Refinance guide Texas cash-out refinance rules Section 50(a)(6)

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Texas cash-out refinance rules: Understanding Section 50(a)(6)

If you own and live in a Texas homestead and are thinking about refinancing to pull cash out of your home’s equity, you need to understand Section 50(a)(6) of the Texas Constitution. This provision creates important limits and borrower protections that make Texas home-equity lending different from many other states. This article explains what a Section 50(a)(6) cash‑out refinance is, when it makes sense, the benefits and drawbacks, typical costs, the step-by-step process, common pitfalls, and answers to frequently asked questions.

What it is and when it makes sense

Section 50(a)(6) governs loans secured by a Texas homestead, including cash‑out refinances and home equity liens/lines of credit. In practical terms, a Section 50(a)(6) cash‑out refinance is a new mortgage that replaces (or sits alongside) an existing mortgage and also returns some of your home equity to you as cash, while complying with Texas constitutional protections for homestead owners.

This option makes sense when you want to:

  • Consolidate higher‑interest debt (credit cards, personal loans) into a lower‑rate mortgage
  • Fund large expenses such as a major home renovation, education, or medical bills
  • Tap equity while potentially lowering your mortgage rate or extending your repayment period

Because Texas tightly restricts how much equity can be borrowed, a Section 50(a)(6) cash‑out refinance is best for homeowners with significant available equity and a clear plan for how they will use the funds.

Key benefit(s) and drawbacks

Benefits

  • Access to larger sums of money than most unsecured loans, often at lower interest rates
  • Potential debt consolidation and simplified monthly payments
  • Strong consumer protections under Texas law that limit risky lending practices

Drawbacks

  • Strict limits on how much you can borrow (see LTV limits below)
  • Closing costs and fees that can be substantial — these reduce net cash proceeds
  • If you use the cash unwisely, you increase the risk of foreclosure because the home secures the loan
  • Refinancing resets the mortgage clock; you may extend payment years or lose favorable terms on your original loan

Limits, costs, and fees

Loan-to-value (LTV) limits: Section 50(a)(6) places strict limits on the combined amount of loans secured by your homestead. In most cases, the total of the new loan plus existing liens cannot exceed a specified percentage of the property’s fair market value. That cap is the single most important constraint — it determines how much cash you can actually take out.

Common fees and closing costs you should expect:

  • Appraisal fee — verifies current market value
  • Title search and title insurance — protects the lender and borrower
  • Recording fees and local taxes
  • Origination, underwriting, and processing fees charged by the lender
  • Survey, flood certification, lien payoff fees for existing loans
  • Prepayment penalties — rare but possible on some older loans

These costs typically range from several hundred dollars to a few thousand, or about 2–5% of the loan amount depending on the loan size and market. Always get a Loan Estimate so you can compare net cash‑out (loan amount minus closing costs and lien payoffs).

Step‑by‑step process

  • Check eligibility: Confirm your property qualifies as a Texas homestead and that you meet occupancy and credit requirements.
  • Estimate equity and LTV: Get a rough idea of market value and compute how much equity you can legally borrow under Section 50(a)(6).
  • Shop lenders: Compare multiple lenders for interest rates, fees, and willingness to do Texas homestead loans.
  • Apply and submit documents: Income, assets, title information, tax records, and identification.
  • Appraisal and title work: Lender orders appraisal and title search to confirm value and liens.
  • Underwriting: Lender evaluates creditworthiness and compliance with Texas rules.
  • Closing: Review closing documents carefully; you will sign loan documents and the title is updated. Expect required disclosures and any statutory cancellation/right‑to‑rescind periods to be explained.
  • Funding: Lender pays off prior liens and disburses cash proceeds to you (net of fees).

Common pitfalls to avoid

  • Assuming you can borrow all your home’s equity — Texas caps combined liens and will block loans that exceed the constitutional limit.
  • Not accounting for closing costs — net cash can be much lower than the loan amount.
  • Using cash-out proceeds to cover recurring expenses — this can worsen long‑term finances.
  • Failing to verify the lender’s familiarity with Texas homestead lending — some out-of-state lenders may be unfamiliar with Section 50(a)(6) procedures and documentation.
  • Rushing to close without reviewing required disclosures or consulting a closing attorney — Texas affords special protections and technical rules that affect timing and forms.

Short FAQ

Q: How much cash can I take out under Section 50(a)(6)?
A: The amount is limited by the combined loan‑to‑value cap set by the Texas Constitution. That cap determines the maximum total secured debt against your homestead. Your available cash‑out is the difference between that cap and existing liens, minus closing costs. Speak with a Texas‑savvy lender to calculate your exact limit.

Q: Does my home have to be my primary residence?
A: Yes. Section 50(a)(6) protections and the types of homestead loans it covers apply to owner‑occupied homesteads. Investment properties and second homes are typically not eligible for these homestead protections.

Q: Are there special consumer protections I should expect?
A: Yes. Texas imposes additional requirements and disclosures for homestead loans, intended to protect borrowers. Lenders must follow prescribed forms and procedures — including required disclosures and statutory rights — so review documents carefully and ask questions if anything is unclear.

Q: Can federal programs (FHA/VA) override these rules?
A: Federal loans are subject to both federal program rules and state homestead protections. Some federal programs offer alternatives (like streamline refinances) that may have different LTV allowances, but Texas homestead law still affects liens on homesteads. Discuss specifics with a lender or attorney familiar with both federal programs and Texas law.

Before proceeding with a cash‑out refinance in Texas, get clear, written estimates from at least two lenders, confirm the constitutional LTV calculation for your situation, and consider consulting a real estate attorney or HUD‑approved counselor if you have questions about the homestead protections.

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