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

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Utilizing home equity can present an exciting opportunity to help you accomplish renovation, maintenance, or financial goals. If you live in Texas, it’s important to know your state has unique constitutional rules that govern home equity loans and cash-out refinances.

These Texas-specific requirements can be a little confusing, but you’ll see that they are actually meant to provide refinancers with more confidence. The stringent guidelines are designed to protect homeowner equity and reduce the risk of foreclosure.

Texas rules for cash-out refinances and home equity loans

Historically, Texas has prioritized strong homestead protections, which shaped today’s limits on how homeowners can borrow against their equity.

These rules come from Article XVI, Section 50 of the Texas Constitution and are meant to offer added consumer protections. They outline how much 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)

This section of the constitution defines the rules for both home equity loans and cash-out refinances. It establishes requirements such as loan-to-value 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 non-recourse, 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 home equity line of credit (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 be in compliance 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 in the 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

Texas 50(f)(2)

Once you have a Texas 50(a)(6) loan, there are restrictions that have to be met in order to refinance moving forward. If you do another cash-out refinance or home equity loan, it’s another Texas 50(a)(6) loan. If doing a rate-and-term refi, it falls under another section of the Texas code that we haven’t talked about yet: 50(f)(2).¹

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 and a home equity loan, it comes down to understanding the products and how they align with your goals. You can explore the differences further in our guide to a cash-out refinance vs. home equity loan.

Imagine your home is worth $400,000 and you currently owe $250,000 on your mortgage. You’re hoping to access around $50,000 for home updates you’ve been planning.

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.

Cash-out refinance

When you do a cash-out refinance, you're replacing your existing mortgage with a new one and offering cash back after closing based on the equity you're tapping into. It's a great option for remodels, covering large expenses, or restructuring existing debt.

In the example:

• You refinance your existing $250,000 mortgage into a new mortgage.
• Your new loan amount could include the $50,000 you want to take from your equity, as long as the total loan amount stays within the state’s 80% loan-to-value limit.
• 3 business days after closing, you’d receive the proceeds from your refinance.
• Your original mortgage would be replaced by the new loan, and you’d make one monthly payment going forward.

Home equity loan

A home equity loan is a separate, fixed-rate second mortgage.² Just remember that in Texas, home equity loans also fall under 50(a)(6) and are subject to the same constitutional restrictions. A home equity loan is often used for financing projects, planning around predictable payments, or covering one-time expenses while keeping your first mortgage in place.

In the example:

• Instead of refinancing, you could keep your current $250,000 mortgage in place.
• You take out a separate, fixed-rate home equity loan for the $50,000 you want to use.
• You’d have two payments: one on your original mortgage and one on the new home equity loan.
• Because this is also considered a Texas 50(a)(6) loan, it would follow the same constitutional requirements for loan-to-value, fees, timing, and closing location.

When deciding between a cash-out refinance and a home equity loan, you should do a blended rate calculation. In a blended rate calculation, you take the weighted average interest rate between your existing mortgage and the rate you can get if you were to access your equity through a home equity loan. Here is what the equation looks like:

((Existing mortgage balance × Existing mortgage rate) + (Home equity loan balance × home equity loan rate)) ÷ (Existing mortgage balance + Home equity loan balance)

If the math comes out to a lower interest rate than you would receive by doing a cash-out refinance under a bigger balance based on the equity taken out, you should do a home equity loan. Otherwise, the cash-out refi makes more sense. A Home Loan Expert can help you run the numbers.

FAQ about Texas home equity loans and cash-out refinances

We've covered the basics, but it's completely normal to still have a few questions. Let's look at some commonly asked questions about Texas home equity rules.

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.

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% loan-to-value 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.

The bottom line: Understanding Texas’ 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’ requirements can make it easier to understand your options.

When you're ready to make a move, start the application process 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 requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher-priced loans in the State of New York are subject to additional regulatory requirements. Additional restrictions apply. This is not a commitment to lend.

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