The Quick Read: Two separate 80% limits can apply when you pull cash out of a Texas primary residence, and the loan has to fit under both. FHA caps a cash-out refinance at 80% loan-to-value (LTV, the loan balance as a percentage of the home’s value). Texas homestead law sets its own 80% ceiling on all liens combined. Whichever test leaves you less room controls how much cash you can take.
Here is what makes this topic confusing. The two limits share a number, so people assume they are one rule. They are not. They come from different places, measure value differently, and count debt differently. This guide walks through each step, then covers the edge cases where the general rule bends.
What Does “LTV Limit” Mean Here?
LTV compares what you owe to what the home is worth. An 80% LTV cap means the debt can reach four-fifths of value, and at least 20% of the value stays as your equity. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
On a cash-out refinance you replace your current mortgage with a bigger one and keep the difference. FHA’s cash-out program reaches 80% LTV on a home you have owned and lived in for 12 months before the case number is assigned. That is the number we work with across the wholesale programs we arrange. If you want the program’s basics before the Texas wrinkle, start with Lendmire’s FHA cash-out refinance program page. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Compare that with other FHA refinances. The FHA rate-and-term refinance (no cash back) reaches 97.75% on a principal residence you have occupied for the previous twelve months. The FHA Streamline replaces an existing FHA loan with no appraisal and a limited credit review. Neither of those is cash-out, so the 80% cash-out cap does not apply to them. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Cash-out is the one that pulls the ceiling down. That is also the one Texas cares about most.
Why Does Texas Add a Second 80% Limit?
Texas treats your homestead as specially protected property. The state sets a firm ceiling on borrowing against it, and that ceiling does not bend for a strong credit score, big reserves, or a particular documentation type.
Your primary residence is the homestead. Texas allows a lien for home equity cash only under tight conditions. The first is a combined cap: all debts secured by the home, together, cannot exceed 80% of its fair market value on the date of the loan. The Texas A&M Real Estate Research Center describes this as an 80% combined-lien limit that leaves you with 20% equity.
Notice the phrase “all debts.” The Texas test is not about the new loan alone. A second mortgage or HELOC that stays on the home uses up room in the same bucket.
Notice also the phrase “on the date of the loan.” Texas wants the value as of closing, not the price you paid years ago and not an old appraisal. The borrower and lender sign a written acknowledgment of that fair market value.
How Do the Two Tests Differ?
They look alike but are not twins. FHA’s 80% is a program rule. Texas’ 80% is a state constitutional rule. A cash-out loan on a Texas homestead has to satisfy both at once.
| Factor | FHA cash-out cap | Texas homestead cap |
|---|---|---|
| Source | Program rule | State constitution |
| Limit | 80% | 80% |
| Counts | The new loan against adjusted value | All liens combined |
| Value used | FHA appraisal (adjusted value) | Fair market value at closing |
| Who can waive it | Nobody | Nobody |
“Adjusted value” is FHA’s term for the value used in the LTV math. For a home you have held 12 months or more, HUD’s Handbook 4000.1 glossary describes adjusted value as the property value. Short ownership changes that picture, and a lower number can result.
The takeaway: the lower result controls. If FHA’s math gives you one number and Texas’ gives you another, you borrow against the smaller one.
Is the Cap Really 80% or Is It 85%?
It is 80%. Older sources still say 85%, and that is out of date.
HUD’s announcement lowered the FHA cash-out maximum from 85% to 80% for case numbers assigned on or after September 1, 2019, and said the change aligned FHA with the cash-out maximum used by the large government-sponsored conventional programs. Some older reference pages were never updated. If you see 85% on a web page, check the date on it.
How Is the Ceiling Calculated, Step by Step?
The formula is plain: value times 80%, minus every lien that stays on the home, equals the largest new first mortgage. Here is how an underwriter moves through it.
1. Confirm the home qualifies. FHA cash-out is for a principal residence you have owned and lived in for 12 months. Texas homestead rules also apply only to your primary residence. A rental or second home sits outside the homestead rule, and its leverage is set by occupancy.
2. Check the payment history. On a cash-out, FHA looks for on-time payments on the loan being refinanced. A HUD mortgagee letter described a 12-month look-back. That letter is older, so your lender will confirm what the current handbook requires.
3. Decide whether Texas law calls it a homestead equity loan. State law decides this, not the program label. A refinance that gives you no cash can still be a homestead equity loan if the loan being replaced already is one. Freddie Mac’s selling guide makes the same point: a transaction it would call “no cash-out” can still fall under the Texas rule.
4. Set the value. The FHA appraisal sets adjusted value for the program test. Texas uses fair market value at closing. Both come from the appraisal process, but a lender checks each against its own rule.
5. Compute the ceiling. Take 80% of value. Subtract any second lien or HELOC that stays on the home. What remains is the room for the new first mortgage.
6. Subtract the financed premium. FHA charges an upfront mortgage insurance premium of 1.75% of the base loan, and most borrowers finance it. It is part of the loan amount, so it eats ceiling room. The annual premium is a separate monthly cost. It runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV it lasts the full term. At or below 90% it ends after eleven years.
7. Underwrite the file. Credit, income and debt ratios run through automated or manual review. The base ratio pair is 31/43 (housing and total debt as a percentage of income), and documented compensating factors can reach 40/50 at the top tier. County loan limits also apply.
A Worked Example in Percentages
These inputs are modeled assumptions, not market data.
Say a home appraises at 100% of its value. The 80% ceiling means all liens combined can reach 80%. Suppose the existing first mortgage you are paying off sits at 55% of value, and there is no second lien. The new loan can go to 80%, so your gross room is 25% of value. Part of that goes to the financed upfront premium and Texas-allowed closing costs. What is left is your cash.
Now add a HELOC that stays behind the new loan, at 10% of value. Your room falls from 25% to 15% before costs. Pay the HELOC off at closing and the room comes back, because debt paid off at closing does not count against the cap.
Equity is the other lesson here. You will always leave closing with at least 20% equity in the home. Homeowners who expect to borrow nearly everything they have built are often surprised.
Does FHA Cash-Out Work on a Texas Homestead at All?
It depends, and the honest answer is to confirm it with a lender before you plan around it.
The two sets of rules can be read together: FHA’s cap and the state’s cap use the same percentage, so on paper a loan can satisfy both. Some lender guides say an FHA-insured Texas homestead cash-out is possible if it follows both rule sets. Others say it is not available.
In practice, availability comes down to two things: the lender’s and investor’s current overlays (extra rules beyond the program minimums), and the current text of HUD Handbook 4000.1. Those change. So ask the question directly: “Does your FHA program currently offer a Texas homestead equity loan, and under what overlays?”.
If the answer is no, the other routes below are still available.
What If You Already Have a Loan? Scenario Table
The right path depends on what you owe now.
| Your situation | What it usually means | Next step |
|---|---|---|
| Existing FHA loan, no cash needed | Streamline or rate-and-term | Compare both; neither uses the cash-out cap |
| Existing FHA loan, cash needed | Cash-out question above | Ask about Texas overlays |
| Existing Texas homestead equity loan | New loan may be an equity loan too | Check the conversion conditions below |
| Existing conventional first plus a HELOC | HELOC uses cap room | Plan to pay it off at closing |
| Inherited home you never rented out | FHA’s 12-month occupancy test is waived | Confirm with the lender |
Inheritance deserves one more line. The 12-month occupancy rule is waived for an inherited home, but renting it out after you inherit it forfeits the waiver.
Where Does the General Rule Break?
Four edge cases change the answer.
An existing homestead equity loan. The saying in Texas lending is “once a homestead equity loan, always a homestead equity loan.” Refinancing one is treated as another one, unless specific conversion conditions are met. Lender summaries list four: at least a year of seasoning, no cash beyond the payoff and costs, LTV of 80% or less, and the required written notice. Fannie Mae’s Texas guidance is where lenders check the details. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
A true no-cash-out refinance. If the loan you are replacing is not a homestead equity loan, a rate-and-term refinance with no cash back falls outside the equity-loan rules. Lender sources describe the cap and the waiting period as applying only when equity is pulled. Your lender will confirm this for your file.
Second liens that stay. Any lien that stays on the home counts against the combined cap. Secondary lender guides say an existing homestead equity second has to be paid off to make a new one first.
Homestead status. Texas homestead law protects a primary residence. Investment property and second homes sit outside it, and occupancy decides FHA leverage too. If your situation is unusual, such as a home held in a trust, ask before you apply.
What Else Comes With a Texas Homestead Cash-Out?
The 80% cap is the headline, but the companion rules shape your plan.
| Rule | What it does |
|---|---|
| Combined-lien cap | All liens together stay at or under 80% |
| Waiting period | A required notice period before closing |
| Final-terms disclosure | An itemized list provided before closing |
| Closing location | A lender, attorney or title company office |
| Fee limit | A 2% cap on certain lender fees, with exclusions such as appraisal and survey |
| One-loan limit | Limits on stacking equity loans |
Federal law adds a right to cancel. On a refinance of your primary residence you generally have a short window to rescind, three business days under federal rules (see the CFPB’s rule text). Funds are not released until that window closes. Rescinding does not erase your original loan; you still owe it.
Because this is a consumer mortgage, you will get a Loan Estimate and a Closing Disclosure. Compare those documents line by line.
Common Mistakes
- Thinking FHA allows 85%. That figure is old.
- Treating the two 80% limits as one. They are separate tests that happen to match.
- Counting a HELOC as extra room. A lien that stays uses room.
- Assuming “no cash back” means no Texas rules. Refinancing a homestead equity loan can still be one.
- Expecting credit or reserves to raise the cap. A strong file does not lift a state ceiling.
- Using the purchase price as value. Both tests use appraised value, not what you paid.
- Forgetting the financed premium. The upfront 1.75% sits inside the loan amount.
What Should You Do if the Ceiling Is Too Low?
When the math leaves less cash than you wanted, you have choices.
- Pay off the second lien at closing. That frees cap room.
- Wait for appreciation. A higher appraised value raises 80% of value.
- Use a rate-and-term refinance. If your goal is a better term and not cash, this avoids the cash-out cap.
- Use the Streamline if you already have an FHA loan and want no appraisal.
- Ask about other programs. Conventional and other options each have their own Texas rules.
Be wary of one trap. A bigger first lien means a higher principal payment and ongoing mortgage insurance. More cash today raises the monthly cost for years. Weigh both.
Key Terms Defined
LTV (loan-to-value): The loan balance divided by the home’s value, shown as a percentage.
Combined LTV: The total of every lien on the home divided by its value.
Homestead: Your primary residence, which Texas protects under special borrowing rules.
Adjusted value: The value FHA uses in its LTV math, based on the appraisal.
Overlay: An extra rule a lender adds on top of the program’s minimums.
Rescission: Your legal right to cancel certain home loans within a short window after signing.
Seasoning: The waiting period between two events, such as owning a home and refinancing it.
Frequently Asked Questions
What is the maximum LTV for an FHA cash-out refinance?
FHA’s cash-out maximum is 80% of the home’s adjusted value, on a home you have owned and lived in for 12 months before the case number. Your lender’s guidelines and full file review decide the final figure. Nothing here is a commitment to lend.
Does Texas use the same 80% limit?
The number matches, but the test does not. Texas counts every lien on the homestead against 80% of fair market value on the closing date. Your loan must pass both tests, and the smaller room controls.
Can I get an FHA cash-out on a Texas homestead?
It depends on the lender’s and investor’s current overlays and the current handbook text. Ask your broker to confirm it for your file before you plan around it. If it is not available, a rate-and-term refinance or Streamline may fit.
Does my HELOC reduce how much cash I can take?
Yes, if it stays on the home. It counts toward the combined-lien cap. Paying it off at closing returns that room, because debt paid at closing does not count against the cap.
Does the rule apply to a rental or second home?
Homestead protection covers your primary residence. Occupancy also sets FHA leverage, so a non-primary property is handled under different rules.
Next Step
If you are weighing a cash-out refinance on the home you live in against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. The brokerage arranges FHA loans for primary residences through wholesale lenders, subject to lender guidelines and full file review.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Texas A&M Real Estate Research Center
2. HUD Handbook 4000.1 Glossary
3. HUD press release on the FHA cash-out cap
5. Freddie Mac Guide Section 4301.7
7. CFPB Regulation Z, Section 1026.23
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 County-Limit Cash-Out vs Jumbo Cash-Out for a Conventional Homeowner · How to Get an FHA Cash-Out on a Paid-Off Texas Homestead · FHA Cash-Out vs Conventional Cash-Out on a Paid-Off Texas Homestead
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.