Texas cash-out refinance rules: your home vs. a rental property

Good china or everyday dishes? One question decides

You've built up equity. Maybe a lot of it. And somewhere between the roof estimate and the tuition bill, you've started wondering whether that equity could do something useful... and whether Texas is going to make it complicated.

(Mild spoiler: a little. Less than you'd think.)

Start with one question: do you live in the property? Texas protects a homestead, the home you actually live in, with a special set of rules in Article XVI, section 50 of the state constitution. Think of it the way your grandmother thought about the good china. You're allowed to use it, but there are rules about how much comes out of the cabinet and how often. (This is Texas. Grandma's rules made it into the constitution.)

A rental, a vacation property you lease out, or a house you're fixing to sell isn't your homestead, so that part of the constitution doesn't apply to it. Those are the everyday dishes. Still yours, still worth looking after, just a different set of rules.

That one answer changes almost everything about a cash-out refinance:

A lot of pages online blur these two together. Some even say Texas only allows cash-out on a primary residence. It doesn't. A rental can be refinanced for cash. It just plays by different rules.

1. Live there?

A cash-out on your homestead follows the Texas home-equity rules.

2. Rent it out?

A cash-out on a rental follows the loan program's limits instead.

3. Already borrowed?

A Texas home-equity loan can later move to a regular loan under conditions.

The good china: cash-out on the home you live in

The part that surprises people: in Texas, a cash-out refinance on your homestead is a home-equity loan. Section 50(e) says that when a refinance gives you new money beyond the cost of refinancing, it has to be made under section 50(a)(6), the home-equity rules. That includes rolling a car loan or credit cards into the new mortgage, because that money goes past refinancing the home. (Yes, even the truck note.)

So the home-equity protections come along, one cabinet rule at a time:

• All the debt on the home, the new loan included, stays at or under 80% of its value. (Sensible. Some of the set stays on the shelf.)
• Closing waits until the 12th day after the later of your application or the state's written notice. (Patient.)
• Fees are capped at 2% of the amount borrowed, with costs like the appraisal and survey outside the cap. (Protective.)
• You and your spouse have three days after closing to cancel. (Downright motherly.)
• Your home can carry one home-equity loan at a time, and a new one generally waits a year after the last one closed. (The good china comes out on special occasions. Grandma has spoken.)

Unpopular opinion: the waiting period is the best rule on that list. A few extra days to think about borrowing against your own house is a feature, not a bug.

Each of these is explained in more depth in our Texas home-equity loan rules guide.

The everyday dishes: cash-out on a rental

A rental isn't your homestead, so the 80% rule, the 12-day wait and the 2% fee cap from the Texas Constitution don't apply. The limits come from the loan program instead. (Grandma's rules stop at the door of the house you live in.)

On a conventional loan sold to Fannie Mae, the Eligibility Matrix (Fannie Mae's published chart of the loans it'll buy) allows a cash-out refinance on an investment property up to 75% of its value for one unit, and 70% for two to four units. Other loan types set their own limits. A DSCR loan in Texas, for instance, looks at the property's rent rather than your personal income. The house brings its own pay stub, more or less. That can be worth comparing.

A made-up example shows how the numbers differ. Same house, same balance, two rulebooks:

Already used the good china? You're not stuck with it

Since 2018, Texas has had a way to move a home-equity loan back to a regular mortgage. Under section 50(f)(2), you can refinance it into a non-home-equity loan when at least a year has passed since it closed, the new loan adds no cash beyond what it takes to refinance, all the debt on the home stays at or under 80% of its value, and you receive a written notice at least 12 days before closing.

Every condition on that list is one you can check from your kitchen table. (Grandma, it turns out, can be reasoned with.)

That can be worth a look if you'd like to combine loans into one, or simply be done with the home-equity label. Our Texas home-equity loan rules guide covers how that change came about.

Which cabinet are you opening?

If the cash is coming from the home you live in, plan around the homestead rules: the 80% limit, a couple of weeks between application and closing, and a year between home-equity loans.

If it's coming from a rental, compare programs. A conventional cash-out and a DSCR cash-out can look quite different, and the better one depends on your income, the rent and how many properties you own.

If you own both, they're two separate decisions, and it often makes sense to look at them side by side before choosing which to tap.

Nobody should have to guess which rulebook their own house is playing by. Texas wrote the homestead rules down for a reason, and once you know which cabinet you're opening, the rest is just deciding what the money's for. Grandma would approve. Probably.