Updated · Mike Certo, NMLS #260555
Texas Home Equity Section 50(a)(6) Guide
Texas is unique. Its state constitution — specifically Article XVI, Section 50(a)(6) — places strict rules on cash-out and home-equity loans on a Texas primary residence. These rules protect homeowners but also create planning friction. Here's what Texas borrowers need to know before pursuing a cash-out refinance or home-equity loan.
This is a plain-English educational summary. It is not legal advice. Talk to a Texas real estate attorney for specific legal questions.
What is Section 50(a)(6)?
Texas Constitution Article XVI, Section 50(a)(6) was added by constitutional amendment in 1997, allowing home-equity loans in Texas for the first time. Before 1997, Texas homeowners could not take out home-equity loans against their primary residence at all. Today they can — but only under specific rules.
Key Section 50(a)(6) rules
80% combined LTV cap
Total combined loan-to-value (first mortgage + home equity) cannot exceed 80% of the home's fair market value at the time of closing. This is the most well-known 50(a)(6) rule. For a $400,000 home, total mortgage debt cannot exceed $320,000.
12-day cooling-off period
You must wait 12 days from your loan application before the loan can close. This is a constitutional disclosure waiting period and cannot be waived.
2% fee cap on closing costs
Total closing costs (excluding certain discount points, appraisal, survey, title insurance premium, and a few other exceptions) cannot exceed 2% of the loan amount. This limits lender origination charges substantially.
Only one home equity loan at a time
You can only have ONE home-equity loan against your homestead at any given time. If you already have a 50(a)(6) loan, you cannot get a second one without paying off or replacing the first.
Once-per-year refinance limit
You can refinance a 50(a)(6) home-equity loan only once per 12-month period.
Homestead/primary residence only
50(a)(6) applies only to Texas primary residences (homestead property). Investment property, second homes, and commercial property are not subject to these rules and follow standard cash-out rules.
Specific written acknowledgment
You must receive specific written disclosures before closing and must acknowledge them in writing.
Lender cannot accelerate or foreclose for non-payment of non-HE debt
Lender can only foreclose the 50(a)(6) loan for default on that specific loan — not for default on other obligations (credit card, auto loan, etc.).
3-day right of rescission
After closing, you have 3 business days to rescind (cancel) the loan with no penalty.
Converting a 50(a)(6) loan to a non-50(a)(6) loan
If you have an existing 50(a)(6) loan and want to refinance to a rate-and-term (no cash out) loan, Texas allows this conversion. Once converted, your loan becomes a standard rate-and-term refinance not subject to 50(a)(6) restrictions. This is often called the "12-day Texas refi" path.
Cash-out refinance vs rate-and-term refinance in Texas
- Cash-out refi in Texas: Subject to 50(a)(6) rules — 80% LTV cap, 12-day wait, 2% fee cap, etc.
- Rate-and-term refi in Texas (paying off prior 50(a)(6) without taking new cash out): Standard refinance rules apply. No 50(a)(6) restrictions.
- Rate-and-term refi in Texas (no prior 50(a)(6) involvement): Standard refinance rules apply. No 50(a)(6) restrictions.
Practical implications for Texas borrowers
- Maximum cash-out is limited. If you owe $200,000 on a $400,000 home, your maximum total loan is $320,000 — meaning maximum cash out is $120,000 minus closing costs.
- Closing is slower. Plan for the 12-day cooling-off period in your timeline.
- Closing costs are lower. The 2% cap actually helps borrowers by limiting lender fees.
- You can't stack equity loans. If you need additional cash later, you'll need to refinance the existing 50(a)(6) loan with a new one — and pay off the original.
- HELOCs in Texas: Texas allows home-equity lines of credit, but they're subject to similar 80% combined LTV cap and other 50(a)(6) rules.
When 50(a)(6) cash-out makes sense
- Debt consolidation — paying off higher-cost unsecured debt
- Home improvement
- Educational expenses
- Investment in business or other assets
- Funding a child's down payment on a separate home
Talk to your CPA about deductibility — under current federal tax law, interest is generally deductible only when the cash-out is used to "buy, build, or substantially improve" the home that secures the loan.
Next step
20-minute call to review a specific Texas cash-out scenario. We map current equity, target loan amount, eligible programs, and 50(a)(6) compliance.
Related
FAQ
Can I borrow more than 80% of my Texas home value?
Not on a primary residence under 50(a)(6). The constitutional cap is 80% combined LTV. Investment property and second homes are not subject to this cap.
What is the 12-day waiting period for?
Texas constitutional disclosure waiting period — you must wait 12 days from loan application before closing a 50(a)(6) home-equity loan. Cannot be waived.
Does Texas allow HELOCs?
Yes — Texas allows home-equity lines of credit, but they're subject to similar 80% combined LTV cap and other 50(a)(6) rules.
What if I want a rate-and-term refinance, not cash-out?
Rate-and-term refinances are NOT subject to 50(a)(6) restrictions in most cases. The 12-day rule, 2% fee cap, and 80% LTV cap apply to cash-out and 50(a)(6) loans specifically.