If you own a home in Texas and want to pull cash from your equity, you're playing by a different set of rules than homeowners in every other state. Texas has the strictest cash-out refinance laws in the country, and they're written directly into the state constitution.
The rules are called Section 50(a)(6), and every Texas homeowner considering a cash-out refinance needs to understand them before they apply. You can borrow up to 80% of your home's appraised value, you can't use FHA or VA for cash-out in Texas, and there's a mandatory 12-day waiting period before closing.
I'm Ben Eddy with Colt Lending, and I help Texas homeowners figure out whether a cash-out refinance makes sense for their situation and how to structure it correctly under 50(a)(6). Here's what you need to know.
What Is a Cash-Out Refinance?
A cash-out refinance replaces your existing mortgage with a new, larger loan. The new loan pays off your current balance, and you receive the difference as a lump sum of cash.
Say your home is worth $400,000 and you owe $250,000. With a cash-out refinance, you could take out a new loan for up to $320,000 (80% of the home's value in Texas), pay off the $250,000 you owe, and walk away with up to $70,000 in cash, minus closing costs.
That cash can be used for home improvements, debt consolidation, medical expenses, education costs, or anything else. There are no restrictions on how you use the funds.
The trade-off: your new loan is larger than your old one, so your monthly payment will likely increase. You're also resetting your amortization schedule, which means you'll pay more interest over time unless you refinance into a shorter term.
What Is Section 50(a)(6)?
Section 50(a)(6) is the part of the Texas Constitution that governs home equity lending on homestead properties. It sets the rules for any loan where a Texas homeowner borrows against the equity in their primary residence and receives cash.
These rules don't apply to rate-and-term refinances where you're simply adjusting your interest rate or loan term without pulling cash out. They apply specifically when cash comes out of the transaction.
Here's why it matters: Texas has historically been one of the most protective states in the country when it comes to homestead property. The 50(a)(6) rules exist to prevent homeowners from overleveraging their homes and to limit predatory lending practices.
The result is a set of restrictions that every lender, broker, and borrower must follow. If the loan doesn't comply with 50(a)(6), the lien on the property may not be legally valid.
The Key Rules Every Texas Homeowner Should Know
These are the 50(a)(6) requirements that directly affect your cash-out refinance:
80% maximum loan-to-value (LTV). Your new loan cannot exceed 80% of your home's fair market value. This means you must retain at least 20% equity in your home after the refinance. No exceptions.
Conventional loans only. Texas law does not allow FHA or VA cash-out refinances on homestead properties. Your cash-out refinance must be a conventional loan. This is one of the biggest surprises for veterans who assume they can use their VA benefit for cash-out in Texas.
2% fee cap. Total lender fees on a Texas 50(a)(6) loan are capped at 2% of the loan amount. This includes origination fees, underwriting fees, and other lender charges. Third-party fees like appraisals, title insurance, and recording fees are generally excluded from the cap.
12-day waiting period. After you receive the required 50(a)(6) disclosure (sometimes called the "12-day letter"), you must wait at least 12 calendar days before the loan can close. This waiting period cannot be waived or shortened, even if you want to close sooner.
One-year seasoning rule. You cannot close a new 50(a)(6) loan within 12 months of closing a previous 50(a)(6) loan on the same property. If you did a cash-out refinance last year, you need to wait a full year before doing another one.
In-person closing required. All borrowers and their spouses must attend the closing in person at a title company, lender's office, or attorney's office in Texas. Power of attorney is generally not allowed for 50(a)(6) closings.
One equity loan at a time. There can only be one 50(a)(6) loan secured by your homestead at any given time. You cannot stack multiple equity loans against the same property.
"Once a Texas equity loan, always a Texas equity loan." If your current mortgage is a 50(a)(6) loan, any refinance of that loan is also treated as a 50(a)(6) loan. This is true even if you're not taking any additional cash out. The only exception is a Section 50(a)(4) refinance, which has its own set of requirements including seasoning and LTV restrictions.
When a Cash-Out Refinance Makes Sense in Texas
Despite the restrictions, a cash-out refinance can be the right move in several situations:
Consolidating high-interest debt. If you're carrying credit card balances at 20-25% interest, consolidating that debt into a mortgage rate in the 6-7% range can save you thousands in interest annually. Just know that any debt consolidation through a cash-out refi is treated as a 50(a)(6) transaction, even if the cash goes directly to your creditors and you never touch it personally.
Home improvements that add value. Using equity to fund renovations that increase your home's value can be a smart play, especially if the improvements bring your property closer to the top of your neighborhood's price range.
Covering major expenses. Medical bills, education costs, or business investments are all valid uses for cash-out refinance proceeds.
Lowering your rate while pulling cash. If your current mortgage rate is significantly higher than today's rates, you may be able to lower your rate and pull cash at the same time. This isn't always possible, but when it works, it's the best of both worlds.
When It Doesn't Make Sense
You're close to paying off your mortgage. If you have 10 years left on your loan and refinance into a new 30-year mortgage, you're adding 20 years of payments. The cash you receive may not be worth the long-term cost.
You can't maintain 20% equity. The 80% LTV cap is firm in Texas. If your home hasn't appreciated enough or you haven't paid down enough principal, you may not qualify for any meaningful cash-out amount.
You recently did a cash-out refinance. The one-year seasoning rule means you need to wait 12 months between 50(a)(6) transactions. If you closed a cash-out refi six months ago, you're locked out until that anniversary passes.
You need a VA or FHA cash-out. Texas law prohibits these. If you were counting on your VA benefit for a cash-out refinance, you'll need to use a conventional loan instead. VA can still be used for rate-and-term refinances (IRRRL) in Texas, just not cash-out.
Alternatives to a Cash-Out Refinance in Texas
If a 50(a)(6) loan doesn't fit your situation, there are other ways to access your equity:
Home Equity Line of Credit (HELOC). A HELOC gives you a revolving line of credit secured by your home. It's a separate lien from your primary mortgage. HELOCs in Texas are also subject to 50(a)(6) rules, including the 80% LTV cap, but they offer more flexibility since you can draw funds as needed rather than taking a lump sum. Note: many lenders have limited HELOC availability in Texas due to the complexity of state regulations. For a first-lien structure that behaves differently from a traditional second, see all-in-one loan options and how they compare to a classic HELOC.
Home Equity Loan (closed-end second). A fixed-rate second mortgage that gives you a lump sum without replacing your first mortgage. Subject to 50(a)(6) rules. This can be useful if your first mortgage has a low rate you don't want to lose.
Rate-and-term refinance. If your goal is simply to lower your rate or change your loan term without pulling cash, a standard rate-and-term refinance is not subject to 50(a)(6) restrictions (unless your current loan is already a 50(a)(6) loan). Browse loan programs to see what fits a non-cash-out goal.
How a Broker Helps With Texas Cash-Out Refinances
The 50(a)(6) rules add complexity to every cash-out transaction in Texas. Not every lender handles these loans the same way, and some wholesale lenders have more experience with Texas equity lending than others.
As a broker, I shop across multiple wholesale lenders to find the best rate and terms for your specific situation. I also make sure the transaction is structured correctly under 50(a)(6) from day one, because mistakes in compliance can create legal problems with the lien down the road.
I serve homeowners across Texas, Oklahoma, and Tennessee. Whether you're in Fort Worth, Dallas, Austin, Georgetown, Leander, or Houston, I can walk you through the numbers and tell you whether a cash-out refinance is the right tool for your situation.
Considering a cash-out refinance in Texas? I'm Ben Eddy with Colt Lending. I'll run your numbers, explain your 50(a)(6) options, and find the best rate across multiple lenders. Schedule a call and let's see what makes sense for your situation, or apply online when you're ready.
