Texas 50(a)(6) cash-out refinance

In Texas, any refinance that takes cash out of a homestead is governed by Section 50(a)(6) of the state constitution. The rules protect borrowers and change how the loan works.

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The rules

• 80% cap on all liens combined.
• 12-day wait after application or the state notice, whichever is later.
• 2% fee cap on lender fees; appraisal, survey and title exam excluded.
• One at a time: only one such loan on your homestead, and generally no more than one new one per year.
• Non-recourse: no personal liability except for fraud; foreclosure requires a court order.
• 3-business-day right to cancel after closing.

Is a Texas cash-out refinance or a Texas HELOC better?

A Texas HELOC is usually better if your first mortgage rate is low, because it keeps that rate under the same rules. If your rate is near today's, a 50(a)(6) cash-out refinance gives you one loan and one payment.

Source: Texas Finance Commission home equity notice.

Example

A Texas home worth $450,000 with $200,000 owed. At the 80% cap, total debt can reach $360,000, so a cash-out refinance could pay off the mortgage and provide up to $160,000 in cash, before closing costs. The same cap applies if you use a Texas home equity loan or HELOC instead.

Texas cash-out versus a "no-cash-out" refinance

Once a home has a Section 50(a)(6) loan, that status can carry forward. Texas law allows converting a 50(a)(6) loan to a regular rate-and-term refinance later, under specific conditions, which removes the once-a-year limit and the 80% cap for future refinances. Ask your loan officer whether that fits.

Your protections

• You receive a written notice of your rights at least 12 days before closing.
• You must get a copy of the final loan documents at closing and have three days after closing to cancel.
• Closing must be at a lender's office, an attorney's office or a title company.
• Lender fees are capped at 2% of the loan, excluding appraisal, survey, title insurance and some other items.

Texas HELOC rules.

Texas cash-out checklist

• Confirm the home is your homestead and you haven't closed a 50(a)(6) loan in the past 12 months.
• Calculate the 80% cap including every lien on the home.
• Plan for at least 12 days from application to closing.
• Sign at a lender, attorney or title office, as required.
• Keep your copies of the final documents.

Example: Texas HELOC versus cash-out

A Texas homeowner with a 3% mortgage and $70,000 needed compares a 50(a)(6) cash-out refinance with a Texas HELOC. Both are capped at 80%. The HELOC keeps the 3% rate and requires $4,000 minimum draws; the refinance replaces the rate. The HELOC wins.

Also asked

Does the Texas 80% cash-out cap include all my loans?

Yes. All loans secured by the homestead count toward the 80% cap, including the new loan.

Can I do a Texas cash-out on a rental property?

Yes, but not under Section 50(a)(6). The Texas homestead rules apply only to your homestead, so cash-out loans on rentals and second homes follow standard lending rules instead.

Why can't I use a credit card to draw on a Texas HELOC?

The Texas Constitution prohibits drawing on a home equity line with a credit card, debit card or similar device, and requires each advance to be at least $4,000.

Can I convert a Texas cash-out loan to a regular refinance later?

Yes. Texas allows refinancing a 50(a)(6) loan into a regular refinance under specific conditions, including no new cash and an 80% loan-to-value limit, with a required notice. After that, future refinances aren't limited to once a year.

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