Bank Statement HELOC Rules for a Texas Homestead With a First Mortgage

The Quick Read: A bank statement HELOC on a Texas homestead stacks two separate tests: the lender documents your self-employed income from deposits, and the line must also fit the Texas home equity rules, which cap total debt against the home at 80% of its value and allow only one equity lien at a time.

• Your first mortgage can stay in place if it was a purchase loan or another non-equity loan. An earlier Texas cash-out refinance or home equity loan blocks a new line.
• On a Texas primary residence, combined loan-to-value (CLTV) tops out at 80%, even at credit tiers that reach higher in other states.
• Draws after closing start at $4,000, and a mandatory 12-day notice period applies before you can close, so confirm the timing with a Texas real estate attorney or title company.
• Bank statements change how your income is counted. They never change the homestead limits.
• Second homes and rentals follow different tables. An investment-property line tops out at 70% CLTV and needs a 700 credit score. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

Lendmire is a mortgage broker, not a lender. It places these lines with select wholesale lenders in 16 full-service states, Texas among them. The figures below are typical ranges.

What Is a Bank Statement HELOC?

A bank statement HELOC is a revolving line of credit secured by your home. The lender counts your income from bank deposits instead of tax returns. It suits self-employed owners whose tax returns show low income after deductions, even though real cash moves through their accounts.

The line sits in first or second lien position. If you already have a first mortgage you like, the line goes behind it. Your original loan stays untouched.

Texas adds a layer most states don’t have. Texas was the last state to allow home equity lending, according to the Texas A&M Real Estate Research Center. Its overview sorts Texas equity borrowing into three types: cash-out refinances, home equity loans and HELOCs. The rules around them are written into the state constitution, so the lender cannot waive them.

Two Tests, Not One

Two separate tests apply to the same file, and you must pass both. Each one can sink a file on its own.

The income test is the lender’s choice. Your income qualifies under the applicable program, subject to lender guidelines. Deposits get reviewed, an expense adjustment is applied, and your credit and debt load are checked.

The homestead test belongs to Texas. It controls how much debt the home can carry, how the line is built, and where and when you can close. Your bank statements do nothing here. A strong deposit history cannot lift the 80% cap.

That separation clears up a common myth. Texas does not ban bank statement lines. It restricts the collateral and the structure, not the way income gets documented.

How Does the First Mortgage Shrink Your Line?

Your first mortgage uses up part of the 80% cap, and the line gets whatever room remains. The cap counts your first mortgage and every other lien against the home’s value on the date the line is established, per the Texas Association of Bankers compliance chapter for loans originated on or after January 1, 2018.

The formula is short. Take 80% of the home’s value, then subtract your first mortgage balance and any other liens. What’s left is the most the new line can be.

Run it as percentages of value. Say your first mortgage balance equals 50% of the home’s value.

• At a 640 score or better, the lender’s table allows 80% CLTV on lines up to $500,000. The line can reach 30% of the home’s value.
• At 620 or better, the table allows 70% CLTV on lines up to $400,000. That leaves room for 20% of value.
• At 600 or better, the table allows 60% CLTV on lines up to $400,000. Room drops to 10% of value.

Two ceilings are always running, and the lower one governs. Higher credit tiers in the network’s matrix reach 85% and 80% CLTV on primary residences. On a Texas homestead they never apply, because the state cap sits at 80%. A 720 score helps your pricing and approval odds, but it does not raise the Texas limit.

Line size runs from $25,000 to $750,000 across the network. A line above $500,000 is primary-residence only. It needs a credit profile of 700 or better (720 on the longer-runway draw structure described below), caps at 75% CLTV, and requires a full appraisal. Lines at or below $500,000 ordinarily use an automated valuation instead.

How Do Deposits Become Qualifying Income?

The lender averages your eligible deposits over the statement period, then applies an expense factor on business accounts. The result is your qualifying monthly income. Programs vary on whether they review 12 or 24 months of statements. They also vary on whether personal accounts, business accounts or both are allowed.

The expense factor is the part that surprises people. Business deposits are not all profit, so the lender treats a share of them as operating cost. That share is often around half on business accounts, though it moves with business type and structure. Personal-account programs often apply none.

Here is the arithmetic. If average monthly deposits are the starting point and the factor is 50%, half of that average counts as income. A self-employed owner with strong deposits and heavy expenses can show far less qualifying income than the deposits suggest.

Then debt-to-income (DTI) takes over. DTI is your monthly debts divided by your qualifying monthly income. Across the network the maximum is 50%, and it drops to 45% for credit scores from 600 to 679. A ratio above 45% requires at least a 680 score. The lender qualifies the line on its interest-only payment calculated on the maximum draw, and your first mortgage payment counts in full.

That last point catches borrowers off guard. You qualify on the line as if you had drawn all of it, not on what you plan to use.

Which First-Lien Situations Block a Line?

Only one Texas home equity loan can be secured by your homestead at a time. The constitution’s required consumer notice says so, and the constitutional text limits liens on a homestead to the permitted debts it describes. What matters is what kind of loan your first mortgage is.

Texas primary-residence files also carry a 12-month seasoning requirement, so a recent equity closing can hold things up even when the loan type would otherwise work. A cash-out refinance that pays off a HELOC and hands you extra cash is itself a Texas equity loan, which puts you back at the one-loan limit.

Where the Rule Breaks: Edge Cases

The homestead rules attach to the home you live in. Move the collateral and the answer changes.

A Texas second home or rental is not a homestead, so it is eligible as a non-homestead transaction. The Texas-only waiting period, one-lien rule and seasoning do not bind it. The investment table is tighter, though. Lines run up to $500,000, need a 700 score, and use the five-year draw structure only.

Other edge cases that change the answer:

• Vesting. The individual borrower or a revocable living trust must hold title. LLCs, corporations, partnerships and irrevocable, blind or land trusts cannot. A property already deeded to an LLC needs a vesting change first, or a DSCR cash-out refinance instead, subject to program terms.
• Acreage. Texas properties are limited to 10 acres.
• Listed for sale. A property listed for sale, or listed within the past 60 days, is ineligible in Texas.
• Property type. Single-family, 2-4 units, PUDs, townhomes and condominiums (including non-warrantable) are eligible. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use and agricultural-zoned properties are not offered.
• Derogatory credit. A bankruptcy needs four years of seasoning from discharge or dismissal. Foreclosure history splits by program: one seasons it for seven years (four for a deed-in-lieu or short sale), and the other declines it at any age.
• Exposure. A borrower is limited to three lines, and a borrower with more than 15 financed properties is not eligible.

Some lenders do not write Texas owner-occupied equity lines at all. The product is not universally available. That is one reason Lendmire shops several wholesale lenders instead of sending you to one.

What Does a Texas Line Feel Like After Closing?

Texas lines come with extra friction. The Texas Association of Bankers lists the rules: each advance must be at least $4,000, and no card or check device can be used to take one. Fees can be charged only when the line is established, never on an advance. If you default, the lender must sue and obtain a judgment ordering foreclosure.

The network adds its own structure:

• Draw structures. One has a three-year interest-only draw followed by a 17-year repayment period. The other, the longer-runway structure, has a five-year draw followed by 25 years of repayment. Investment lines use the longer structure only.
• Initial draw. At least 75% of the line is drawn at closing.
• Pricing. It floats across both the draw and repayment periods and never converts to fixed.

The 75% initial draw and the $4,000 subsequent minimum explain why this product works poorly as a small, frequent-draw account. It fits a defined use of funds, such as deposits, earnest money or a renovation budget. The 12-day notice also makes it a poor match for a tight purchase contract, so plan the line before you go under contract.

One federal point helps with context. Open-end credit plans such as HELOCs sit outside the federal ability-to-repay and qualified-mortgage rule, per the CFPB compliance guide. That is why income documentation is a program choice, and why the homestead rules do the real limiting.

A homestead line also puts your own home behind the debt. The constitution protects a homestead from forced sale for most debts, but a valid equity lien is one of the exceptions. If rental income is what you plan to use to repay it, make sure the numbers hold up in a bad month.

Homestead Line or DSCR Cash-Out?

If the equity you want sits in a rental, a homestead line is the wrong tool. Texas homestead rules protect the home you live in, and the line cannot be secured by a rental. A DSCR cash-out refinance is built for that situation.

A DSCR loan, short for debt service coverage ratio, qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. The ratio compares monthly rent to PITIA, which stands for principal, interest, taxes, insurance and association dues. Across the network, cash-out refinances on standard rentals top out around 75% LTV, and about six months of seasoning is the common expectation. A 70% ceiling applies to short-term-rental collateral.

Coverage of 1.00 is where select programs start, and stronger ratios open better pricing and leverage. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Clearing 1.00 is not the same as positive cash flow. Repairs, vacancy, management and utilities all sit outside the calculation. The complete DSCR loans guide walks through the full mechanics.

Pick by where the equity lives:

• Equity in your homestead, income from deposits: a bank statement HELOC, within the 80% Texas cap.
• Equity in a rental, income from the rent: a DSCR cash-out refinance.
• Both: the two products can work side by side, since each answers to a different property and a different income test. The two stack their risks, so size the combined obligations before you commit.

Key Terms Defined

Homestead: the home you live in as your primary residence, which Texas protects from forced sale for most debts.

Texas equity loan (Section 50(a)(6)): the part of the state constitution that permits home equity loans and HELOCs. Only one such loan can be secured by your home at a time.

CLTV (combined loan-to-value): your first mortgage plus the new line, divided by the home’s value.

Expense factor: the share of business deposits a lender treats as operating cost instead of income.

Seasoning: the waiting period a lender wants between two events, such as an earlier equity closing and a new one.

PITIA: principal, interest, taxes, insurance and association dues, the full monthly payment on a property.

What to Do Next

Gather two things before you talk to anyone: your last closing paperwork, which shows whether your first mortgage is an equity loan, and your recent bank statements. Then work out how much room 80% of your home’s value leaves after your first mortgage. That number tells you whether a line is even worth pursuing.

If you are considering a home equity line and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage and your goals. Reach the team at 828-256-2183 or request a quote.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker. Home equity lines of credit — on a primary residence, a second home or an investment property — are arranged through wholesale lenders in Lendmire’s 16 full-service states, and every line is underwritten by the lender under its program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Texas A&M Real Estate Research Center, What to Know About Home Equity Loans in Texas

2. Texas Association of Bankers, Home Equity Lines of Credit

3. Justia, Texas Constitution Article 16, Section 50

4. CFPB ATR/QM Small Entity Compliance Guide