Texas cash-out refinances and home equity loans: What you need to know

If you own a home in Texas, the state constitution plays a role when you want to borrow your home equity. Learn how Article XVI, Section 50 sets limits on how much you can borrow with Texas cash-out refinances and home equity loans, or home equity lines of credit (HELOC). It also limits fees, has timing requirements, and includes borrower protections to help you compare your options.

Rocket Mortgage currently doesn’t offer HELOCs.

Key takeaways:

• Texas cash-out refinances and home equity loans are both governed by Article XVI, Section 50(a)(6) of the Texas Constitution, which caps your total home-secured debt at 80% of your home's fair market value and requires a 12-day waiting period before closing.
• Total fees on either loan type, not counting appraisal, survey, title policy base premium, and title exam, can't exceed 2% of the loan's principal amount, and only one Section 50(a)(6) loan can be secured by your home at a time.
• A HELOC in Texas is also treated as a Section 50(a)(6) loan, so choosing between a cash-out refinance, a home equity loan, and a HELOC often comes down to whether you want a lump sum or ongoing access to your equity, and a blended rate calculation can help you decide.

Texas rules for cash-out refinances and home equity loans

Historically, Texas has prioritized strong homestead protections, which shaped today's limits on how to take out equity from your home.

These rules come from Article XVI, Section 50 of the Texas Constitution and are meant to protect consumers. They outline how much home equity you can borrow, what fees are allowed, and what must happen during the closing process.

Cash-out refinances and home equity loans must meet the standards every time, which is why they're treated differently from similar mortgages in other states.

Texas 50(a)(6) rules at a glance

Before we get into the details, here's a summary of the core rules that apply in Texas to a cash-out refinance and a home equity loan.

• 80% loan-to-value (LTV) maximum: All loans secured by your home can't exceed 80% of its fair market value at closing, so you need to keep at least 20% equity in the home.
• 12-day waiting period: The loan can't close until at least 12 days after the later of your application or your receipt of the required notice.
• 2% fee cap: Total fees, not counting appraisal fee, land survey fee, title insurance fee, and title search or exam, can't exceed 2% of the loan principal amount.
• Nonrecourse protection: Lenders generally can't pursue you personally for a deficiency. Foreclosure on the home is their only remedy, absent fraud, and it must go through a court order.
• One loan at a time: Only one Section 50(a)(6) loan can be secured by your homestead at any given time.
• Closing location: The loan must close only at the office of the mortgage lender, a real estate attorney, or a title company.

These rules apply whether you're doing a cash-out refinance, a home equity loan, or a HELOC.

What are the Texas 50(a)(6) rules?

This section of the constitution defines the rules for both home equity loans and cash-out refinances. It establishes requirements such as LTV limits, property eligibility, closing rules, and disclosures lenders must provide.

Loan structure and amount

The loan must be voluntary and signed by each owner and each owner's spouse. The total of all loans secured by the home may not exceed 80% of the home's fair market value at closing. This means you need to leave at least 20% equity in the home after the refinance or home equity loan closes.

The loan must be nonrecourse, meaning the lender cannot pursue personal liability unless fraud occurred.

Fees and costs

Total fees, not including appraisal, survey, title policy base premium, and title exam, cannot exceed 2% of the principal amount.

Loan type

The loan cannot be an open-end account unless it's a HELOC. The loan must allow prepayment without penalty.

Collateral and terms

The loan must be secured only by the homestead, and no additional collateral is allowed. Only one 50(a)(6) loan may be secured by the homestead at a time. Payments must be substantially equal periodic installments, at least monthly, covering all accrued interest.

Closing requirements

The refinance cannot close before:

• 12 days after the later of (1) application or (2) the borrower receiving the required notice
• 1 business day after the borrower receives the final loan application and itemized fee disclosure
• 1 year after a prior 50(a)(6) loan on the same property, unless an emergency exemption applies

The loan must close only at the office of the lender, an attorney, or a title company.

Lender eligibility

Only certain authorized lenders may originate a 50(a)(6) loan. Rocket Mortgage is proud to offer Texas 50(a)(6) and Texas 50(f)(2) loans.

Required conditions and borrower protections

Among the conditions and protections borrowers and lenders must abide by to comply with Texas regulations are the following:

• Not require the borrower to apply proceeds to another debt, except one secured by the home
• Not require wage assignment
• Not include documents with blank terms
• Not require confession of judgment
• Provide the borrower with all executed documents at closing
• Include a disclosure that it is a 50(a)(6) loan
• Once the loan is paid off, release the lien
• Also required in the federal Truth in Lending Act, Texas law provides a 3-day right of rescission for loans on primary residences.
• Include an acknowledgment of the home's fair market value
• Include strong remedies for the borrower if the lender violates requirements, including potential forfeiture of principal and interest

What are the rules under Texas 50(f)(2)?

Once you have a Texas 50(a)(6) loan, some restrictions must be met to refinance. If you do another cash-out refinance or home equity loan, it's another Texas 50(a)(6) loan. If you’re doing a rate-and-term refi, it falls under another section of the Texas code: 50(f)(2).

To qualify, certain conditions must be met, such as time since the last loan and meeting loan-to-value limits:

• This option doesn't allow additional cash out, except for funds that are being used to refinance another allowed debt, or required lender fees and costs. It simply lets homeowners move from a 50(a)(6) loan to a standard refinance once requirements are satisfied.
• The refinance cannot occur until 12 months after the original 50(a)(6) loan closed.
• The refinanced loan amount must not exceed 80% of the home's fair market value at the time of refinancing.
• The lender must give the borrower a specific written notice at least 12 days before closing that includes detailed explanations and must be presented in a specified format.

Cash-out refi vs. home equity loan

When trying to decide between a cash-out refinance vs. home equity loan, it comes down to understanding the products and how they align with your goals.

Because you live in Texas, both a home equity loan and a cash-out refinance would need to follow the requirements in the Texas Constitution, including staying within 80% of the home's fair market value and meeting the state's closing and disclosure rules.

You can use the home equity calculator from Rocket Mortgage to estimate your equity.

Cash-out refinance

When you do a cash-out refinance, you're taking out a new loan based on your home’s current fair market value.¹ After you pay off your current mortgage balance, you keep the difference. You repay the equity you borrow as part of your new loan.

Home equity loan

A home equity loan is a second mortgage.² In Texas, home equity loans fall under 50(a)(6) and are subject to the same constitutional restrictions.

Many homeowners use a home equity loan for financing projects, planning around predictable payments, or covering one-time expenses while keeping their first mortgage in place.

HELOC considerations in Texas

A HELOC is a Section 50(a)(6) loan in Texas, so it must meet the same 80% loan-to-value limit, 2% fee cap, and 12-day waiting period as a cash-out refinance or home equity loan.

You can compare the products directly in our guide to cash-out refinance vs. HELOC.

Texas law adds a few HELOC-specific rules on top of the standard 50(a)(6) requirements:

• Each advance you draw must be at least $4,000.
• You can't use a credit card, debit card, or similar device, or an unsolicited preprinted check, to draw funds.
• The lender can charge fees only when the line of credit is established, not each time you draw on it.
• The lender can't unilaterally change the terms of your HELOC after it's established.

Because HELOCs typically carry variable interest rates and let you draw, repay, and redraw funds during the draw period, they can suit ongoing or unpredictable expenses better than a lump-sum loan. However, your payment can change depending on how much of your credit you use and current interest rates.

FAQ

Here are answers to common questions about Texas home equity rules.

Can you get a home equity loan after a cash-out refinance?

Yes, but the timing matters. A cash-out refinance in Texas is a Section 50(a)(6) loan, and only one 50(a)(6) loan can be secured by your homestead at a time. To take out a home equity loan afterward, you'd first need to pay off and release that existing lien, or the new loan would need to qualify as a Texas 50(f)(2) refinance instead.

Can you do a HELOC after a cash-out refinance in Texas?

It depends on your existing lien. Because a HELOC is a Section 50(a)(6) loan in Texas, you generally can't open one while another 50(a)(6) loan, including a cash-out refinance, is still secured by the same home. A lender considering a second-lien HELOC will also need to confirm your first lien isn't itself a 50(a)(6) loan before approving it.

Why does Texas not allow cash-out refinance?

Texas does allow cash-out refinancing. What's unique is how tightly the state regulates it. Article XVI, Section 50(a)(6) of the Texas Constitution treats a cash-out refinance the same as a home equity loan, capping it at 80% loan-to-value, limiting fees to 2% of the principal, and requiring a 12-day waiting period before closing. Those added protections are often mistaken for a ban.

What is the 2% rule in Texas for borrowing equity?

This usually refers to the state's 2% fee cap: total fees on a Texas 50(a)(6) cash-out refinance or home equity loan, not counting appraisal, survey, title policy base premium, and title exam, can't exceed 2% of the loan's principal amount.

Can I take out more than one home equity loan at a time in Texas?

No. Texas allows only one 50(a)(6) home equity loan on a property at a time. A new home equity loan can't close until the previous one is paid off and released.

Why is the 80% LTV limit so important in Texas?

Texas limits total home-secured debt to 80% of the home's fair market value. This limit applies to both home equity loans and cash-out refinances. It helps ensure homeowners keep a minimum amount of equity in the property.

Why are home equity loans and cash-out refinances treated differently in Texas?

Texas includes specific home equity rules in its constitution. The overall goal is to support long-term homeowner stability and ensure borrowers understand their loan terms.

The bottom line: Understanding Texas's unique rules can help you navigate your options

Texas has some of the strongest home equity lending protections in the country, and both home equity loans and cash-out refinances must follow them.

Understanding how rules like 50(a)(6) and 50(f)(2) work can help you better navigate your options for using your home's equity. Whether you're looking at a cash-out refinance or a home equity loan, knowing the basics of Texas's requirements can make it easier to understand your options.

When you're ready to make a move, start an application for a home equity loan or cash-out refinance with Rocket Mortgage.

¹ Refinancing may increase finance charges over the life of the loan.

² Home Equity Loan Product is a second standalone lien and may not be used for piggyback transactions. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Not available on Ameriprise products. Additional restrictions, terms, and conditions apply. Must meet qualification requirements. This is not a commitment to lend.