What a cash-out refinance actually does
You replace your existing mortgage with a larger one and take the difference in cash at closing. If your home appraises at $450,000 and you owe $250,000, a cash-out refinance at the Texas maximum of 80% loan-to-value creates a new $360,000 loan — paying off the $250,000 balance and leaving roughly $110,000 before closing costs.
The result is one fixed payment rather than a second lien, and the funds have no use restriction: renovation, debt consolidation, a down payment on an investment property, tuition, or business capital.
The Texas rules that don't exist elsewhere
Home equity lending on a Texas homestead is governed by Article XVI, Section 50(a)(6) of the state constitution. The provisions that change your planning:
- 80% LTV hard ceiling. Total liens can never exceed 80% of appraised value on a primary residence. There is no exception, no compensating factor, and no lender that can go higher.
- 12-day cooling-off period. At least 12 calendar days must pass between the required written notice and your closing date.
- 3-day right of rescission. After closing you have three business days to cancel before funds disburse.
- Fee cap. Certain lender and third-party fees are capped at 2% of the loan amount, excluding interest and appraisal-type charges.
- Closing location. The loan must close at a title company, attorney's office, or lender's office — not at your kitchen table.
- Agricultural exemption. Property claiming an ag exemption generally cannot be used for a 50(a)(6) cash-out.
Investment property is a different animal: Section 50(a)(6) applies to homesteads only, so a rental cash-out follows standard agency or DSCR guidelines — typically 75% LTV with no 12-day wait.
Qualifying: what underwriting looks at
- Credit score. 620 is the practical floor for conventional cash-out; pricing improves meaningfully at 680, 700, and 740.
- Debt-to-income. Generally up to 45%, sometimes 50% with strong reserves. Consolidating credit cards often improves DTI, which is why debt payoff cash-outs approve more easily than people expect.
- Appraisal. Required, and it sets the entire ceiling. A full interior appraisal is standard on Texas cash-out.
- Seasoning. Most programs want 6–12 months of ownership and payment history before a cash-out.
- Occupancy and income documentation. W-2 borrowers document with paystubs and returns; self-employed borrowers can use a bank statement program when tax returns understate real income.
VA cash-out: the Texas advantage
Eligible veterans can access a VA cash-out refinance, which historically allows higher LTV than conventional — but on a Texas homestead the state's 80% ceiling still governs. What VA does give you is no monthly mortgage insurance and generally better pricing. See the VA loan program for entitlement and funding fee details.
Cash-out refinance vs. HELOC vs. second lien
- Choose cash-out when you need a large lump sum, want a fixed payment, and today's rate is at or near your current rate.
- Choose a HELOC when your existing first mortgage carries a low rate you don't want to lose, or you want a flexible line you draw against over time.
- Choose a closed-end second when you want a fixed lump sum without touching a low first-mortgage rate.
The mistake I see most: refinancing a 3.5% first mortgage into a much higher rate to access $50,000. The blended cost of keeping the first and adding a second is often far lower. Read the deeper breakdown in the Texas home equity loan guide.
What it costs and how long it takes
Expect total closing costs in the range of 2–5% of the new loan amount — origination, title, appraisal, recording, and prepaid escrows. Most Texas cash-out refinances close in 30–45 days once you account for the 12-day notice period and the 3-day rescission.
Run your own scenario in the mortgage calculator before you commit — the number that matters is total interest cost over how long you actually plan to keep the loan, not the monthly payment alone.
Frequently asked
How much equity can I take out?
Up to 80% of appraised value on a Texas primary residence, including all existing liens. You always retain 20% equity.
Can I do a cash-out refinance twice?
Yes, subject to seasoning requirements and the 80% ceiling. Texas also restricts how a prior 50(a)(6) loan can later be refinanced into a non-cash-out loan, so the order of operations matters — worth a conversation before you start.
Is the cash taxable?
No — it's loan proceeds, not income. Interest deductibility depends on how you use the funds. Not tax advice; confirm with your CPA.
Can I cash out on a rental property?
Yes. Investment properties fall outside Section 50(a)(6), so you're typically looking at 75% LTV under conventional or DSCR guidelines with no 12-day wait.
Where to go next
If your income isn't a W-2
Most of what Mike does sits outside agency guidelines. If your file is self-employed, 1099, asset-heavy, or investor-owned, start here:
Qualify a rental on its own rent instead of your tax returns.
Use 12–24 months of business deposits as qualifying income.
Six line-by-line ratio calculations across Texas metros.
Deposit math, expense factors, and 12 vs 24 month options.
Asset depletion, 1099-only, P&L, ITIN and foreign national paths.
Estimate your ratio from rent and total housing expense.
Educational content only — not a commitment to lend or an offer of credit. Loan terms, LTV limits, and program guidelines are subject to underwriting approval and change without notice. Not tax or legal advice.