The Quick Read: You need to keep at least 20% equity in the home after closing, because Texas law caps all debt on a homestead at 80% of its value. To pull out any cash, your current equity has to beat 20% by the cash you want plus the costs you roll in. An FHA cash-out is not the usual route on a Texas homestead. The route is a conventional Texas home equity cash-out that pays off your FHA loan.
The Short Answer in Plain Numbers
Picture your home’s appraised value as 100%. The most that can be owed against it, all liens combined, is 80%. That is the ceiling.
Your FHA payoff sits under that ceiling. So does any second lien. So do the closing costs you finance. Whatever room is left between the total and 80% is the most cash you can take.
Here is the catch. People hear “80% loan-to-value” and assume they can borrow 80% of the home. That is not how it works on a homestead. The 80% covers everything owed, not just the new money. Loan-to-value, or LTV, is simply the total debt divided by the home’s value.
A homeowner who bought with a small down payment and has seen little appreciation often has no usable room. FHA lets you start at high leverage. The Texas cash-out rule asks you to finish with 20% still in the home.
Why the 80% Cap Is Not the Lender Being Cautious
The cap is a state rule, not a lender preference. Researchers at the Texas Real Estate Research Center at Texas A&M describe it plainly: the new loan plus every other debt secured by the homestead cannot exceed 80% of fair market value on the day credit is extended. That is why no lender can flex on it, however strong your credit looks.
Texas cash-outs on a primary home are often called “A6” loans, after the section of the state constitution that governs them. You will hear that label from loan officers, so it helps to know it.
Not every refinance is an A6 loan. Texas law decides that, not the lender’s label. In practice, any refinance that puts extra cash in your pocket on a homestead falls into this category. A refinance that only pays off the old loan and costs generally does not.
Can You Do an FHA Cash-Out on a Texas Homestead?
Usually not, and this is where online advice contradicts itself.
Lendmire’s FHA cash-out refinance program exists in the wholesale market. It reaches 80% LTV on a home you have owned and occupied for at least 12 months before the case number is assigned. On paper, that sounds like a fit for a Texas homeowner who wants to take cash out. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
The Texas homestead rules change the picture. Lender and investor guidance adds two reasons FHA does not fit. These loans are non-recourse under Texas law, while FHA loans are generally treated as recourse. FHA mortgage insurance would also run into the cap on lender charges. Those two reasons come from practitioners, not from a HUD page, so treat them as the working explanation rather than a federal rule.
Result: a Texas homeowner holding an FHA loan who wants cash usually refinances into a conventional A6 loan. A homeowner who only wants a better structure, with no cash out, has other FHA and conventional options, covered below.
If you want the national version of this math before applying it to Texas, Lendmire’s piece How Much Equity an FHA Borrower Needs for a Conventional Cash-Out walks through it.
How the Loan Is Underwritten, Step by Step
Think of it as a chain. Each link has to hold before the next one matters.
Step 1: Test the equity
Multiply the appraised value by 80%. That is the ceiling for all liens combined. Subtract your FHA payoff, any other liens, and the costs you plan to roll in. What remains is the most cash you can take.
A lien that is paid off and released at closing generally does not count against the 80%. That reading comes from lender guidance, so a lender’s counsel decides how it applies to your file.
Step 2: Clear the seasoning clocks
Seasoning means the waiting periods a lender wants before you refinance. The Fannie Mae Selling Guide sets these for conventional cash-out:
- If you are paying off an existing first mortgage, that mortgage must be at least 12 months old. The clock runs from the old note date to the new note date. Your FHA loan is the mortgage being paid off, so it counts.
- At least one borrower must have been on title for six months before funds are disbursed.
- If the automated underwriting finding shows a debt-to-income ratio above 45%, six months of reserves are required.
- The home cannot still be listed for sale. It must come off the market by disbursement.
Debt-to-income, or DTI, is your monthly debts divided by your monthly gross income. Reserves are savings left in the bank after closing.
Step 3: The required notice and waiting period
Texas requires the lender to hand you a separate written notice. Closing cannot happen until a required waiting period after that notice has passed. The constitutional text spells out the timing. Build that wait into your plans, because a same-week closing is not realistic on a homestead cash-out.
Step 4: The appraisal
The appraisal sets the ceiling, so it drives everything. The conventional guide requires an appraisal that meets agency standards and complies with the Texas homestead provisions. At closing, you and the lender also sign a written acknowledgment of the home’s fair market value.
Some sources say appraisal waivers do not apply to these loans. Because that point comes from a third-party summary, ask your loan officer whether the lender requires a full appraisal on your file.
Step 5: Full requalification
Do not expect a rubber stamp because you already have a mortgage. The lender reviews your income, credit and assets as if you were a new borrower. Credit-score floors follow the lender’s cash-out guidelines and vary by lender.
Step 6: Closing and the rescission window
Texas requires a final-terms disclosure before closing. After you sign, a short right-to-cancel window runs before funds are released. The loan documents are Texas-specific, and the cash-out loan carries pricing adjustments at the investor level that the lender builds into your terms.
Three Equity Pictures, Side by Side
These are modeled scenarios. They use percentages of value, not dollars, and they are not quotes. Costs come out of the “room” column, so read it as the most cash before costs.
| Starting point | FHA payoff and other liens | Ceiling | Room before costs |
|---|---|---|---|
| Tight | 78% of value | 80% | 2% of value |
| Borderline | 72% of value | 80% | 8% of value |
| Comfortable | 60% of value | 80% | 20% of value |
In the tight case, the financed costs alone may eat the room. You would likely walk away with no cash, or with a loan that does not close.
The borderline case is the one that surprises people. Eight points of room sounds workable. Then costs come out, and an appraisal that lands a few points under your estimate can shrink the room to almost nothing. A 3% drop in value pulls the ceiling down with it.
The comfortable case leaves real room. Even there, the cash you take is the number that remains after the payoff and costs, not the full 20%.
What Shrinks Your Usable Equity
Most of this comes from five things. The honest way to size a cash-out is to subtract each of them from the ceiling before you count a dollar of cash.
- The appraisal. If it comes in below your estimate, the ceiling drops and the room drops with it. Estimate value conservatively before you apply.
- Financed costs. Anything rolled into the loan counts toward the 80%.
- A second lien or home equity line. These count in the total even though they are not your FHA loan. Texas rules on keeping a second lien alongside a new loan vary by lender, so ask early.
- Unpaid liens. A home improvement or tax lien counts too, and the title work will find it.
- Interest and escrow items in the payoff. The payoff figure is usually a bit above the balance on your statement.
A small safety margin helps. If your math lands exactly at 80%, one low appraisal ends the deal. Lendmire’s brokers see this pattern often in high-leverage starts. The borrower who leaves a few points of cushion has choices. The one who does not has a closing that depends on the appraiser.
What Happens to Your FHA Mortgage Insurance?
When you pay off the FHA loan, its mortgage insurance ends with it. That is often the quiet appeal of the move.
FHA charges an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium that depends on term, loan amount and LTV. How long the annual premium lasts depends on your starting leverage. On a thirty-year loan above 90% LTV, it lasts the full term. At or below 90% LTV, it ends after 11 years. HUD’s attachment to its mortgage insurance premium notice lays out the same duration logic.
So the borrower who started with a small down payment may be carrying FHA insurance for the life of the loan. Federal rules that let you cancel private mortgage insurance at 80% do not apply to FHA insurance. A conventional loan at or below 80% LTV generally does not require mortgage insurance.
Here is the tradeoff, stated mechanically. Dropping the premium helps your monthly budget. A new, larger conventional balance with a reset term pulls the other way. Neither side wins automatically, which is why the comparison belongs in a side-by-side review on your own numbers. Lendmire’s piece How Much FHA Cash-Out Insurance Costs Versus Conventional by Equity goes deeper on that tradeoff.
Where the General Rule Breaks
Rules of thumb hit a few named exceptions. Check each against your situation.
No cash out at all
If you only want to replace the FHA loan and take no extra cash, you are in a different category. A no-cash-out refinance is a separate question from a cash-out, though a conventional loan still has its own seasoning and eligibility checks.
Do not count on high-leverage options from other programs. A 97% limited cash-out option exists for loans Fannie Mae already owns. An FHA loan is not one of them.
Your FHA loan is under 12 months old
The 12-month clock on the loan being paid off blocks a conventional cash-out. Waiting is the answer here, not a workaround.
You already have a Texas home equity loan
“Once an equity loan, always an equity loan” used to be true. Texas now allows an exit after 12 months if several conditions are met. Fannie Mae requires a recorded affidavit for this kind of transaction, per its Texas eligibility guidance.
The trade-off is real. These loans are non-recourse today, absent fraud. The exit route gives that up.
Second homes, rentals and two- to four-unit homes
Occupancy decides the answer. The same Fannie Mae guidance limits these loans to a one-unit principal residence that is your Texas homestead. A second home, an investment property or a 2–4 unit home is not eligible as a homestead cash-out.
Manufactured homes
Cash-out is not available for some manufactured homes and is limited for others, depending on the home and the lender. Ask before you spend money on an appraisal.
Errors cost the lender
An origination mistake on a homestead loan can mean forfeited principal or interest, or an invalid lien. That is why these closings feel strict and the 80% does not bend.
FHA Borrower Decision Table: Cash-Out, Rate-and-Term or Streamline?
Not every FHA homeowner needs cash. Match your goal to the tool.
| Your goal | Tool | What it needs |
|---|---|---|
| Cash from equity | Conventional Texas cash-out | 20% equity left, 12-month-old FHA loan, 6 months on title |
| Replace FHA, no cash | Conventional no-cash-out | Standard conventional eligibility |
| Lower FHA cost, same loan type | FHA Streamline | Existing FHA loan, limited credit review, net tangible benefit |
| Remove FHA insurance | Conventional refinance | Enough equity to avoid mortgage insurance |
The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It needs a net tangible benefit, meaning you must come out ahead in a measurable way. The FHA premium continues on a Streamline. Texas homeowners who just want to shed the insurance should look at conventional instead.
An FHA rate-and-term refinance on a principal residence you have occupied for the previous twelve months can reach 97.75% LTV. It does not put cash in your pocket. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
What If You Do Not Have Enough Equity?
Run this checklist before you give up.
1. Recheck the value. If recent comparable sales support a higher appraisal, the ceiling rises.
2. Subtract everything. Include the payoff, other liens and costs you would finance.
3. Check the clocks. Is your FHA loan 12 months old? Has someone been on title for six months?
4. Shrink the cash. Taking less cash can bring the total back under 80%.
5. Wait and pay down. Each payment and each point of appreciation widens the room.
6. Choose another tool. A Streamline or a no-cash-out refinance may solve the real problem.
The decision comes down to one question. Is the cash worth the reset? If you need cash for a project that raises value, the answer may be yes. If you need cash to cover monthly bills, a bigger balance can deepen the problem.
Key Terms Defined
Homestead: The home you live in as your primary residence, which Texas protects with special lending rules.
A6 loan: A Texas home equity cash-out loan on a homestead, named for the constitutional section that governs it.
Combined loan-to-value (CLTV): All the debt secured by the home, added together and divided by its appraised value.
Seasoning: The waiting period a lender requires before you can refinance or cash out.
Recourse: A loan where the lender can pursue your other assets if the home does not cover the debt.
Mortgage insurance premium (MIP): The insurance FHA loans carry, with an upfront piece and an annual piece.
What to Do Next
Start with three numbers: your best estimate of value, your FHA payoff, and any other liens. Subtract your total debt from the maximum loan-to-value your program allows and see what is left. If the room is thin, a no-cash-out refinance or a wait may serve you better than a stretch.
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. Program figures depend on lender guidelines and a full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does FHA allow cash-out in Texas?
Not on a Texas homestead in the usual way. FHA cash-out exists as a program elsewhere, but the homestead rules point Texas borrowers to a conventional loan. Some lender pages imply otherwise, so ask your loan officer to confirm in writing for your file.
How much equity do I need to keep after a cash-out?
At least 20% of the home’s appraised value. All liens against the home count toward the 80% ceiling, including the FHA payoff, second liens and financed costs. To receive cash, your current equity must exceed 20% by the cash you want plus those costs.
Will my FHA mortgage insurance go away if I refinance?
Yes, the FHA insurance ends when the FHA loan is paid off. The new loan resets the term, so weigh the lower insurance cost against a larger balance.
How long must I hold my FHA loan before a conventional cash-out?
At least 12 months from the note date of the loan being paid off, under Fannie Mae’s cash-out rules. At least one borrower must also have been on title for six months. Lenders can set stricter timing, so confirm early.
Can I use a second home or rental for this?
No. The Texas homestead cash-out is limited to a one-unit principal residence. Occupancy decides leverage, so a second home or rental follows a different set of rules.
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. Texas Real Estate Research Center at Texas A&M — What to Know About Home Equity Loans in Texas
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. Texas Constitution Art. XVI §50 (Justia mirror)
4. HUD, Attachment to Mortgagee Letter 15-01 (MIP duration)
5. Fannie Mae Selling Guide B5-4.1-02, Texas Section 50(a)(6) Loan Eligibility
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 Much an FHA Cash-Out Releases Replacing a Conventional Loan · FHA Cash-Out vs Conventional Cash-Out for a Declined Homeowner · How to Move a Declined Conventional Cash-Out to an FHA Cash-Out
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.