In 2025, Texas homeowners are sitting on record levels of home equity thanks to years of rising property values. For many, a cash-out refinance offers a strategic way to tap into that equity—whether to fund renovations, consolidate debt, or invest in new opportunities.
Texas Cash-Out Refinance Rules and Requirements in 2025
But unlike other states, Texas has unique laws and restrictions that govern how cash-out refinancing works. This guide breaks down everything you need to know about Texas cash-out refinance rules, eligibility requirements, and how to navigate the process successfully.
What Is a Cash-Out Refinance in Texas?
A Texas cash-out refinance replaces your existing mortgage with a new, larger loan. The difference between the old loan balance and the new loan amount is paid to you in cash. Even in Texas, you can use this money for:
- Home improvements
- Debt consolidation
- Education expenses
- Business investments
- Major life events
In Texas, this type of loan is known as a Section 50(a)(6) loan, or simply a Texas A6 loan.
Texas-Specific Rules for Cash-Out Refinancing
Texas law imposes stricter guidelines than most states to protect homeowners from over-leveraging their property. Here are the key rules:
1. 80% Loan-to-Value (LTV) Cap
- You can borrow up to 80% of your home’s appraised value.
- This means you must retain at least 20% equity after refinancing.
- Example: If your home is worth $400,000, the maximum loan amount is $320,000.
2. 2% Cap on Lender Fees
- Lender-charged fees (origination, underwriting, etc.) cannot exceed 2% of the loan amount.
- Third-party fees (appraisal, title insurance, attorney fees) are not included in this cap.
3. One Cash-Out Refinance Per Year
- You must wait 12 months between cash-out refinance transactions.
- Even if you refinance without taking additional cash, it’s still considered a cash-out under Texas law.
4. 12-Day Disclosure Period
- After applying, you must receive and sign a 12-day disclosure letter before closing.
- This waiting period ensures you understand the terms and risks.
5. Primary Residence Only
- Texas cash-out refinance rules apply only to your primary residence.
- Investment properties and second homes are not subject to these restrictions.
6. No Additional Equity Loans Allowed
- If you have a Texas cash-out loan, you cannot take out a second lien (like a HELOC or home equity loan) until the cash-out loan is paid off.
7. Waiting Periods After Credit Events
| Event | Waiting Period |
|---|---|
| Foreclosure | 7 years |
| Bankruptcy | 4 years |
| Short Sale | 4 years |
✅ Eligibility Requirements
To qualify for a Texas cash-out refinance, you’ll need to meet both state laws and lender guidelines.
🔢 Minimum Credit Score
- Most lenders require a credit score of 620–660.
- Higher scores may unlock better rates and terms.
📉 Debt-to-Income Ratio (DTI)
- Your DTI should be 43% or less.
- Some lenders may allow up to 50% with compensating factors.
🏦 Home Equity
- You must have at least 20% equity in your home.
- All existing liens (including HELOCs) must be paid off during the refinance.
📍 Occupancy
- The property must be your primary residence.
- You must have owned the home for at least 6 months.
Example 1: Renovating a Family Home
Homeowner: Lisa, Dallas, TX
Home Value: $500,000
Mortgage Balance: $300,000
Equity: $200,000
Credit Score: 720
DTI: 38%
Lisa wanted to renovate her kitchen and bathrooms. She applied for a cash-out refinance and was approved for a new loan of $400,000 (80% of home value). After paying off her existing mortgage, she received $100,000 in cash. Her lender charged 1.5% in fees, well within the 2% cap.
Example 2: Consolidating Debt
Homeowner: Marcus, Austin, TX
Home Value: $350,000
Mortgage Balance: $250,000
Credit Score: 640
DTI: 42%
Marcus had $30,000 in credit card debt and wanted to consolidate it. He refinanced his mortgage to $280,000, receiving $30,000 in cash. His new monthly payment was slightly higher, but his overall debt payments dropped significantly. He signed the 12-day disclosure and closed within 3 weeks.
How to Apply for a Texas Cash-Out Refinance
Here’s a step-by-step overview of the process:
- Check Your Credit Score
Use free tools or request a report from credit bureaus. - Estimate Your Home’s Value
Use online tools or consult a local appraiser. - Calculate Your Equity
Subtract your mortgage balance from your home’s value. - Shop for Lenders
Compare rates, fees, and terms from banks, credit unions, and online lenders. - Submit Your Application
Provide income documents, bank statements, and property details. - Sign the 12-Day Disclosure Letter
Review and sign before closing. - Schedule an Appraisal
Your lender will order a professional appraisal. - Close the Loan
Sign final documents and receive your funds.
Pros and Cons of Texas Cash-Out Refinancing
✅ Pros
- Access to large sums of cash
- Potentially lower interest rates than personal loans
- Consolidates debt into one payment
- May be tax-deductible if used for home improvements
❌ Cons
- Higher loan balance and monthly payments
- Risk of foreclosure if payments are missed
- Strict Texas rules limit flexibility
- Can reset the mortgage term
Final Thoughts on Getting a Texas Cash Out Refinance
Texas cash-out refinancing in 2025 remains a powerful tool for homeowners—but it’s not a one-size-fits-all solution. The 80% LTV cap, 12-day disclosure, and annual limit are designed to protect borrowers, but they also require careful planning.
If you’re considering a cash-out refinance, make sure you understand the rules, compare lenders, and evaluate whether it aligns with your financial goals. With the right strategy, you can turn your home equity into a smart financial opportunity.
Want help calculating your borrowing power or comparing lenders? I’d be happy to walk you through it.