The Texas rule: 80% combined loan-to-value, period
Section 50(a)(6) of the Texas Constitution caps home equity borrowing on your primary residence at 80% of the home's appraised value — combined across every lien on the property. If your home appraises at $500,000, total mortgage debt across your first lien, second lien, and any HELOC cannot exceed $400,000. This is the single most important number in Texas home equity.
Other states routinely allow 85–95% CLTV. Texas does not. The trade-off: Texas homeowners came through the 2008 downturn with dramatically lower foreclosure rates than the national average, and the state's homestead protections remain among the strongest in the country.
Three ways to tap Texas home equity
- Texas Cash-Out Refinance (50(a)(6)). Replace your existing first mortgage with a larger one and take the difference in cash. Best when today's rate is close to or better than your current rate.
- Home Equity Loan (closed-end second lien). Sits behind your existing first mortgage. Fixed rate, fixed term. Best when your existing rate is meaningfully lower than today's market.
- Home Equity Line of Credit (HELOC, 50(t)). Revolving line behind your first mortgage. Variable rate. Best for staged renovations or standby liquidity.
The Texas 50(a)(6) rules you have to know
- 2% fee cap. Non-interest closing costs on a Texas home equity loan cannot exceed 2% of the loan amount (with narrow exceptions for appraisal, survey, and title premiums).
- One home equity loan per 12 months. You cannot originate a new 50(a)(6) or 50(t) loan within 12 months of the last one closing.
- 12-day cooling-off period. A Texas home equity loan cannot close until at least 12 days after you sign the initial disclosure.
- 3-day right of rescission. After closing, you have 3 business days to cancel.
- Primary homestead only. 50(a)(6) applies to your primary residence. Investment property cash-out follows conventional or DSCR rules — different (and often more flexible) territory.
- No prepayment penalties. Texas prohibits them on home equity loans.
- Once a Texas cash-out, always a Texas cash-out. Any future refinance of the same lien inherits 50(a)(6) treatment — even a rate-and-term refinance — until it's paid off. Plan accordingly.
Cash-out refinance or second lien — which is right?
The decision usually turns on your existing first-lien rate. If your first mortgage is at 3.25% and today's rate is 6.75%, blending a cash-out refinance across the whole balance would cost far more than the equity is worth. Keep the low first lien and add a fixed-rate second or a HELOC.
If your existing rate is close to today's market — or if you'd benefit from a longer term or a program change (say, dropping FHA mortgage insurance) — a full cash-out refinance may be cleaner and cheaper over the life of the loan.
Common Texas home equity use cases
- Renovations that expand square footage or update dated systems
- Consolidating high-rate credit card or personal loan debt into a lower fixed rate
- Funding a down payment on an investment property or second home
- Bridging a business capital need against long-held home equity
- Covering tuition, medical, or major family expenses at a lower rate than personal credit
Consult your CPA on deductibility. Tax treatment of home equity interest depends on how the proceeds are used.
What underwriters look at
- Credit: 680+ is typical for best pricing; some programs go to 620.
- DTI: Total debt-to-income generally capped at 45–50%.
- Equity: Must have real, appraised equity above the 80% CLTV line.
- Seasoning: 12 months since your last home equity origination on this property.
- Homestead: Must be your primary residence in Texas.
Investment property equity — a different door
50(a)(6) doesn't govern investment property. Cash-out refinances on Texas rentals typically follow conventional guidelines (up to 75% LTV on a 1-unit rental) or DSCR (up to 75–80% depending on ratio). If your equity is in rentals, you have more room and fewer constitutional constraints — see the DSCR program page.