Short answer: In Texas, a cash-out refinance on your primary residence is a "home equity loan" under Article XVI, Section 50(a)(6) of the Texas Constitution. The main rules: your total mortgage debt after the loan cannot exceed 80% of the home's value; lender fees are capped at 2% of the loan amount (certain third-party costs such as the appraisal, survey and title premium are excluded); you must receive a specific written notice at least 12 days before closing; the loan must close at a lender, attorney or title company office; you have three days after closing to cancel; only one 50(a)(6) loan may be closed in any 12-month period; and the loan is non-recourse with no prepayment penalty. Once a 50(a)(6) loan is at least a year old, Texas allows it to be refinanced into a regular rate-and-term loan if the 80% limit and a separate notice are satisfied.
Written by Eric Peterson, Mortgage Loan Originator · NMLS #620962
The Lending Dad, powered by NEXA Lending — NEXA Mortgage, LLC · NMLS #1660690. Based in North Texas; licensed in TX, CA, FL, OK & AR. About Eric →
Why Texas is different
Until 1997 Texas did not allow home equity borrowing against a homestead at all. When voters changed the Constitution, they built in consumer protections that still apply today and that most out-of-state guides get wrong. If your home is your Texas homestead, every one of the rules below applies whether the loan is called a cash-out refinance, a home equity loan, or a "Texas (a)(6)" loan. If the property is a second home or a rental, these rules do not apply and a standard cash-out refinance is used instead.
The rules, one by one
- 80% combined loan-to-value. The new loan plus any other liens on the homestead cannot exceed 80% of the home's fair market value. In practice this means you must keep at least 20% equity in the home after the cash-out. The value is set by an appraisal, and you and the lender must both agree to it in writing.
- 2% fee cap. You cannot be required to pay fees that total more than 2% of the original principal amount. Since the 2018 amendment, the appraisal by a third-party appraiser, a property survey, the state base premium for title insurance (with endorsements) and a title examination report are excluded from the cap. Discount points are generally counted toward it. This cap is why lenders sometimes price Texas (a)(6) loans a little differently: they cannot simply recover costs with fees.
- 12-day notice. The lender must give you the Constitution's prescribed "Notice Concerning Extensions of Credit" at least 12 days before the loan closes. The clock starts when you receive the notice, not when you apply, so the fastest possible Texas cash-out is a little under two weeks.
- Closing location. The loan must be closed only at the office of the lender, an attorney, or a title company. No kitchen-table or mobile-notary closings for the homestead documents.
- Three-day right to cancel. After closing you have three days to rescind without penalty. Funds are not disbursed until that period ends.
- One per 12 months. A new 50(a)(6) loan cannot be closed before the first anniversary of the closing date of any other 50(a)(6) loan on the same homestead, even if the earlier loan has been paid off.
- Non-recourse. The loan is without recourse for personal liability against you and your spouse. If the worst happened, the lender's remedy is the property.
- No prepayment penalty. You can pay it off early at any time.
- Both spouses sign. Because it is the homestead, each owner and each owner's spouse must consent, even if only one is on the loan.
- Agricultural homesteads. Since 2018, a homestead with an agricultural tax valuation is no longer excluded.
"Once a cash-out, always a cash-out" is no longer true
Before 2018, a Texas home equity loan could only ever be refinanced as another home equity loan, carrying all the (a)(6) rules forever. The 2018 amendment (Section 50(f)(2)) changed that: after the (a)(6) loan is at least one year old, it can be refinanced into a regular rate-and-term loan, provided no new cash is advanced (other than closing costs), the 80% limit is met, and you receive a separate written notice at least 12 days before closing explaining that you are giving up the (a)(6) protections. That matters if you took cash out years ago and now just want a lower rate or a shorter term without the (a)(6) constraints.
Cash-out refinance vs. HELOC vs. home equity loan
- Cash-out refinance (a)(6): replaces your entire first mortgage with a larger one. Makes the most sense when your current rate is not something worth protecting, or when you want one payment.
- Home equity line of credit (HELOC): a second lien that leaves your first mortgage untouched. Also a 50(a)(6) product in Texas: the 80% combined limit applies, and each advance must be at least $4,000. Useful when your first mortgage has a rate you do not want to give up, or when you will draw funds over time. NEXA offers a self-directed home equity line application you can start any time.
- Closed-end home equity loan (second lien): a lump-sum second mortgage under the same (a)(6) rules. Sits between the two above.
- Rate-and-term refinance: no cash out, so the (a)(6) rules do not apply (unless you are refinancing an existing (a)(6) loan, in which case see the section above).
What lenders look at
Besides the constitutional rules, an (a)(6) loan is underwritten like any refinance: credit, income, debt-to-income ratio, and the appraisal. Because Texas requires the 80% cap and an agreed value, the appraisal is not optional. Investors that buy Texas home equity loans also apply their own guidelines, so program availability varies by lender and can change.
Common mistakes I see
- Being quoted a 90% or 95% cash-out on a Texas homestead. That does not exist here.
- Planning a closing date that ignores the 12-day notice and the 3-day rescission. Add both to your timeline before you commit funds elsewhere.
- Not realizing an old cash-out is still flagged (a)(6) and asking for a "quick" streamline. It can often be converted now, but it takes the (f)(2) path.
- Using a cash-out to consolidate debt without a plan. It can work well, but it converts unsecured debt into a lien on your homestead. That deserves a sober look, not a sales pitch.
Thinking about tapping equity in a Texas home?
Tell me what you're trying to accomplish. I'll show you the cash-out, HELOC and rate-and-term paths side by side, with the Texas rules applied, and tell you honestly if the right answer is to leave your current loan alone.
Sources
- Texas Constitution, Article XVI, Section 50 (home equity lending provisions, including 50(a)(6) and 50(f)(2))
- Texas Finance Commission: Notice Concerning Extensions of Credit (the 12-day home equity consumer disclosure)
- Finance Commission of Texas: Home Equity Lending regulatory references (7 TAC Chapter 153 interpretations)
- Texas Real Estate Research Center (Texas A&M): What to Know About Home Equity Loans in Texas
- Texas Department of Savings and Mortgage Lending: consumer information
This article is general education, not individualized financial, legal or tax advice, and not an offer or commitment to lend. Program rules change and lenders apply their own guidelines; confirm current requirements with a licensed loan originator before making decisions. No rates, payments or APRs are quoted here. All loans are subject to credit approval, underwriting, property eligibility and program availability. Eric Peterson, Mortgage Loan Originator, NMLS #620962. All mortgage loan origination services are conducted through NEXA Mortgage, LLC dba NEXA Lending, NMLS #1660690, 5559 S Sossaman Rd, Bldg 1, Ste 101, Mesa, AZ 85212. Equal Housing Lender. Texas consumers: see the Texas Complaint & Recovery Fund Notice.