The Quick Read: An FHA cash-out is possible in Texas, but it does not let you keep a low first mortgage. It is a new first-lien loan that pays off the whole existing mortgage and puts the cash on top, so you give up your current terms to get it. Both FHA and the Texas Constitution cap the new loan at 80% of the home’s value, and Texas adds its own waiting rules before closing. For a homeowner attached to a low existing first mortgage, the real question is whether the cash is worth replacing the loan you have.
What “Locked-in” Really Means Here
A locked-in first mortgage is one with terms you would not get today. The balance may be small, the cost may be low, or both. Those two traits point in different directions, and it helps to separate them.
A low balance helps the equity math. The less you owe, the more room sits under the 80% ceiling. A low cost of borrowing is the part you give up. An FHA cash-out does not add a second loan beside your first. It replaces the first loan outright. Every dollar you owe gets re-priced under new terms, not just the cash you pull out.
That is the central trade-off, and it is worth saying plainly. The household swaps its existing first-mortgage terms for new ones in exchange for access to equity. Whether that swap makes sense is a side-by-side comparison, not a rule of thumb.
Can You Get an FHA Cash-Out in Texas?
Yes. Some sources online say FHA cash-out is not available in Texas, and others say it is. The confusion comes from two separate rule layers that get blended together.
Layer one is HUD. HUD sets the FHA terms. HUD Mortgagee Letter 2019-11 cut the maximum loan-to-value on FHA cash-out refinances to 80 percent for case numbers assigned on or after September 1, 2019. Earlier, the cap was higher. That is history, not the current rule.
Layer two is Texas. The Texas Constitution, Article XVI, Section 50(a)(6), governs cash-out loans against a homestead. It caps the new loan plus all other liens at 80 percent of the home’s fair market value, per the statute text. The state finance agencies administer the rules that interpret it.
HUD does not write a Texas rule. Texas does not write an FHA rule. The two land on the same 80% number for different reasons, and a borrower has to satisfy both. Across the wholesale programs Lendmire places files with, FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. In Texas, that same file also has to clear the homestead requirements below. Program figures are subject to lender guidelines and full file review.
How the Two Sets of Rules Stack
The table shows what each layer controls and what it means for someone holding a low first mortgage.
| Rule | Who sets it | Effect on you |
|---|---|---|
| 80% cap | HUD and Texas | Both apply; the lower result governs |
| 12-month ownership and occupancy | HUD | Home must be your principal residence |
| Consent of each owner and spouse | Texas | Affects married borrowers on title |
| Waiting period before closing | Texas | Closing cannot happen early |
| Non-recourse status | Texas | Foreclosure on the home is still possible |
| Upfront and annual mortgage insurance | HUD | Added cost on the new loan |
An FHA exception to the 80% limit, if one existed, would not override the Texas cap. The Texas cap counts every lien on the home, not only the new first mortgage. If any other lien will remain, it eats into the cash available.
What the Gate Looks Like for Your Current Mortgage
The type of your existing mortgage can decide the whole plan.
A regular purchase-money first mortgage. This is the common case. It gets paid off in full at closing, and the new FHA loan takes its place.
An existing FHA loan. You can still refinance with cash out, but you give up the simpler options. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It does not pay out cash. Cash-out is the path that needs an appraisal and the 80% test.
An earlier Texas cash-out loan. Texas treats a prior 50(a)(6) loan with extra care. A new one cannot close within one year of the previous one. Refinancing an equity loan into a regular loan has its own conditions, including that it come at least a year after the original and provide no extra funds beyond refinancing costs, per a law-firm summary of the amendments. A no-cash refinance does not automatically wipe the restrictions.
A HELOC or reverse mortgage on the home. Texas does not permit a cash-out loan while one of these remains secured by the homestead. It would need to be paid off or closed as part of the transaction.
How Much Cash Can You Actually Pull?
The cash depends on appraised value, and the appraisal is the center of the file. Lower value means less cash.
Run it in words. Take the appraised value and multiply by 80%. That is the most the new loan, plus any other liens that stay on the home, can total. Subtract what you owe on the first mortgage. What is left is the ceiling on your cash. Then subtract the costs that come out of the transaction, which can include any upfront mortgage insurance premium financed into the balance. A qualified local professional can confirm which costs apply to your situation.
Picture a homeowner with a very low balance on a first mortgage and a home that has appreciated. The 80% test leaves a large gap, and the cash looks generous. Now picture one who bought recently with a small down payment. The same test leaves little room. The equity you hold is the story, not the age of the loan.
What It Costs to Give Up Your Existing Loan
This is the question a locked-in owner should answer before anything else. Lendmire does not quote rates here, and the number that matters comes from your own file.
Start with what the new loan changes:
- The whole balance is re-priced. Not only the cash you take out.
- The term resets. A loan you have paid down for years becomes a new term.
- Mortgage insurance is added. FHA charges an upfront premium of 1.75% of the base loan, which is financed into the balance. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above ninety percent LTV the annual premium lasts for the term. At or below ninety percent it ends after eleven years. Because FHA cash-out stops at 80% LTV, the loan sits in the lower bracket, and HUD lists the current tiers on its mortgage insurance structure page. HUD reduced annual premiums effective March 20, 2023 and left the upfront premium unchanged.
- Closing costs reduce net cash. Texas treats certain lender fees under a statutory cap, and third-party costs like appraisal, survey and title are handled separately. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
The comparison to run: what your current first mortgage costs per month over the years you expect to keep it, against the new loan’s full cost for the same years, plus what the cash earns or saves you. If the cash pays off higher-cost debt or funds a repair that protects the home’s value, the math can lean one way. If it funds something that does not pay back, it leans the other way. Ask for both numbers side by side.
Step by Step: From First Call to Funds
1. Check the 12 months. Ownership and occupancy must run for 12 months before the FHA case number is assigned. Lenders look at documents like employment records or utility bills to show you lived there.
2. Check payment history. Recent payments are reviewed month by month. Late payments on the current mortgage can stall the file.
3. Check the Texas gates early. Confirm the home is your homestead and a one-unit primary residence. Confirm there is no prior Texas cash-out loan within the past year. Confirm no HELOC or reverse mortgage will stay on the property.
4. Apply and receive the Texas notice. The lender gives you a separate consumer notice. A loan cannot close before the 12th day after you receive it, per 7 TAC §153.51. The state notice runs from 12 days after you apply or 12 days after you receive it, whichever is later. That clock runs alongside underwriting and the appraisal, so it only holds you up if the rest of the file is ready sooner.
5. Appraisal. The appraised value drives the 80% math. Expect it to be central, and expect an interior and exterior review.
6. Underwriting. The lender reviews credit, income, employment documents, the new payment including mortgage insurance, and any debts paid at closing. The base ratio pair is 31/43 (housing and total), and documented compensating factors can reach 40/50 at the top tier. The automated finding governs most files. A 580 decision score is where the wholesale programs Lendmire works with start.
7. Loan Estimate and Closing Disclosure. These standard disclosures lay out the loan terms and costs. Read them against the comparison above.
8. Close in a permitted place. Texas requires closing at the office of the lender, a title company or an attorney.
9. Rescission window. A refinance of your principal home carries a three-business-day right to rescind. Under the CFPB’s description, the clock starts after you sign the note, receive an accurate Truth in Lending disclosure and receive two copies of the rescission notice. The notice must be in writing. A phone call does not cancel the loan. Funds are generally not released until the window ends.
What Decides the Outcome
In order of impact:
- Appraised value. It sets the ceiling.
- Occupancy and payment history. Missing the 12-month test delays the loan.
- Credit and income ratios. Along with the total cost of the new payment.
- The Texas timing rules. Notice, waiting period, closing location and rescission all have to line up.
A note for married borrowers: Texas requires the consent of each owner and each owner’s spouse. A spouse who is not on title still has to consent. Also, a non-occupant co-borrower’s income cannot be used to qualify on an FHA cash-out. That is a common snag when a parent or relative was going to help carry the file.
Where the General Rule Breaks
Inherited homes. HUD has an inheritance exception to the 12-month occupancy test, and lender matrices reflect it. Ask the lender how it applies if the home was rented at any point.
Rental income from an ADU. It cannot be counted as qualifying income on this loan.
Second homes and rentals. Occupancy decides the leverage. FHA cash-out is for a principal residence only, and Texas homestead rules apply to homesteads, not other property.
Other loan types. VA and conventional cash-out in Texas run into the same homestead rules, because the constitution applies by property, not by loan type. FHA differs in its mortgage insurance structure.
Taking no cash. A refinance of a non-equity first mortgage that returns no cash is a different transaction and is exempt from the 50(a)(6) rules. The lender confirms that no cash comes back from other financing.
Keeping Your First Mortgage: Your Alternatives
If the swap does not pencil, these are the options, in plain terms.
| Option | What happens to your first mortgage | Fit |
|---|---|---|
| FHA cash-out refinance | Replaced entirely | Need cash, accept new terms |
| Home equity loan | Stays in place | Fixed one-time need |
| HELOC | Stays in place | Ongoing or uncertain needs |
| Rate-and-term refinance | Replaced, no cash | Change terms only |
Texas limits how these combine. A cash-out loan against the homestead cannot sit alongside an open HELOC, and only one such loan is allowed at a time. The total of all liens still has to respect the 80% test. Lendmire arranges FHA, VA, conventional and jumbo loans through wholesale lenders, and the programs differ in how much equity each one reaches. The FHA cash-out refinance program page lays out where FHA fits among them.
A Simple Decision Guide
- Keep the first mortgage if the cash need is modest and a second lien fits the budget, or if the gap between your current terms and new ones is wide.
- Replace it if you want one loan, need a larger sum, or your current first mortgage no longer fits your situation anyway.
- Wait if you have not met 12 months of occupancy, have late payments in the recent record, or hold a Texas cash-out loan that is under a year old.
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
Cash-out refinance: A new loan that pays off your existing mortgage and gives you the difference in cash.
Homestead: The home you live in and claim as your primary residence, which Texas protects with special rules.
Combined loan-to-value (CLTV): All the liens on the home added together, divided by the home’s appraised value.
Seasoning: The length of time you have owned, lived in or held a loan before a new one is allowed.
Non-recourse: A loan where, absent fraud, the lender looks to the home and not your other assets if you default.
50(a)(6): The section of the Texas Constitution that governs cash-out loans against a homestead.
Right of rescission: Your three-business-day right to cancel a refinance of your principal home after closing.
Frequently Asked Questions
Can I keep my low-rate first mortgage and just add cash with FHA?
No. An FHA cash-out replaces the first mortgage. If you want to keep your current loan, the paths are a home equity loan or a HELOC, subject to the Texas limits on combining liens.
Is the Texas limit different from the FHA limit?
Both reach 80%, but for separate reasons. HUD sets the FHA cap, and the Texas Constitution sets the state cap on all liens combined. You have to meet both, and the Texas cap counts every lien on the home.
How long do I have to wait before closing?
Texas requires at least 12 days between when you receive the state notice and closing, and that clock runs alongside underwriting. After closing, the three-business-day rescission window applies before funds are generally released.
Can I do this if my current loan is already FHA?
Yes, though the FHA Streamline pays out no cash. If you want cash, the FHA cash-out path applies, with its appraisal and 80% test.
Can I cancel by phone after I sign?
No. Rescission requires written notice. The three days start only after the note is signed and you have received the required disclosures and notices.
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
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.
For the program’s current guidelines, see FHA loan programs.
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References
1. HUD Mortgagee Letter 2019-11
2. Texas Constitution Art. XVI §50
3. Alston & Bird advisory on Texas home equity amendments
4. HUD FHA Answers: Mortgage Insurance Premium structure
5. HUD Mortgagee Letter 2023-05
7. CFPB: Right of rescission after closing
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: Can You Refinance a Texas Homestead FHA Cash-Out Into Better Terms? · FHA Cash-Out Mortgage Recording Costs for a New York Homeowner · Texas Homestead Rules for an FHA Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.