HELOC Equity Rules Under Texas Homestead Law

The Quick Read: Texas puts its home equity rules in the state constitution, so a homestead line of credit is capped at 80% combined loan-to-value, must wait through a 12-day legal period, and can sit alongside no other cash-out lien, while rentals and second homes fall outside those limits and follow ordinary lender guidelines. Investors who understand where the homestead boundary sits can pick the right equity tool for each property.

• The 80% combined cap counts every lien on the home, not just the new line.
• Only one constitutional home equity loan can exist on a homestead at a time. A line, a fixed home equity loan, and a cash-out refinance all compete for that one slot.
• The rules reach only a primary residence. A rental is not a homestead, so its equity follows lender program terms.
• Older advice about a 50% draw limit is out of date for lines opened under the current rules.
• Every figure below is subject to lender guidelines and a full file review. None of it is a commitment to lend.

Where Do the Texas HELOC Equity Rules Come From?

The rules sit in Article XVI, Section 50 of the Texas Constitution, not in an ordinary statute. Section 50(a)(6) covers the loans, and a separate subsection covers lines of credit. That placement is why a lender cannot waive them and why a legislature cannot loosen them without a statewide vote.

The official constitution text opens by protecting the homestead from forced sale for nearly all debts. A voluntary equity lien is one of the listed exceptions. In other words, Texas starts from a rule that the home cannot be taken for debt. It then carves out narrow, tightly conditioned ways to borrow against it.

The Texas A&M Real Estate Research Center groups the covered products into three types: cash-out refinances, home equity loans, and HELOCs. That grouping matters most. Texas law treats all three as the same kind of debt, and the same core rules apply to each.

How Does Underwriting Treat a Texas Homestead Line? Step by Step

A Texas homestead HELOC passes through six checks, and a failure at any one stops the file. Lenders in the wholesale network that Lendmire brokers through apply them on top of ordinary credit and income review.

Step 1: Confirm the property is a homestead. The lien must be on the owner’s primary residence. For a line in this state, a primary residence is a homestead. Properties also face a size limit of 10 acres in the network, and a property that is listed for sale, or was listed within the past 60 days, is ineligible in Texas.

Step 2: Size the line against the 80% combined cap. All debt secured by the homestead counts, including the first mortgage and the new credit limit. The total cannot pass 80% of fair market value. The Texas Bankers Association explains that the measurement happens on the date the line is established, and the full credit limit counts, whether or not it is drawn.

A simple example in percentages shows the effect. Say a first mortgage equals 55% of the home’s value. The 80% cap leaves room for a line worth 25% of value, and no more. A borrower with a first lien at 70% of value has only 10% of value to work with.

Step 3: Check the credit tiers. On a Texas primary residence, the network’s tiers run from a 600 minimum score upward. Leverage rises with the score, but on a Texas primary the 80% constitutional cap overrides any higher tier in the lender matrix. Lines go up to $750,000 on primary residences in the network, though a borrower with a score of 700 reaches 75% combined loan-to-value on the program, so the 80% cap does not come into play at that tier.

Step 4: Observe the waiting period. The constitution sets the closing date at the 12th day after the later of two events: the application date, or the date the lender delivers the required written notice about extensions of credit. This is a statutory waiting period, and it exists so the borrower has time to reconsider.

Step 5: Verify the one-lien rule. The loan must be the only constitutional home equity debt on the property when it is made. Network programs also apply a 12-month seasoning interval on a Texas primary residence between equity closings.

Step 6: Complete the closing package. The deed of trust must carry a disclosure that the credit is the type defined in Section 50(a)(6). Lenders also collect a fair-market-value acknowledgement, and attorney review of the package is standard practice. A flawed closing can put the lender’s principal and interest at risk, which is why lenders treat these documents strictly.

What Do the Line-Specific Rules Add?

A HELOC has to satisfy extra rules that a closed-end loan does not. According to the Texas A&M research center, each advance must be at least $4,000. Credit cards, debit cards, and unsolicited pre-printed checks cannot be used to draw on the line. Each payment during the draw period must at least cover the interest that has accrued.

The network adds its own mechanics. Primary-residence lines come in two draw structures: a 3-year interest-only draw with a 17-year repayment period, or a 5-year draw with a 25-year repayment period. At least 75% of the line is drawn at closing, and pricing floats instead of converting to fixed. Subsequent draws after closing carry a $4,000 minimum in Texas.

The 75% draw-at-closing rule changes how to size a line. A borrower who wants a large credit limit “just in case” ends up carrying a large balance from day one. A line sized to the actual project fits better.

Debt-to-income is also part of the review. The network allows up to 50% DTI. It drops to 45% for credit profiles from 600 to 679, and the payment is qualified on the interest-only amount at the maximum draw. Lines of $500,000 or less ordinarily use an automated valuation. A full appraisal is required above that size, and a borrower can ask for one in any case.

What Variations and Related Structures Exist?

The same equity can be reached through different products, and each has a different fit under the one-slot rule.

Two details matter here. First, a homestead line and a homestead cash-out refinance block each other. A borrower who takes a cash-out refinance on the home cannot add a HELOC to it, and the reverse is also true. Second, a refinance with no cash out is generally treated differently from a cash-out loan, but the conditions are technical. Anyone planning that exit should have a Texas real-estate attorney confirm the rules for their loan before relying on it.

Lines can also sit in first or second lien position in the network. That flexibility helps only on non-homestead properties, since the homestead cap counts all liens in either case.

Where Does the General Rule Break?

Most Texas homeowners hit the edge cases before they hit the arithmetic. These are the ones that come up most.

Rentals and second homes. Section 50 protects the homestead. Per the Texas A&M research center, home equity loans under these rules may not be taken on a secondary residence or a rental. That language describes where the constitutional rules apply. A line on a rental or second home is an ordinary non-homestead loan. In the network, Texas second homes and investment properties are eligible as non-homestead transactions, and the 12-day wait and one-lien rule do not bind them.

Investment-property lines run on a different ceiling. On an investment property in the network, the line tops out at 70% CLTV, requires a 700 minimum credit profile, and carries a $500,000 maximum line. Investment lines use only the 5-year draw and 25-year repayment structure. On a second home, a 720 credit profile reaches 90% CLTV up to $500,000, with lower tiers for lower scores. That 90% figure exists only at a 720 score or better.

Entities cannot hold title. Homestead protection attaches to people, and the network’s equity-line programs require title in an individual’s name or an inter vivos revocable living trust. An LLC, corporation, or partnership cannot hold title on these lines. A rental already deeded to an LLC needs a vesting change first, or a DSCR cash-out refinance instead, subject to program terms for entity-held loans.

Changing use. A property that was once a homestead and later became a rental may be treated as non-homestead for new borrowing. The details depend on the facts and the timeline. A Texas attorney should confirm the status before anyone assumes the homestead rules have fallen away.

Out-of-state owners. An investor who lives elsewhere and owns a Texas rental has no Texas homestead. The constitutional limits attach to the primary residence, not to a rental in the state. A Texas rental owned by an out-of-state investor follows lender program terms and nothing more.

Which Outdated Claims Should Investors Ignore?

Several popular claims about Texas equity lending are wrong, and the first is the most common.

“Texas bans cash-out or HELOCs on rentals.” It does not. The rules protect the homestead. Equity on a rental is available under lender program terms.

“A HELOC can’t be drawn past 50% of value.” That 50% cap is no longer the rule. The Texas Bankers Association materials state that the 2018 amendment eliminated the 50% cap for loans originated afterward. A 2004 legislative fact sheet still describes the old limit, so pages built on it are stale.

“The 80% cap is just a lender overlay.” It is a constitutional limit. No lender can exceed it on a homestead.

“A line and a cash-out refinance can coexist.” They cannot. Both fall under Section 50(a)(6).

“Small draws are fine.” Each advance has a $4,000 minimum, and card access is barred.

“A paperwork slip is easy to fix.” The constitution allows cures, but an uncured violation can put the lender’s repayment rights at risk. That is the reason attorney review is routine.

What Does the Investor Decision Look Like in Practice?

The choice comes down to which property holds the equity and what the money will do. A homestead line fits an investor who wants a flexible pool from the personal residence, for a down payment or renovation. It comes with the 80% cap, the waiting period, and the one-slot limit. Using it also blocks a later cash-out refinance on the same home until the line is gone. An investor who might want that refinance should decide between the two products up front.

Equity sitting in a rental points to a different set of tools. An investment-property line is reviewed on personal credit, personal income, and DTI, and it caps at 70% CLTV in the network. A DSCR cash-out refinance reviews the property’s rent against its full monthly obligation. Across most of the network, a DSCR cash-out on a standard rental tops out around 75% LTV, with roughly 6 months of seasoning as the common expectation. Many select programs start at a 1.00 coverage ratio, and most want a score around 660, with 700 and up unlocking the strongest leverage. Reserves commonly run around 6 months of PITIA, though they vary by lender, leverage, and loan size.

The two paths trade against each other this way:

A line can fit well for a salaried investor with strong personal income and a modest need. A DSCR cash-out fits better for an investor with several financed properties, an LLC structure, or a personal DTI already stretched. DSCR coverage compares rent to PITIA only. Clearing the target ratio does not mean the property produces positive cash flow, since repairs, vacancy, management, and utilities sit outside the calculation. Investors who want the full mechanics can read Lendmire’s complete DSCR loans guide.

Key Terms Defined

Homestead: A Texas owner’s primary residence, which the state constitution shields from forced sale for most debts.

Section 50(a)(6): The part of the Texas Constitution that sets the conditions for home equity loans, lines of credit, and cash-out refinances on a homestead.

Combined loan-to-value (CLTV): The total of all liens on a property divided by its value, expressed as a percentage.

Draw period: The stretch of a line of credit when the borrower can take money out, usually paying interest only.

Seasoning: The time that must pass after a prior loan before a new one is allowed.

DSCR: A ratio that divides a rental’s monthly rent by its full monthly obligation of principal, interest, taxes, insurance, and any HOA dues.

How Can You Compare Your Options?

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. Lendmire is a mortgage broker, not a lender. It arranges these lines through select wholesale partners in its 16 full-service states, which include Texas, and arranges DSCR investor loans across 41 markets, including Washington, D.C. An editable calculator on this page gives an illustrative estimate only. Final terms depend on lender guidelines and a full file review.

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.

Investors who want the broader program framework can review how DSCR loans work.

References

1. Texas Constitution Art. XVI §50

2. Texas A&M Real Estate Research Center

3. Texas Bankers Association HELOC chapter

4. Texas Legislative Council home equity fact sheet