The Quick Read: Closing costs decide whether this loan works at all, and then they shrink the cash you net. Texas law caps most lender fees at 2% of the loan and limits all liens on the home to 80% of its value. FHA’s own cash-out ceiling is also 80%, so every financed cost comes out of the same small pool of equity. Most lenders do not offer this combination, because the fees have to fit under the Texas cap.
Texas FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.40% as of October 15, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $285,000 home value, a $157,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical rates for Texas. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed inside the Texas homestead cap; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages. On a Texas homestead the state constitution caps the whole loan, financed premium included, at the FHA figure and adds a waiting period, a prescribed closing location, and a fee cap.
Why Does This Combination Get Confusing?
You will find two answers online. One says FHA cash-out is not allowed in Texas. Another says it is available. Both are partly right, and the gap between them is the subject of this article.
Here is the plain version. Texas treats a cash-out loan on a homestead as its own legal category. It has its own rulebook, written into the state constitution. FHA has its own rulebook too. When the two meet, the question is not whether a statute flatly bans the loan. The question is whether the fees fit under the Texas cap, and whether enough cash is left to make the exercise worthwhile.
That is a fee-math problem, and it is why closing costs sit at the center of the decision.
Across the wholesale programs we place files with, the FHA cash-out refinance program reaches 80% of the home’s value. It is for a home you own and occupy as your principal residence, and you must have owned and lived in it for 12 months before the case number is assigned. Those are program facts, subject to lender guidelines and full file review. Texas adds its own ceiling and its own fee limit on top.
For a Texas homeowner, that means the loan has to clear two sets of tests at once. Whichever ceiling is lower controls.
Key Terms Defined
Homestead: The home you live in as your primary residence, which Texas protects with special rules on borrowing against it.
Cash-out refinance: A new mortgage that pays off the old one and lets you keep some of the extra equity as cash.
Combined loan-to-value (CLTV): All the loans secured by the home, added together and divided by its appraised value.
Fee cap: The Texas limit on what a lender may require you to pay to originate, evaluate, maintain, record, insure or service the loan, set at 2% of the original principal.
Financed closing costs: Costs folded into the new loan balance instead of paid out of pocket.
Net cash: What you actually receive at closing after the old loan, the costs and any other required payoffs are subtracted.
What Is the Real Ceiling on Your Cash?
The ceiling is 80% of the home’s value, and it applies twice. FHA limits a cash-out refinance to 80% of the adjusted value for both loan-to-value and combined loan-to-value, per HUD’s Handbook 4000.1 update. Texas separately limits the loan plus all other liens on the homestead to 80% of fair market value, under the home equity provisions of the Texas Constitution.
Whichever number is lower binds. In most files they land in the same place, which is why the appraisal matters so much.
Many borrowers misread the 80% figure. It is not 80% of your value paid to you. It is the most you can owe in total. Your cash is what remains after the existing mortgage, any second lien and the costs are taken out of that ceiling.
Here is the shape of it, using modeled percentages rather than real figures:
1. Start with 100% of the appraised value. 2. The ceiling is 80% of that value. 3. Subtract the payoff of your existing first mortgage, say 60% of value in this model. 4. Subtract any other lien on the home. 5. Subtract the closing costs and the financed premium. 6. What is left is your net cash.
In that model, the ceiling leaves 20% of value before costs. If financed costs and the premium take 4% of value, your cash is about 16% of value. Costs do not sit beside your cash. They come out of it.
How Financing Closing Costs Cuts Your Cash
Every dollar of financed cost is a dollar you do not receive. The Closing Disclosure shows this clearly. Its “Calculating Cash to Close” table tells you whether you owe money at closing or receive money. Financed costs appear as a deduction from the loan amount, so a larger cost line means a smaller check.
You have two choices on any cost:
- Pay it out of pocket. Your net cash stays higher, but you spend your own money at the table.
- Finance it into the loan. You bring less to closing, but your net cash drops and your balance rises.
There is a catch when you are already near the ceiling. If the loan is sitting at 80% of value, there is no room left to finance anything. Costs then have to come from your pocket or from the cash itself. A borrower who assumed the costs would simply “roll in” can find the maximum loan has no space for them.
Financing also changes the monthly picture. A larger balance means more principal and interest, and the annual mortgage insurance premium is collected monthly on top of that. The lender’s Loan Estimate shows the numbers for your specific file. This article does not quote payments, because they depend on your loan terms.
Which Costs Count Toward the 2% Cap?
Most origination-side charges sit inside the cap, while a few third-party items sit outside. The cap comes from the Texas Finance Commission’s rule at 7 TAC §153.5, which restates the constitutional limit on fees “necessary to originate, evaluate, maintain, record, insure, or service” the loan. It applies to loans made on or after January 1, 2018. Older pages that show a 3% cap are out of date.
The table below sorts common charges. It is a general guide. Your lender decides how each charge is classified on your file.
| Cost | Inside the 2% cap? | Effect on your cash |
|---|---|---|
| Origination and underwriting | Inside | Reduces cash if financed |
| Processing and document prep | Inside | Reduces cash if financed |
| Credit report | Inside | Small cash reduction |
| Recording fees | Inside | Small cash reduction |
| Third-party appraisal | Outside | Cash reduction, outside cap |
| Survey by a licensed surveyor | Outside | Cash reduction, outside cap |
| Base title policy premium | Outside | Cash reduction, outside cap |
| FHA upfront premium | Contested | Large cash reduction if financed |
| Voluntary optional products | Outside if truly optional | Only if you choose them |
The rule also says optional charges you choose at your sole discretion are not covered by the cap. Be careful with this one. A product the lender requires is not optional.
Some items people lump in with closing costs are not fees for cap purposes, according to Texas attorney commentary. These include per-diem interest on the payoff, HOA dues and escrow deposits. They still reduce your cash. They just do not count against the 2%. Treat that point as general guidance and ask your lender how your file handles them.
What Happens With the FHA Upfront Premium?
The upfront premium is the pivot point. FHA charges an upfront mortgage insurance premium of 1.75% of the base loan, which is collected at closing, with the annual premium collected monthly. HUD’s premium structure page confirms both points. The annual premium runs from 0.15% to 0.75% of the balance depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV it lasts for the term. At or below 90% it ends after eleven years. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Now the contested question. Does the upfront premium count as a fee that “insures” the loan under the Texas cap? Some Texas legal analysis says yes. If so, a 1.75% premium alone would use most of a 2% cap before a single origination fee is charged. That would leave almost no room for anything else, which is the “technically possible but economically unworkable” reading.
Treat the point as an open legal reading, not a settled rule. In practice, the result is the one stated at the top: most lenders do not offer an FHA cash-out on a Texas homestead.
If you hear a flat “yes” or a flat “no,” ask for the reasoning. A good answer names the fee cap and shows how the premium was treated.
Two clarifications keep the picture accurate:
- VA is a different story. VA cash-out faces a separate Texas hurdle tied to how a VA guaranty is treated, not to fees. Do not apply that reasoning to FHA.
- FHA Streamline is not cash-out. It refinances an existing FHA loan with no appraisal and no cash back. It does not tap equity.
Where Does the General Rule Break Down?
The 80% and 2% rules apply to cash-out on a homestead. Several situations fall outside them or change them.
A rate-and-term refinance. If you take no cash out, the loan is generally not a Texas home equity loan. Texas lender guidance says the 80% ceiling and the fee cap do not apply in that case. The FHA rate-and-term with an appraisal reaches 97.75% on a principal residence you have occupied for the previous twelve months. That is a different tool, and for some borrowers a better one.
Costs-only cash. Texas lender guidance generally treats a refinance that pays off the old loan and costs, with no extra cash to you, as a non-equity transaction. Once you take cash beyond costs, the loan becomes a home equity loan with lasting restrictions on future refinancing. That makes the amount of cash a real decision, not a rounding detail. A very small payout can carry the same long-term rules as a large one.
An existing equity loan. Only one Texas home equity loan can be secured by the home at a time. A second lien or an equity line on the property must be accounted for in the 80% count. It may have to be paid off in the same transaction.
A non-owner-occupied property. FHA cash-out requires a principal residence. Occupancy decides the leverage, and a second home or rental falls outside both the FHA program and the homestead rules. That is all this article covers on the point.
Future refinances. Once a Texas equity loan sits on the home, later refinances may carry the same rules unless the loan is converted under a path the 2017 constitutional amendment created. Confirm the conditions before assuming you can convert.
Four Misconceptions That Cost Borrowers Money
“The 2% cap covers all my closing costs.” It covers the origination-side fees. The appraisal, survey and base title premium sit outside it.
“The cap is still 3%.” It dropped to 2% for loans made on or after January 1, 2018.
“FHA lets me take 85%.” That ceiling applied to case numbers assigned before September 1, 2019. The current limit is 80%.
“Financed costs cost me nothing today.” They cost you cash today, because they come out of your proceeds, and they raise your balance for the life of the loan.
What the Decision Looks Like in Practice
Think of it as three questions in order.
1. Is there enough equity after the payoff? Run the ceiling against your balance. If the gap is thin, costs can erase it.
2. Will the lender’s fees fit under the cap? Ask directly how the FHA premium is treated and whether the lender will put that in writing.
3. Is the net cash worth the trade? Compare the cash you would receive against the larger balance, the added monthly premium and the long-term refinance restrictions that follow a Texas equity loan.
Borrowers who need cash for a specific purpose should weigh alternatives. Lendmire’s piece How to Pay Off Debts at Closing on a Texas Homestead FHA Cash-Out covers one common use. Its companion, whether an FHA cash-out is worth it on a Texas homestead, looks at the trade-off itself.
The options compare like this:
| Option | Cash back | How costs behave | Best fit |
|---|---|---|---|
| FHA cash-out | Yes, to 80% | Premium plus fees squeeze the cap | Rare in Texas |
| FHA rate-and-term | No | Costs financed or paid | Lower payment goals |
| FHA Streamline | No | Net tangible benefit needed | Existing FHA loan |
| Conventional equity loan | Yes, to 80% | Same cap, no FHA premium | Most Texas cash-out |
Where the fee math fails on FHA, a conventional Texas equity loan is the common route. It faces the same 80% ceiling and the same fee cap, but it carries no FHA premium to fit under it. Whether it nets you more cash depends on your credit, your equity and the lender’s fees, so compare real Loan Estimates rather than guessing.
Pre-Closing Checklist
Before you sign, check these items against your cash estimate:
- The appraised value and the ceiling it produces.
- The payoff figure, including per-diem interest that moves the number.
- Every fee, sorted into inside-the-cap and outside-the-cap.
- Whether each cost is paid or financed.
- The prepaid taxes, insurance and escrow deposits, which people often forget.
- Whether every owner and spouse is set to sign. Texas requires consent from each owner and each owner’s spouse.
- Where closing takes place. Texas requires the office of the lender, a title company or an attorney.
- The statutory waiting period before closing and the cancellation window after it, which come from the same constitutional section.
- The final Closing Disclosure against your Loan Estimate, line by line.
If the cash on the final disclosure is meaningfully lower than the estimate, find out why before you sign.
Frequently Asked Questions
Can you get an FHA cash-out refinance on a Texas homestead?
It is possible on paper but uncommon in practice. No statute names FHA and bans it. The difficulty is that the premium and other fees must fit under the Texas 2% cap, and many lenders decline to offer the product for that reason. Availability varies by lender and by file, so ask for a written answer on how the premium is treated.
Does the 2% cap include the FHA upfront premium?
That is unsettled. Some Texas legal analysis treats mortgage insurance premiums as fees that insure the loan, which would count them toward the cap. Treat it as a reading, not a rule, and have your lender state its position.
Can I finance my closing costs into the loan?
Yes, if room remains under the ceiling, but financing lowers your net cash dollar for dollar. If the loan is already at 80% of value, there may be no room to finance anything. You would then pay costs out of pocket or take less cash.
How much cash will I actually receive?
It is 80% of value, minus your existing liens, minus the costs and any financed premium. A lender can show the result on a Loan Estimate for your file. Prepaids, per-diem interest and escrow deposits also reduce the check.
Does my spouse have to sign if they are not on the loan?
Yes. Texas requires each owner and each owner’s spouse to consent to a home equity loan. Closing must also take place at the office of the lender, a title company or an attorney.
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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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 update (cash-out limit of 80%)
2. Texas Constitution, Article XVI, Section 50
3. Texas Finance Commission, 7 TAC §153.5 (two percent fee limitation)
4. HUD FHA mortgage insurance premium structure
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: Conventional and FHA Cash-Out Caps and Seasoning for a Texas Homestead · How to Get an FHA Cash-Out on Texas Homestead Acreage · How to Pay Off Debts at Closing on a Texas Homestead FHA Cash-Out
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.