The Quick Read: Rolling closing costs into an FHA cash-out loan on a Texas homestead is legally constrained, and most lenders do not offer it. Two sets of rules apply at once. FHA caps cash-out at 80% of value, and Texas adds its own 80% ceiling and a 2% limit on certain fees. Where a lender does offer it, the costs and the FHA mortgage insurance premium come out of the same pool as your cash. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Key Takeaways
- FHA cash-out reaches 80% LTV on a home you have owned and lived in for 12 months before the case number.
- Texas treats any homestead refinance that puts cash in your hand as an equity loan with its own rules.
- Financing a fee does not take it out of the Texas fee test. It only moves the fee into the loan balance.
- Whether an FHA cash-out is available on a Texas homestead depends on the lender and the investor behind it. It is usually not offered.
- If you already have an FHA loan and want no cash out, the FHA Streamline is the usual alternative.
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.
What Is an FHA Cash-Out on a Texas Homestead?
An FHA cash-out is a refinance where the new loan is larger than the payoff plus the costs of the transaction. The difference goes to you. On a Texas homestead, that same loan is also an equity loan under state law. So one file has to satisfy two rule books.
Lendmire’s FHA cash-out refinance program follows the FHA side. Across the wholesale programs Lendmire places FHA files with, cash-out reaches 80% LTV on a principal residence you have owned and occupied for 12 months before the case number. The loan can be one to four units, but you must live there.
The Texas side is where files stall. Texas law decides whether the loan is an equity loan, not the FHA label. If cash comes out beyond the payoff and reasonable costs, it is an equity loan. That is true even if the lender calls it a refinance.
There is no single FHA rule that bans this loan in Texas. The pressure comes from how the two rule books interact, and from what each lender and investor is willing to buy. Some lenders say it is allowed when both sets of rules are met. Others list FHA as not offered on Texas equity loans. Treat it as legally constrained and generally not available, and confirm with the lender before you build a plan around it.
How Is the Loan Amount Built, Step by Step?
The loan amount is a stack. Each piece sits on top of the last, and the whole stack has to fit under the 80% ceiling.
1. Start with value. The appraisal sets the number. A low appraisal cuts your cash first, because the payoff and costs do not shrink.
2. Add the payoff. The new loan has to pay off the existing mortgage. If you owe a large share of the value, little room is left.
3. Add the closing costs. Lender, title, escrow, processing and other charges can be rolled into the balance. Rolling them in raises the loan amount.
4. Add the upfront premium. On the FHA programs Lendmire places, the upfront mortgage insurance premium is 1.75% of the base loan, and it is financed. It sits in the same stack.
5. Add any debts being paid off. Paying a card or a lien at closing uses the same room.
6. What remains is your cash. If the stack reaches the ceiling before you reach your target, the cash is smaller than planned. Sometimes it is close to zero.
The 80% limit applies to all liens on the home, not only the new loan. FHA’s own cash-out limit is 80% of adjusted value, per HUD Mortgagee Letter 2019-11. The same letter says the combined first and subordinate liens cannot exceed the nationwide mortgage limit. County loan limits apply, so the ceiling can be lower than 80% of value on a high-value home.
A Percentages-Only Example
Say the home appraises at 100% of value. The existing mortgage is 60% of that value. That leaves 20% of value of room under the 80% ceiling. Closing costs and the financed premium come out of that 20%. Whatever is left is your cash.
Now say the existing mortgage is 74% of value. Only 6% of value remains for costs, the premium and any cash. That file often ends with no real cash at all. Run this stack before you apply. It tells you quickly whether the loan is worth pursuing.
What Does the Texas 2% Fee Limit Do to Financed Costs?
Texas limits the fees an owner is required to pay on an equity loan to 2% of the original loan amount. 7 TAC §153.5 covers fees necessary to originate, evaluate, maintain, record, insure or service the loan. That is the rule file reviewers look at first.
Three points matter for financing.
- Financing a fee does not exclude it. The test looks at fees you are required to pay. Paying in cash or rolling them into the balance makes no difference to the test.
- Some charges sit outside the cap. The rule excludes items such as a third-party appraisal, a licensed surveyor’s survey, the state base title premium with endorsements, and certain qualifying lender-credit-related charges. Optional charges you choose, such as voluntary credit insurance, are also outside it.
- The 2% is not “all your closing costs.” It covers the listed fee types only. A homeowner who hears “2% cap” and expects total costs near 2% is working from a wrong picture.
| Charge | Counts toward the 2% test? |
|---|---|
| Lender and processing fees | Yes |
| Escrow and settlement fees | Yes |
| Third-party appraisal | No |
| Licensed survey | No |
| State base title premium | No |
| Voluntary optional products | No |
Where Does FHA Mortgage Insurance Fit?
This is the pressure point on FHA files. Mortgage insurance is not on the rule’s exclusion list. Texas legal commentary reads the FHA premium as an insurance fee that counts inside the 2% test. On that reading, the premium eats a large share of the allowed fee room before a single lender or escrow charge is counted.
The same commentary reaches a practical conclusion. FHA insurance is likely not legally barred on a Texas equity loan, but the loan can be uneconomic unless something offsets the premium. It is a legal opinion, now a few years old, and not current FHA policy. Lenders may read the rule differently, which is part of why availability varies.
Here is how the premium works on the programs Lendmire places:
- The upfront premium is 1.75% of the base loan, and it is financed.
- The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV.
- On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Annual premium is added to your monthly cost. Upfront premium raises your balance. Both reduce what the refinance gives you. Neither is a price in the sense of a fee a broker sets. They are program mechanics.
What Does the Process Look Like?
The Texas steps add structure that other states do not have.
1. Application and a written notice. The lender must give you a notice about the equity loan. The loan cannot close before a statutory waiting period runs from the later of the application or that notice. The Texas constitutional text sets the period.
2. Appraisal and value acknowledgment. At closing, you and the lender sign a written acknowledgment of fair market value. That value drives the 80% ceiling.
3. Final itemized fee disclosure. The lender must provide an itemized disclosure of actual fees before closing, unless you consent otherwise.
4. Closing at a Texas-approved location. Equity loans close at the office of the lender, an attorney or a title company. Every owner and every spouse signs, even a spouse not on the loan.
5. Rescission. The same constitutional text lets the owner and spouse cancel after closing within a short window. Federal law adds a separate right to rescind on a refinance of a principal dwelling. Under Regulation Z §1026.23, that period runs three business days from the last of consummation, delivery of material disclosures and delivery of the rescission notice. The two protections are separate. One is a wait before closing under state law. The other is a right to cancel after closing. Funds generally disburse after the window closes.
Because this is a consumer mortgage, you also receive a Loan Estimate and a Closing Disclosure. Compare the two for fee changes.
Where Does the General Rule Break?
Several edge cases change the answer.
You already have a Texas equity loan. A later refinance of an equity loan stays under the equity rules, even with no cash out. Conversion to a standard loan is possible only when specific conditions are met. These include a minimum seasoning period, no cash beyond payoff and actual costs, LTV at or below 80%, and a required notice. Texas also bars a new equity loan before the first anniversary of an earlier one on the same homestead. A file that skips this check gets stuck late.
You already have an FHA loan and want no cash. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. The premium continues. Because no cash comes out, it generally does not trigger the equity rules. If the file is classified as cash-out for any reason, it gets a full appraisal and the 80% ceiling.
You want a rate-and-term with an appraisal. FHA’s rate-and-term reaches 97.75% on a principal residence you have occupied for the previous twelve months. Texas still looks at what the loan pays off. If it pays off an existing equity loan, the equity rules follow it unless the conversion conditions are met.
You have a HELOC or reverse mortgage. An equity loan generally cannot close with one of these remaining on the property. It has to be paid off at closing.
The home is not your primary residence. FHA cash-out is for owner-occupied principal residences only. Occupancy decides the leverage, and a second home falls outside the program.
The home is a manufactured home. FHA sets special cash-out conditions for these. Check the official guidelines with the lender before planning around one.
Is It Worth Financing the Costs?
Financing costs is a trade. You keep cash in your pocket today and carry a larger balance for the life of the loan. You also pay the mortgage insurance on that larger balance.
Paying costs out of pocket is cleaner when you have the cash. It keeps the balance lower and keeps more room under the 80% ceiling. Financing helps when the cash you need is the point of the loan, and the room under the ceiling is wide enough to cover the stack.
Ask four questions before you decide.
- Does the stack fit under 80% with room left for the cash you need?
- Do the fees plus the premium fit under the Texas 2% test on the lender’s reading?
- Will this lender and its investor actually offer FHA on a Texas equity loan?
- Do you meet the 12-month ownership and occupancy rule, and the one-year gap from any earlier equity loan?
If the answer to the third question is no, the plan ends there. Lendmire’s piece Is an FHA Cash-Out Worth It on a Texas Homestead? walks through that tradeoff. Lendmire’s article How to Pay Off Debts at Closing on a Texas Homestead FHA Cash-Out covers how debt payoffs use the same room.
What Mistakes Trip These Files?
- Assuming 80% of value is what you can borrow. It is a ceiling on all liens combined.
- Assuming financed fees skip the Texas test. They do not.
- Assuming 2% covers all closing costs. It covers only the listed fee types.
- Mixing up the two waiting rules. The wait before closing and the right to cancel after closing are different protections.
- Ignoring an earlier equity loan. It can bar a new one or keep the equity rules attached to a refinance.
- Ignoring the 12-month rule. FHA cash-out needs ownership and occupancy for 12 months before the case number.
- Planning around a cash amount before the appraisal. A low value cuts cash first.
Key Terms Defined
Homestead: The home you live in, which Texas law protects from most forced sales.
Equity loan: A Texas loan that puts cash in your hand or borrows against the value of a homestead, with its own legal limits.
Cash-out refinance: A new loan larger than the payoff plus costs, with the difference paid to you.
LTV (loan-to-value): The loan balance, plus any other liens in the case of a combined limit, as a percentage of the home’s appraised value.
Upfront premium: The FHA mortgage insurance charge set as a percentage of the base loan and financed into the balance.
Rescission: A right to cancel certain loans on a principal dwelling after signing.
Frequently Asked Questions
Can I finance closing costs on an FHA cash-out loan on my Texas homestead?
Where a lender offers the loan, the costs can be rolled into the balance. The rolled-in costs still count against the Texas 2% fee test and use up room under the 80% ceiling. Many lenders do not offer FHA cash-out on Texas homesteads, so availability is the first question to settle.
Does Texas bar FHA cash-out loans?
Texas law and FHA rules both apply to the same loan, and the tension is mostly over fees and mortgage insurance. Some lenders and investors do not offer it. Others say it can be done if both rule sets are met.
Does the FHA mortgage insurance premium count toward the Texas fee cap?
Texas legal commentary reads it that way, because mortgage insurance is not on the list of excluded charges under 7 TAC §153.5. Lenders may interpret it differently, so ask how the file you are considering treats it.
What if I do not want cash out?
If you already have an FHA loan, the FHA Streamline is the usual path. It needs no appraisal, a limited credit review and a net tangible benefit, and the mortgage insurance premium continues. If you have an existing Texas equity loan, converting it to a standard loan has its own conditions.
How long must I have lived in the home?
FHA cash-out needs ownership and occupancy as a principal residence for 12 months before the case number. Texas separately limits a new equity loan to after the first anniversary of an earlier one on the same 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. Every program figure here is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see FHA loan programs.
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References
1. HUD Mortgagee Letter 2019-11
2. 7 TAC §153.5, Texas fee limits on equity loans
3. Texas Constitution Art. XVI §50
4. CFPB Regulation Z §1026.23, right of rescission
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 You Consolidate Debt With an FHA Cash-Out on a Texas Homestead? · Should a Texas Homestead Owner Choose FHA Cash-Out or Conventional? · How to Do an FHA Cash-Out on a Texas Second Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.