The Quick Read: Texas limits the fees a lender may charge on a cash-out loan against a homestead to 2 percent of the loan amount. FHA adds its own leverage limit and a mortgage insurance premium that applies to the whole new balance. The two sets of rules overlap, and that overlap is why FHA cash-out on a Texas homestead is hard to find in practice. Appraisal, survey and title charges sit outside the cap, so total closing costs can still run above 2 percent.
Key Takeaways
- The 2 percent cap is a Texas rule. It is not an FHA rule and not a lender policy.
- FHA cash-out tops out at 80% LTV, and the home must be owned and occupied for 12 months before the case number.
- The FHA upfront premium is 1.75% of the base loan. Whether it counts inside the Texas cap is the central question.
- The cap is specific to Texas, so don’t assume a similar one applies in other states.
- Availability varies by lender. Confirm before you pay for an appraisal.
Why Does a State Fee Cap Change an FHA Cash-Out?
The cap changes the math because FHA has a built-in charge that is large relative to the cap. On a typical FHA file, the upfront mortgage insurance premium is financed into the balance. In Texas, the lender’s total fee allowance is a small slice of the loan, so a charge that size takes up most of it.
Lendmire’s FHA cash-out refinance program works inside this envelope. Across the wholesale programs Lendmire places FHA files with, the cash-out tops out at 80% LTV. The home has to be owned and occupied for 12 months before the case number is assigned. The upfront premium is 1.75% of the base loan, and the annual premium runs between 0.15% and 0.75% of the balance. Where it falls in that range depends on term, loan amount and LTV. Those are program facts, not prices, and each is subject to lender guidelines and full file review.
Texas adds its own layer on top. A cash-out loan against a Texas homestead is a “home equity loan” under the state constitution, and it carries its own rules for fees, leverage, closing location and waiting periods. The state rule, not the lender’s label, decides which category your loan falls into. Take any cash back beyond permitted costs and the loan is a home equity loan, even if the paperwork calls it a refinance.
Key Terms Defined
Homestead: The home you live in as your primary residence. Only a homestead can carry a Texas home equity loan.
Fee cap: The Texas limit on what the borrower can be required to pay in fees, set at 2 percent of the original loan amount.
LTV (loan-to-value): The new loan balance divided by the home’s appraised value.
CLTV (combined loan-to-value): All loans secured by the home, added together, divided by the home’s value.
Upfront mortgage insurance premium: An FHA charge of 1.75% of the base loan, usually financed into the balance.
Right of cancellation: Your window to cancel a refinance of your primary residence after signing.
How Does the Loan Get Underwritten, Step by Step?
The deal works through the same stages every time. The Texas rules add stops along the way.
1. Eligibility check. The home is your primary residence. You have owned and lived in it for the required period, and your mortgage payment history is clean. A second home or a rental is outside this loan type.
2. Texas notice. The application triggers a required notice. The state constitution says closing cannot occur before the 12th day after the later of the application date or the date the lender gives that notice, per the text mirrored by FindLaw. That is a legal waiting period, not a processing estimate.
3. Appraisal and value. FHA requires an appraisal. HUD cut the maximum LTV and CLTV on cash-out refinances from 85 to 80 percent in Mortgagee Letter 2019-11, for case numbers assigned on or after September 1, 2019. Texas separately limits total debt against the homestead to 80 percent. Any existing second lien counts toward both limits.
4. Underwriting. Ratios start at 31/43 (housing and total) with no compensating factors. Documented factors can reach 40/50 at the top tier, and the automated finding governs most files. Credit decisions start at a 580 score on the wholesale programs Lendmire works with, and the lender sets the final floor.
5. Fee tally. The lender adds up its fees and checks them against 2 percent of the new loan amount. This is the step where FHA files get stuck, covered below.
6. Closing and cancellation. Texas closings happen at the lender’s office, an attorney’s office or a title company. After you sign, the federal three-business-day cancellation right applies to a refinance of a primary residence, per the CFPB. Funds are not disbursed until that window closes. Texas has its own cancel period built into its disclosures, and it is separate from the 12-day wait.
What Counts Inside the Cap and What Doesn’t?
The cap covers the lender’s own charges, not every line on the closing statement. The Texas Real Estate Research Center says the owner or spouse may not be required to pay fees totaling more than 2 percent of the original principal. It also lists what is excluded. The state rule at 7 TAC §153.5 restates the cap and carves out the same third-party items.
| Item | Inside the cap? |
|---|---|
| Lender origination and processing fees | Inside |
| Underwriting-type charges | Inside |
| Third-party appraisal | Outside |
| Survey by a licensed surveyor | Outside |
| State base premium for the title policy | Outside |
| Title examination | Outside |
| Interest charges | Outside (treated as interest) |
| Escrow deposits for taxes and insurance | Not fees |
So total closing costs can exceed 2 percent of the loan. The cap limits what the lender can collect for itself. It does not limit what third parties charge. The cap is measured on fees paid or contracted for at inception or closing.
The cap was 3 percent before a 2017 constitutional amendment, SJR 60. The Legislature’s bill analysis covers the change. Loans entered into on or after January 1, 2018 fall under the 2 percent version, per the Finance Commission’s proposed rule text. Pages still quoting 3 percent are out of date.
Where Do FHA Premiums Collide With the Cap?
The collision comes from simple proportions. The FHA upfront premium is 1.75% of the base loan, per Mortgagee Letter 2023-05. The Texas cap is 2%. If the premium counts as a fee, only a quarter of a percentage point of the loan is left for every other lender charge. Most origination structures don’t fit in that.
Here is the catch. At least one Texas legal analysis reads the state rule as treating mortgage insurance premiums as fees inside the cap. It also reads monthly premiums agreed at closing as arguably counting. This is one reading of the rule, not settled fact, and no Texas-specific HUD statement on the question is cited here. The rule text is the place to check. A lender’s own policy will decide the answer on a given file.
An illustration, using percentages only. Say a lender’s origination charges would total 1% of the loan. Add the 1.75% upfront premium and the total is 2.75%, which is over the cap. The lender has to cut its own fees below what the premium leaves, or decline the loan. Many do the second.
The annual premium also applies to the entire new balance, not only the cash you take out. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90% it ends after eleven years. Cash-out FHA loans at 80% LTV sit below that line. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
What Conflicting Advice Will You See Online?
You will see three answers, and they conflict. Some pages say Texas law prohibits FHA cash-out. Others say FHA doesn’t insure these loans. A few say it is available and simply follows both rule sets.
The record supports a narrower statement. The barrier is practical: premiums and the fee cap interact, and each lender decides whether it will offer the product. “Generally unavailable in practice” is closer to the truth than “banned” or “no problem.” Some pages repeat older answers, and some lenders describe their own overlays as if they were law.
The way through is to ask a licensed loan officer for a written answer on your specific loan. If the first lender says no, that doesn’t tell you what another lender’s program allows.
Where Does the General Rule Break?
Several edge cases change the answer.
- Existing home equity loan. A refinance of an existing Texas home equity loan generally stays under the same rules. A post-2018 conversion path exists for some borrowers, with conditions on cash advanced and leverage. Details are lender-specific, so confirm them rather than assume.
- FHA Streamline. A Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It involves no true cash-out. The premium continues on the new loan. Because no cash comes out, the Texas home equity category generally doesn’t apply.
- Rate-and-term refinance. On a principal residence occupied for the previous twelve months, an FHA rate-and-term with an appraisal reaches 97.75%. That is not cash-out leverage. Cash taken beyond permitted costs pushes it back into the cash-out category.
- Second home or rental. Occupancy decides the leverage, and this loan type is for the home you live in. The Texas home equity rules apply only to a homestead.
- Texas dual limits. Both the FHA and Texas 80% limits apply, so whichever is lower on your file controls.
- Hawaiian Homelands. The 80% change does not apply to Section 247 mortgages, per the same HUD letter.
What About Other High-Cost Closing States?
The title groups Texas with “high-cost closing states,” but the evidence points to Texas alone. Closing costs in other states are governed by their own laws, if at all. Don’t assume the 2 percent figure travels. Ask your lender which rule applies in your state.
What Does the Decision Look Like?
The decision comes down to what the cash is for and what you will give up to get it. HUD’s press release explained the 2019 cut. Cash-out refinances had grown to 64 percent of FHA-insured refinance transactions. HUD wanted more equity left in homes.
Here are the options to compare, in words:
| Path | What it fits |
|---|---|
| FHA cash-out | Lower credit scores, moderate equity |
| Conventional cash-out | Stronger credit, more flexible leverage |
| Home equity loan | Keeping a low existing first mortgage |
| Rate-and-term refinance | Changing the loan without taking cash |
Cash-out replaces your whole mortgage. A second lien leaves your first loan in place. Each carries different costs and different Texas rules. The Texas HELOC fee cap covers the second-lien side.
What Should You Check on the Loan Estimate?
Run through this list before paying for an appraisal.
- Ask whether the lender offers FHA cash-out on a Texas homestead at all.
- Ask whether it counts the FHA premium inside the 2% cap.
- Compare the origination lines across Loan Estimates. Third-party lines sit outside the cap.
- Check that total lender fees do not exceed 2% of the loan amount.
- Confirm combined liens stay at or under 80%.
- Confirm you have at least 20 percent equity left after the new loan.
- Read the Closing Disclosure against the Loan Estimate. If a fee grew, ask why before you sign.
- Check the current version of HUD Handbook 4000.1 for occupancy and seasoning rules. It is the consolidated FHA policy source.
All program figures here are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
What Is the Next Step?
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. Bring your current balance, your estimated value and the reason you want the cash. That is enough to see which path fits.
Frequently Asked Questions
Can you get an FHA cash-out refinance on a Texas homestead?
Sometimes, but it is hard to find. The practical barrier is the way FHA premiums interact with the Texas fee cap. Availability depends on each lender’s policies, so a written answer from a licensed loan officer is the only reliable way to know.
Does the 2% cap cover every closing cost?
No. It covers the lender’s own fees. Third-party appraisal, survey, the base title premium and title examination are excluded. Escrow deposits aren’t fees either. Total closing costs can exceed 2 percent.
What is the maximum LTV on an FHA cash-out?
It is 80% LTV. The home must be owned and occupied for 12 months before the case number. HUD lowered the limit from 85 to 80 percent in 2019. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Can you cancel after signing?
Yes, on a refinance of your primary residence. You generally have until midnight of the third business day after signing. Waiving it requires a documented personal financial emergency and your own signed statement. Texas has its own cancel period too.
Does an FHA Streamline fall under the Texas cap?
Generally no, because no true cash comes out. A Streamline refinances an existing FHA loan with no appraisal and a net tangible benefit. Confirm with your lender, since the classification depends on the actual cash flow in your loan.
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.
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References
1. FindLaw
2. HUD Mortgagee Letter 2019-11
3. CFPB
4. Texas Real Estate Research Center
5. 7 TAC §153.5, Texas Finance Commission
6. Legislature’s bill analysis
7. Finance Commission proposed rule text (SJR 60 implementation)
8. HUD Mortgagee Letter 2023-05
9. HUD press release on cash-out risk
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 to Pay Off Debts at Closing on an FHA Cash-Out With a High DTI · FHA Cash-Out Upfront MIP Rules for an Existing FHA Loan · Can You Refinance a Texas Homestead FHA Cash-Out Into Better Terms?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.