The Quick Read: This loan replaces your current first mortgage with a new FHA loan, so it cannot leave a low-rate first mortgage in place. In Texas, two sets of limits apply at once: the FHA program’s and the state’s home-equity limits. Across the wholesale programs Lendmire places FHA files with, the cash-out tops out at 80% loan-to-value (LTV, the loan balance as a share of the home’s appraised value). The home must have been owned and lived in for 12 months. If keeping your first mortgage matters more than the cash, a separate second lien is the other path.
Key Takeaways
- An FHA cash-out pays off your old first mortgage. The entire balance moves to a new loan, not just the cash you take.
- The FHA ceiling is 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned.
- Texas sets its own ceiling on a cash-out against a homestead, and it also sits at 80% of the home’s value, counting all liens.
- The new loan carries FHA mortgage insurance on the whole balance, with an upfront premium of 1.75% of the base loan.
- A “locked-in” first mortgage is a reason to price a second lien next to the cash-out before you decide. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Everything below is subject to lender guidelines and a full file review. Nothing here is a commitment to lend.
Does FHA Cash-Out Even Work in Texas?
Yes, it can. The confusion comes from three different questions that get blended together.
The first question is whether the FHA program allows a cash-out. It does, on an owner-occupied principal residence. The second is whether Texas law allows a cash-out against a homestead. It does, under tight conditions. The third is whether a particular lender offers it. Some lenders skip FHA cash-out entirely, or add extra credit overlays on top of the program rules. A page that says “not available” is often describing that third question.
So the honest answer is layered. The program permits it. The state permits it with limits. Your lender decides whether to offer it and how strictly to review it. Lendmire’s FHA cash-out refinance program is arranged through wholesale lenders that do offer it, with both layers applied to the file.
What Does “Cash-Out” Mean Here?
A cash-out refinance is a new mortgage that pays off the old one and puts the leftover equity in your hands. The proceeds are not limited to a specific purpose. A no-cash-out refinance, by contrast, only covers the payoff and closing costs.
That difference sets the rules. Take cash, and the lender treats the loan as riskier. The leverage cap drops, the occupancy history matters more, and the appraisal carries more weight.
The official policy lives in HUD’s Handbook 4000.1, the FHA rulebook. It gets revised regularly, so older web pages often quote stale numbers.
How Is the Loan Underwritten, Step by Step?
Think of the file as a series of gates. Miss one, and the others do not matter.
Step 1: Occupancy and ownership. At least one borrower must have owned the home and lived in it as a principal residence for 12 months before the case number is assigned. A narrow exception exists for inherited homes that were never treated as an investment. Rent the house out after inheriting it, and the 12-month clock applies. A manufactured home must have been permanently installed on its site for more than 12 months.
Step 2: Credit and income. The program starts at a 580 decision score across the wholesale lenders Lendmire works with. Lower scores that HUD itself allows are not reachable through this network. The base debt-to-income pair is 31/43 (housing payment over income, then all debts over income). Documented compensating factors can stretch it to 40/50 at the top tier. Most files run through automated underwriting, and that finding governs.
Step 3: Payment history. The lender reviews how you have paid the mortgage you hold now. Late payments on it draw attention. Some lenders set stricter standards than the program minimum, so the same file can get different answers from different lenders.
Step 4: Appraisal. Value drives everything. FHA applies its cap to the home’s adjusted value as determined under HUD guidelines. Texas applies its cap to fair market value, and you acknowledge that value in writing. An appraiser’s number that comes in light shrinks the cash you can take.
Step 5: The leverage math. The new first loan, any financed upfront mortgage insurance, and any other lien that stays on the home all count toward the cap. More on that in the worked example below.
Step 6: Mortgage insurance. The premium applies to the whole new loan. It is not a charge on only the cash you pull out.
Step 7: Texas notice, closing and cancellation. Texas requires written notice before closing and a waiting period after it. It limits where closing can happen. It also gives you a short right to cancel after you sign. Plan for the waiting period; it cannot be waived by a motivated borrower.
Step 8: Funding. The new loan pays off the old first mortgage. What remains goes to you or to any creditors you pay off at closing.
Why Does the 80% Number Show Up Twice?
FHA’s cash-out cap is 80% LTV. HUD’s reasoning was risk, since cash-out refinances had become a large share of FHA refinance activity. If you read a page that still says 85%, it is out of date. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Texas has its own cap. Under Article XVI, Section 50 of the Texas Constitution, the new loan plus all other liens on the homestead cannot exceed 80% of fair market value. Only one of these home-equity loans may be secured by the home at a time.
Two caps at the same number sounds redundant. It is not. Each counts value and liens its own way. Your appraisal, the lien balances and the financed premium decide which one you hit first. Either way, the tighter result controls.
A Worked Example in Percentages
Run the numbers on a home that appraises at a value you treat as 100%. Say your current first mortgage sits at 55% of that value.
The cap is 80%. That leaves about 25 percentage points of value between your balance and the ceiling. But the new loan must also absorb the financed upfront premium and any closing costs rolled in. Those come off the top. What is left is your cash.
Now add a second lien that you want to keep, say a small home-equity loan at 5% of value. It counts toward the cap, because the limit applies to combined debt. The room for cash drops by those 5 points.
Two lessons follow. First, “I have 20% equity” does not mean “I qualify.” The cap is a ceiling, not an approval. Second, a refinance that looks generous on paper shrinks fast once premium and costs are counted. These are modeled assumptions, not a quote.
What Does the Mortgage Insurance Do to the Math?
FHA charges two premiums. The upfront premium is 1.75% of the base loan, and borrowers usually finance it into the balance. The annual premium is a percentage of the balance that depends on term, loan amount and LTV, and it ranges between 0.15% and 0.75%.
Duration matters too. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years. Because a cash-out tops out at 80%, the shorter duration is the one that usually applies here, subject to lender guidelines and the current premium schedule.
HUD announced a cut to the annual premium for most new borrowers in its mortgagee letter on the premium reduction. Do not read that as “FHA is cheap on a cash-out.” The cut was written for most new borrowers, and the letter treats streamline and simple refinances of older FHA loans separately. Check the current premium schedule for your exact case.
Here is the part that matters when your first mortgage is locked in. The premium sits on the entire new balance. Your whole loan moves into FHA’s insurance structure, not only the equity you took.
If You Have a Locked-In First Mortgage
This is the question most Texas homeowners are really asking. You hold a first mortgage you like. You want cash. Does an FHA cash-out make sense?
Usually it does not, if the main goal is protecting the loan you have. A cash-out replaces the first mortgage. Your whole balance reprices at today’s terms and picks up FHA insurance. That is the central tradeoff, and no rule softens it.
The alternative is a separate second lien that leaves the first alone. In Texas, that option has its own catch. A home-equity loan secured by a homestead is itself a Texas home-equity loan. It falls under the same 80% combined ceiling and the one-at-a-time rule. A home equity line of credit follows a related but separate set of Texas rules, so confirm those with a lender before you assume anything.
The Consumer Financial Protection Bureau’s home equity guide compares cash-out refinances, home equity loans and lines of credit. It also notes that lenders typically want you to keep a cushion of equity in the home. That cushion is the point of the caps.
| Option | What happens to your first mortgage | Texas 80% cap applies? |
|---|---|---|
| FHA cash-out refinance | Replaced by a new FHA loan | Yes |
| Home-equity second lien | Stays in place | Yes, on combined debt |
| Conventional cash-out | Replaced by a new loan | Yes |
| Do nothing | Stays in place | Not applicable |
Takeaway: every route that takes cash against a Texas homestead runs into the same ceiling. What changes is whether your first mortgage survives.
If the cash covers a short-term need, a second payment plus a protected first loan may beat repricing everything. If the cash is large and your first mortgage is not especially favorable, a replacement loan can simplify things. This one is a toss-up in many files, and it turns on the size of the cash need compared with the size of the balance you would be repricing.
Where the General Rule Breaks
Several edge cases change the answer.
You already have a Texas home-equity loan. A homestead loan that came from a Texas cash-out or equity loan stays in that category. Refinancing it without taking cash out is allowed only if specific conditions are met. A seasoning period applies, with narrow exceptions, and you cannot take new advances beyond the payoff and costs. The designation can follow you from loan to loan. This is the “once a home-equity loan, always a home-equity loan” problem, and it shapes any future refinance.
You already have an FHA loan. A streamline refinance is different. It refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit, and the premium continues. It does not pay you cash. A rate-and-term refinance, with an appraisal, reaches 97.75% on a principal residence you have occupied for the previous twelve months. Neither gives you cash.
The home is not your principal residence. FHA’s standard cash-out is limited to owner-occupied principal residences. Texas home-equity rules attach to the homestead. Occupancy decides the leverage, and a rental or second home does not fit this program.
You inherited the home. The 12-month occupancy history can be waived if you never treated the house as an investment. Rent it out, and the waiver is gone.
Credit events. HUD sets its own waiting periods: two years from a chapter 7 discharge and three years from a foreclosure. These are HUD’s rules, not a promise from any lender, and lenders may add their own.
What Trips People Up
A few misunderstandings come up again and again.
- “FHA lets me borrow up to 85%.” That was an older cap. Today’s limit is 80%.
- “A cash-out keeps my low rate.” It does not. The first mortgage is paid off.
- “I can stack a second loan on top for more cash.” The cap applies to combined debt.
- “Texas treats FHA differently from conventional.” The state’s limits attach to the transaction, not the loan program.
- “Anyone with 20% equity qualifies.” Occupancy history, payment history, credit, income and appraisal all weigh in.
- “I can cash out again right after a Texas home-equity loan.” A one-loan-at-a-time rule and a seasoning period apply.
What Does the Decision Look Like in Practice?
Start with the reason for the cash. A one-time repair or a debt payoff has a different answer than a long project.
Then look at what you would give up. If your current first mortgage is one you want to keep, price the second lien first. If it is not, an FHA cash-out is a clean way to reach up to 80% of value, with the premium and the appraisal as the biggest swing factors.
Next, check the clocks. Twelve months of ownership and occupancy comes first. Texas adds notice and cancellation periods on top. The two sets do not overlap, so plan around both.
Last, compare real numbers on your Loan Estimate, the standard form every lender must give you after you apply. Look at the whole balance, not only the cash. Some terms marketed as “no closing costs” simply build those costs into the balance or the pricing. The costs do not disappear. They move.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
LTV (loan-to-value): The loan balance divided by the home’s appraised value. A higher LTV means less equity left.
Cash-out refinance: A new mortgage that pays off the old one and gives you the leftover equity as cash.
Homestead: The home you live in as your primary residence, which Texas protects with special lien rules.
Seasoning: A required waiting period, such as owning and living in a home for 12 months before refinancing.
Mortgage insurance premium: The FHA charge that protects the lender, paid upfront and annually on the whole loan.
Combined LTV: The total of all liens on the home as a share of its value.
Frequently Asked Questions
Can I keep my current mortgage and still use an FHA cash-out?
No. An FHA cash-out replaces the first mortgage. To keep the loan you have, the alternative is a separate second lien, which still counts toward Texas’ 80% combined ceiling.
How much equity do I need to keep?
At least 20% of the home’s value on the FHA side, because the cap is 80% LTV. Texas’ combined cap lands at the same point. The appraisal, financed premium and any other lien decide the actual cash available. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Does the 12-month occupancy rule apply if I just bought the home?
Yes. At least one borrower must have owned and occupied the home as a principal residence for 12 months before the case number is assigned. An inheritance exception exists only if the home was never treated as an investment.
Does the FHA premium apply only to the cash I take out?
No. It applies to the whole new loan. The upfront premium is 1.75% of the base loan, and the annual premium depends on term, loan amount and LTV.
What if I already have an FHA loan?
A streamline refinance reduces paperwork but does not give you cash. For cash against an FHA-insured home, the cash-out program applies, with the 80% cap and the 12-month rule.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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 Handbook 4000.1 information page
2. Texas Constitution, Article XVI, Section 50
3. HUD mortgagee letter on the annual premium reduction
4. CFPB, Using home equity to meet financial needs
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: Cash-Out Refinance Mortgage Insurance Rules When Leaving FHA · FHA Cash-Out Refinance Requirements at a Glance · How to Improve Credit Before an FHA to Conventional Cash-Out Refinance
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.