debts you plan to pay off at closing follow their own steps. See Lendmire’s piece How to Pay Off Debts at Closing on a Texas Homestead FHA Cash-Out.
What You’ll See Elsewhere vs. What Is True
“FHA allows 80% cash-out everywhere, so I can do it in Texas.” The 80% matches Texas’ cap. The 2% fee rule is the real barrier. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
“FHA is illegal on Texas equity loans.” Not exactly. A law firm calls it legally possible but economically impractical. VA is the one with a legal bar.
“The 2% cap covers only lender fees.” It covers fees to any person, third parties and insurers included, except the listed exclusions.
“A no-cash-out refinance of a home equity loan is a plain rate-and-term.” Only if the Texas conditions are met.
“Closing costs can always be rolled in.” Nationally, often yes. In Texas, two tests cap it.
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 I use FHA to refinance my Texas homestead without taking cash out?
Possibly, but the loan has to be classified as a no-cash-out refinance under Texas law. The FHA rate-and-term refinance reaches 97.75% LTV on a principal residence occupied for the previous twelve months. An FHA Streamline refinances an existing FHA loan with no appraisal and a net tangible benefit. Whether your file qualifies depends on your current loan and lender guidelines. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Why is FHA cash-out offered in other states but generally not in Texas?
Other states do not apply the same constitutional limits to a homestead loan. The Texas rule does not change for FHA.
Is Texas’ 80% limit the same as FHA’s 80% limit?
They match numerically, but they measure different things. FHA uses 80% of adjusted value on that loan. Texas uses 80% of fair market value across all liens on the home. The stricter reading controls.
Can a Texas homeowner use VA cash-out instead?
Generally no. A Texas Attorney General opinion found the constitution prohibits VA cash-out on a homestead. Some pages say otherwise, but the legal bar is the stronger source.
What credit score do I need for FHA, if I go that route?
The wholesale programs Lendmire places FHA loans with start at a decision score of 580. HUD has a lower 500-579 tier that requires a 10% minimum investment, but the network does not reach below 580. Some lenders set a higher floor. Everything is subject to lender guidelines and full file review.
If You’re 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. Lendmire is a mortgage broker, so the lender sets final terms. Nothing here is a commitment to lend, and every figure is subject to lender guidelines.
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. 7 Texas Administrative Code §153.5
2. 7 Texas Administrative Code §153.5 (Texas Credit Union Department)
3. HUD Mortgagee Letter 2019-11
4. Freddie Mac Guide Section 4301.7
5. Texas Constitution art. XVI §50
6. Texas Real Estate Research Center, What to Know About Home Equity Loans in Texas
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 Get an FHA Cash-Out on a Paid-Off Texas Homestead · FHA Cash-Out Second Lien Rules for a Texas Homestead · FHA Cash-Out Closing Costs Financed on a Texas Homestead
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.