Cash-Out Refinance Credit Score Requirements in Texas

Credit Score Requirements for Texas Cash-Out Refinancing

Cash-out refinancing in Texas is subject to both federal loan program requirements and Texas’s unique constitutional framework (Article XVI, Section 50). The credit score requirements come from the loan program; the constitutional constraints come from Texas law regardless of which program you use.

Conventional cash-out refinance (Fannie Mae/Freddie Mac): 620 minimum credit score per agency guidelines, but Loan Level Price Adjustments at lower scores make this expensive. At 620 FICO, LLPAs on a cash-out conventional refinance add approximately 3.5–4.0% of the loan amount in pricing cost — on a $280,000 refinanced balance, that’s $9,800–$11,200 embedded in the rate. Cash-out conventional refinances at 620 are technically available but financially punishing. Practically competitive at 700+, where LLPAs on cash-out are 0.375–0.75% depending on LTV. Best economics at 720+ with LTV below 80%.

FHA cash-out refinance: 580 minimum credit score (per FHA guidelines). No LLPAs — same flat-rate MIP structure as FHA purchase loans. FHA cash-out limits the LTV to 80% of current appraised value (per HUD guidelines). UFMIP of 1.75% and annual MIP of 0.55% apply. For borrowers with scores in the 580–660 range who have sufficient equity, FHA cash-out refinance is often the most accessible and financially reasonable option. Maximum loan amount capped by FHA county limits ($524,225 in most Texas counties).

VA cash-out refinance: No official FICO minimum (VA’s standard framework). Lender overlays typically 580–620. No LLPAs. Funding fee: 3.30% of loan amount for subsequent use (2.15% if first VA use, though most cash-out refinancers have used VA before). VA allows cash-out up to 90% LTV — more permissive than FHA’s 80% ceiling. For eligible veterans, VA cash-out is typically the most flexible and financially advantageous option regardless of credit score.

Texas Constitutional Rules That Override Program Requirements

Regardless of which program you use for a cash-out refinance on a Texas primary residence, Texas Article XVI, Section 50 applies:

80% LTV ceiling: Total home equity debt (the new mortgage balance including the cash-out amount) cannot exceed 80% of the property’s current appraised value. On a home worth $450,000: maximum cash-out loan = $360,000. If you have a $280,000 existing mortgage and want to refinance: maximum cash-out amount = $360,000 – $280,000 = $80,000. Your program’s LTV ceiling (FHA allows 80%, VA allows 90%) is further constrained by the Texas constitutional 80% ceiling on homesteads.

12-day mandatory waiting period: You must receive specific Texas home equity closing disclosures at least 12 calendar days before closing. No exceptions for any program or situation. Plan for this delay in your timeline.

One-per-year restriction: Only one Texas home equity transaction per 12-month period per property. This includes all cash-out refinances, HELOCs, and modifications of home equity loans. If you closed a HELOC in March 2024, you cannot close a cash-out refinance on the same Texas homestead until April 2025.

Texas 50(a)(6) loan designation: Once you take a Texas home equity loan (cash-out refinance on a homestead), that loan is designated under Section 50(a)(6) and can only be refinanced into another Section 50(a)(6) loan or into a no-cash-out rate-and-term refinance that reduces the rate. The Section 50(a)(6) designation follows the transaction, not the balance.

The Low-Score Cash-Out Path: Practical Options

For Texas homeowners with scores in the 580–660 range who have built substantial equity and want to access it:

FHA cash-out at 580–620: Most practical for homeowners who currently have conventional loans and want to extract equity. Rate is competitive (no LLPAs), but MIP at 0.55% annual adds ongoing cost. 80% LTV ceiling applies constitutionally. If you have a current FHA loan, FHA cash-out keeps you within the FHA program.

HELOC as an alternative to cash-out refi: For homeowners with low rates on their existing first mortgage (3–4% from 2020–2021), a HELOC extracts equity without disturbing the advantaged first mortgage rate. HELOC qualification: 620 minimum at most lenders. Subject to Texas’s 80% CLTV ceiling. Variable rate (higher than the fixed first mortgage but leaves the low-rate first mortgage intact). For homeowners with favorable existing rates, a HELOC is often financially superior to a cash-out refinance even at identical credit scores.

Wait and improve: Each 20-point score improvement above 620 reduces LLPAs significantly on conventional cash-out refinances. Moving from 640 to 700 over 6–12 months reduces LLPAs by approximately 2.0% — on a $280,000 refinance, that’s $5,600 in rate savings. If you can afford to wait and have specific score improvement opportunities (utilization reduction, error correction), the payoff from waiting is real.

Tax Implications of Cash-Out Refinancing in Texas

Cash-out refinance proceeds are not taxable income — the IRS treats mortgage proceeds as debt, not income. However, the deductibility of interest on the cash-out portion depends on how you use the proceeds. Per IRS Publication 936 and the Tax Cuts and Jobs Act (2017):

Mortgage interest is deductible (for taxpayers who itemize) on acquisition indebtedness — debt used to buy, build, or substantially improve your home. If you take cash-out proceeds and use them for home improvements, the entire new loan balance may qualify as acquisition indebtedness with deductible interest. If you use cash-out proceeds for other purposes (debt consolidation, investment, personal spending), only the portion of the loan balance representing acquisition debt (the original purchase/improvement portion) generates deductible interest — the cash-out portion used for non-home purposes is treated as home equity indebtedness with limited or no deductibility under current law.

Most Texas homeowners take the standard deduction ($29,200 for married filing jointly in 2025) rather than itemizing — in which case mortgage interest deductibility is moot. Confirm your specific tax situation with your CPA before making cash-out decisions based on assumed tax benefits.