The Quick Read: On a Texas homestead, the buyout is usually not a true cash-out loan. Texas law lets a divorce decree attach a special lien, called an owelty lien, for the amount one spouse owes the other. An FHA refinance then pays off the old loan and that lien in one step. Lenders generally treat this as a rate-and-term refinance, and that label decides how much you can borrow.
Key Takeaways
- The keeping spouse must qualify alone, on one income and one credit profile.
- A true cash-out loan on a Texas homestead faces strict state conditions. In practice, FHA-insured versions are rarely offered.
- The owelty lien belongs in the decree or written agreement, so settle it before anyone signs.
- A decree does not remove anyone from the old loan. Only a refinance, payoff, or approved assumption does.
- The label matters because FHA’s cash-out ceiling is 80% LTV, while its rate-and-term ceiling reaches 97.75% on a qualifying principal residence. Both are subject to lender guidelines and full file review.
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 “FHA Cash-Out” Means When You Are Buying Out a Spouse
Most people searching this phrase want one thing: keep the house, pay the ex their share, and use a loan to do it. Lendmire’s FHA cash-out refinance program is the right place to read about the loan type itself. This article covers what changes when the home is in Texas.
An FHA cash-out refinance replaces your mortgage with a larger one and hands you the difference. Across the wholesale programs Lendmire places files with, it reaches 80% LTV on a home you have owned and occupied for 12 months before the case number. LTV is loan-to-value, the loan as a percentage of the appraised value. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
A buyout feels like cash-out because money leaves the deal. But the money goes to your ex, not to you. HUD’s own definitions draw the line by purpose. In a cash-out refinance, the proceeds are not limited to specific uses. In a rate-and-term refinance, the proceeds only pay the existing debt and the costs of the transaction. HUD publishes these definitions in its Handbook 4000.1, the rulebook FHA lenders follow.
HUD’s handbook also addresses buyouts directly. When a refinance buys out an existing title-holder, the equity owed to that person can count as debt tied to the property. In a divorce, the lender wants the decree, settlement agreement, or another enforceable document proving the amount. Confirm the exact handbook language with your loan officer, since HUD updates it.
Why a Texas Homestead Changes the Label
Texas protects the family home from forced sale for most debts. The list of exceptions is short. One is a true home equity loan, which has its own long set of conditions. Another is the owelty lien. The Texas Constitution, Article XVI, Section 50 lists both.
A true cash-out loan on a homestead is a Section 50(a)(6) home equity loan. Those loans carry rules most ordinary mortgages never face:
- A cap on lender fees.
- A written acknowledgment of the home’s fair market value.
- A short right to rescind after closing.
- A limit of one such loan on the home at a time.
- Restrictions on how proceeds can be used.
The Texas Attorney General has said a federal guaranty counts as extra collateral that this section does not allow. That reasoning is why VA cash-out is unavailable in Texas, per Attorney General Opinion KP-0183. FHA is insurance, not a guaranty, so the logic is not identical.
Here is the practical picture. Some lenders argue an FHA-insured home equity loan is legal in principle. But the upfront mortgage insurance premium has to fit inside the state’s fee cap, and that is hard to do. So in market practice, FHA cash-out on a Texas homestead is rarely offered. That is lender behavior, not a HUD rule. Rules differ by lender and change over time, so ask early.
Honest take: if a lender says “we can do an FHA cash-out for your buyout,” ask whether they mean a home equity loan or an owelty structure. The answer changes everything.
The Owelty Lien: How Most Texas Buyouts Actually Work
Owelty of partition is an old legal idea. When two people split jointly owned property, the one who takes the property can owe the other an equalizing payment. Texas lets that payment be secured by a lien on the whole homestead. The constitution expressly includes a debt of one spouse to the other that comes from a divorce award of the family home. The lien can arise from a court order or a written agreement.
Texas attorneys commonly use four pieces of paper:
1. Decree language creating the owelty and naming the amount or formula.
2. A deed from the leaving spouse to the keeping spouse.
3. A promissory note for the buyout amount.
4. A recorded deed of trust securing that note.
Your attorney decides the exact set. The lender needs to see the finished documents.
Then the refinance does the rest. The new FHA loan pays off the old mortgage and the owelty note together. The leaving spouse gets paid, and the lien disappears. Because the money only pays existing debt, lenders generally treat the loan as rate-and-term. That is the key point most national articles miss.
Two Structures Side by Side
| Factor | True Texas cash-out | Owelty buyout refinance |
|---|---|---|
| Legal basis | Home equity loan rules | Owelty exception |
| Typical label | Cash-out | Rate-and-term |
| FHA ceiling | 80% LTV | Up to 97.75% LTV |
| Cash to keeping spouse | Possible, with limits | None, by design |
| Extra paperwork | Heavy state conditions | Decree and owelty documents |
| FHA availability | Rarely offered in practice | Generally available |
The 97.75% figure applies to a principal residence you have occupied for the previous twelve months. The 80% figure applies to a home owned and occupied for twelve months. Both depend on lender guidelines and file review.
How the Loan Is Underwritten, Step by Step
Here is how a buyout file moves from first call to signing. Think of it as a sequence, because the order matters.
1. Settle the structure before the decree is final. Bring the lender in while the attorney is still drafting. The owelty language, the amount, and the lien should match what the lender can document.
2. Run the keeping spouse’s numbers alone. FHA looks at one income, one credit profile, and one set of debts. The base ratios are 31/43, housing to total debt, with no compensating factors. Documented factors can reach 40/50 at the top tier, and the automated finding governs most files.
3. Check the credit floor. The wholesale programs Lendmire places FHA loans with start at a 580 decision score. Some lenders set a higher floor.
4. Order the appraisal. The appraised value sets the ceiling. A low value can shrink what you can borrow, and it can shrink what the buyout can be.
5. Document the equity owed. The lender collects the decree or agreement and the owelty paperwork.
6. Clear title. Anyone who signs the new note should be on title at closing. The deed and the debt should end up in one name.
7. Close and pay out. The old loan is paid off, the leaving spouse is paid, and the new FHA mortgage begins.
On mortgage insurance, the mechanics are fixed. FHA charges an upfront premium of 1.75% of the base loan, which can be financed. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV. On a thirty-year loan above ninety percent LTV, the annual premium lasts for the term. At or below ninety percent, it ends after eleven years. County loan limits apply and change every year.
A Worked Example, in Percentages
Run the numbers on a home with a mortgage balance at 60% of its appraised value. That leaves equity at 40%. The decree splits equity 50/50, so the buyout is 20% of value. The new loan has to cover the 60% payoff plus the 20% buyout, which is 80% of value, before closing costs and the financed premium.
Now try a thin-equity case. The balance is 90% of value, leaving 10% equity. Half is 5%, so the new loan needs about 95% of value. That fits under a rate-and-term structure. It would blow past a cash-out ceiling.
That second case is why classification matters. The same buyout works or fails depending on how the loan is labeled.
Where the General Rule Breaks
No decree yet
An owelty lien can arise from a written agreement, not only a court order. So you do not have to wait for a final decree. But practitioners advise involving the lender before anything is signed. A document that misses a detail can cost you the structure.
A prior Texas home equity loan on the home
If the home already carries a home equity loan, the picture gets more complex. Texas added an exit in a later amendment. A lien that refinances a home equity debt can be treated as an ordinary refinance lien once certain conditions are met. The Texas Legislature’s analysis of that amendment explains how it works. Lendmire’s piece Can a Texas Homestead Use a Second Lien Above the FHA Cash-Out Cap? covers the related second-lien question.
An existing FHA loan with little equity
If the keeping spouse already has an FHA loan and no equity is being paid out, the FHA Streamline may remove a borrower. It needs no appraisal, only a limited credit review and a net tangible benefit, meaning the refinance must help you in a measurable way. The premium continues. But a Streamline does not fund a buyout payment. If money has to go to your ex, you need a full refinance.
Assumption
Sometimes a servicer will let the keeping spouse take over the loan. The Consumer Financial Protection Bureau notes that removing a borrower can work through an assumption if the person staying accepts liability and passes underwriting. It also reports that some servicers push refinancing when it is not needed. An assumption may keep the old terms. It does not pay your ex.
Occupancy and title
FHA wants the home to be your principal residence, and the leverage limits above assume twelve months of ownership and occupancy. HUD’s handbook has special-case paths for divorce buyouts and inheritance. Do not assume you qualify for an exception. Ask the lender to confirm it in writing.
Non-homestead property
The home equity rules apply only to a Texas homestead. A second home or rental is a different file. Occupancy decides the leverage, and FHA is for the home you live in.
Which Route Fits Which Situation
| Your situation | Route to ask about |
|---|---|
| Healthy equity, keeping spouse qualifies alone | Owelty buyout, FHA rate-and-term |
| Thin equity | Owelty buyout; check the 97.75% ceiling |
| Existing FHA loan, no equity paid out | FHA Streamline |
| Servicer allows takeover | Assumption, if no payout is needed |
| Prior Texas home equity loan | Ask the lender about the refinance exit |
| Keeping spouse cannot qualify alone | Sell, or add a qualifying co-borrower |
A non-occupant co-borrower is allowed on FHA purchases. Whether it helps a buyout depends on the lender and the file.
What Can Go Wrong, and the Fix
The appraisal comes in low. The buyout number was probably based on a higher value. Renegotiate the split or bring cash to closing.
The keeping spouse cannot qualify alone. Check the solo debt-to-income ratio before agreeing to a number. A smaller buyout, paying off a debt, or a co-borrower may help. Lenders decide.
The decree skipped the owelty language. This can force a more expensive path or a sale. Fix it before the decree is final if you can.
The ex stays on the old loan. A decree does not remove anyone. The lender still holds both people responsible until a refinance, payoff, or approved release. Removing a name from the deed does not remove it from the note.
Lendmire’s article Texas Homestead Rules for an FHA Cash-Out Refinance goes deeper on the state side.
If You Are the One Leaving
Verify these before you sign anything:
- The decree or agreement states the buyout amount or formula.
- The owelty lien is recorded, or will be recorded at closing.
- The old loan will be paid off, with a release in writing.
- You will be paid from closing proceeds, and you know the date and amount.
- You have talked to your own Texas family-law attorney.
Until the old loan is paid off or released, it can still show on your credit. Your name on the note is still your obligation.
How the Attorney and Lender Should Work Together
The best files have one thing in common: the attorney and the loan officer talk before the decree is signed. A short checklist helps.
- Name the property and the exact buyout amount or formula.
- Describe the owelty lien clearly.
- Say who must sign the new note and who goes on title.
- Confirm the keeping spouse’s occupancy and ownership history.
- Agree on who pays closing costs from the proceeds.
Nothing here is legal advice. A Texas family-law attorney should draft the decree. A lender decides whether the file fits its guidelines.
Key Terms Defined
Owelty of partition: a lien that secures an equalizing payment when jointly owned property is divided, including a spouse’s share of a family home.
Homestead: the home you live in as your principal residence, which Texas law protects from forced sale for most debts.
Cash-out refinance: a new, larger mortgage that pays off the old one and lets you keep or use the difference.
Rate-and-term refinance: a new mortgage whose proceeds only pay existing debt and the costs of the transaction.
LTV (loan-to-value): the loan amount as a percentage of the home’s appraised value.
Upfront and annual mortgage insurance premium: FHA’s insurance charges, one financed at closing and one tied to the balance over time.
Case number: the FHA identifier a lender requests for a specific loan; certain ownership and occupancy tests count back from it.
The Decision in Practice
Start with two questions. How much equity is there, and can the keeping spouse carry the loan alone? If both answers are yes, an owelty buyout with an FHA refinance is often the cleanest route. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. If the keeping spouse cannot qualify solo, no loan label fixes that.
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. Programs are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does a divorce decree take my ex off the mortgage?
No. The decree decides who owns the home and who owes whom, but the lender is not bound by it. The lender keeps both people responsible until the loan is refinanced, paid off, or assumed with approval. If your ex is leaving, plan for one of those three.
Is buying out a spouse with FHA a cash-out refinance?
Usually not in Texas. When the buyout is structured as an owelty lien in the decree, lenders generally treat the refinance as rate-and-term, because the money only pays existing debt. A true cash-out on a Texas homestead is a home equity loan with strict state rules, and FHA versions are rarely offered in practice.
What if the owelty lien is not in the decree?
It can still be created by a written agreement, but you lose time and certainty. A missing lien can push the buyout toward a more restricted loan type or even a sale. Have your attorney and a loan officer review the language before the decree is final.
Can the keeping spouse get cash for themselves?
Not through an owelty structure, which only covers the debt and the buyout. A true cash-out is the route that puts cash in your hands, and in Texas it faces strict limits and an 80% LTV ceiling under FHA. Ask your loan officer which route fits your goal. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Does an FHA Streamline work for a buyout?
Only when no equity is being paid out. A Streamline can remove a borrower from an existing FHA loan with no appraisal and a limited credit review. A buyout payment needs a full refinance.
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
2. Texas Constitution, Article XVI, Section 50
3. Texas Attorney General Opinion KP-0183
4. Texas Legislature, SJR 60 analysis
5. CFPB: Homeowners face problems with mortgage companies after divorce or death of a loved one
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: FHA Cash-Out Rules for a Texas Second Home That Isn’t a Homestead · Is an FHA Cash-Out Worth It on a Texas Homestead? · Can a Texas Acreage Homestead Be Refinanced After an FHA Cash-Out?
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.