FHA Cash-Out Refinance in Texas: Rules and Requirements
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An FHA cash-out refinance replaces your mortgage with a larger FHA loan of up to 80% of your home’s appraised value and pays you the difference in cash. HUD requires that you’ve owned and lived in the home for the 12 months before applying and made every mortgage payment on time for the last 12 months. In Texas, a cash-out loan on your homestead must also follow Section 50(a)(6) of the Texas Constitution, which adds a 2% fee cap, a 12-day waiting period and a once-a-year limit.
Herring Bank is a direct mortgage lender serving Texas, Oklahoma and Colorado. We help homeowners compare FHA cash-out, conventional cash-out and HELOC options so they choose the cheapest way to reach their equity.
Thinking about pulling cash from your home? Tell us your home value and balance, and we’ll show you what each option would look like. Apply for an FHA cash-out refinance with Herring Bank.
Key Takeaways
- Maximum LTV and CLTV: 80% of appraised value
- Occupancy: Primary residence, owned and occupied for 12 months before case number
- Payment history: All payments within the month due for the last 12 months
- Seasoning on current loan: At least 6 payments (none needed if owned free and clear)
- Minimum credit score (HUD): 500; lender minimums are often higher
How an FHA Cash-Out Refinance Works
HUD Handbook 4000.1 defines a cash-out refinance as a refinance of any mortgage (FHA or not), or a new loan on a home you own free and clear, “in which the mortgage proceeds are not limited to specific purposes.” You can use the money for anything: repairs, tuition, medical bills or paying off higher-rate debt.
The basic math:
- An FHA-approved appraiser values the home.
- The maximum base loan is 80% of that value (HUD sets both the LTV and the combined LTV, counting any second lien, at 80%).
- The new loan pays off your current mortgage and any other liens being refinanced, plus closing costs if you finance them.
- What’s left is paid to you at closing.
- The 1.75% upfront mortgage insurance premium can be added on top of the 80% base loan.
The loan also has to stay under the FHA loan limit for your county, $541,287 in most of Texas in 2026 and $563,500 in Dallas-Fort Worth. See FHA loan limits by county for the full list.
FHA Cash-Out Refinance Requirements
Ownership and Occupancy: The FHA 12-Month Rule
FHA cash-out is only allowed on an owner-occupied primary residence. At least one borrower must have owned the home and lived in it as their principal residence for the 12 months before the FHA case number is assigned. Your lender will check employment records or utility bills to document it.
Two exceptions in HUD’s handbook:
- Inherited homes: no minimum occupancy, as long as you’ve never rented the home out since inheriting it.
- Manufactured homes: must have been permanently installed on the site for more than 12 months.
Payment History
Every mortgage payment for the past 12 months (or since you got the mortgage, if shorter) must have been made within the month due. The payment for the month before closing must be on time too. If the home has a mortgage, you need at least six payments on the current loan. A home owned free and clear can also be refinanced as a cash-out.
If you had a forbearance plan, you must have finished it and then made 12 consecutive on-time payments.
Credit Score and Debt-to-Income
HUD’s handbook sets the credit score floor at 500 for FHA loans, with full financing at 580 and above. Because a cash-out tops out at 80% LTV anyway, the score mainly affects your rate and whether a lender will approve the loan. Herring’s Texas FHA loans page lists a 580 minimum and typical ratios of 31% for housing and 43% for total debt, with exceptions up to 46.99% and 56.99% with strong compensating factors.
Two qualifying limits are specific to cash-out:
- Income from a non-occupant co-borrower can’t be used to qualify.
- Rent from an accessory dwelling unit on the property can’t be counted as income.
For more on scores, see the credit score you need for a cash-out refinance in Texas.
FHA Cash-Out Requirements at a Glance
| Requirement | FHA rule |
|---|---|
| Maximum LTV and CLTV | 80% of appraised value |
| Occupancy | Primary residence, owned and occupied for 12 months before case number |
| Payment history | All payments within the month due for the last 12 months |
| Seasoning on current loan | At least 6 payments (none needed if owned free and clear) |
| Minimum credit score (HUD) | 500; lender minimums are often higher |
| Loan limit | County FHA limit applies |
| Appraisal | Required |
| Upfront MIP | 1.75% of base loan |
Texas Homestead Rules That Apply: Section 50(a)(6)
This is where Texas is different from every other state. Your principal residence in Texas is almost always your homestead, and the Texas Constitution, Article XVI, Section 50(a)(6), controls any loan that takes cash out of a homestead. Because FHA cash-out requires a principal residence, an FHA cash-out on a Texas home has to satisfy both HUD and Section 50(a)(6).
The main Texas requirements:
| Texas rule | What it means |
|---|---|
| 80% combined limit, 50(a)(6)(B) | All loans on the homestead together can’t exceed 80% of fair market value. This matches FHA’s 80% cap. |
| 2% fee cap, 50(a)(6)(E) | Fees to originate, evaluate, maintain, record, insure or service the loan can’t exceed 2% of the original principal. Third-party appraisal, survey, the state base title premium and certain title exam fees are excluded. |
| 12-day notice, 50(a)(6)(M)(i) | The loan can’t close until the 12th day after the later of your application or receipt of the Texas home equity notice. |
| Final disclosure, 50(a)(6)(M)(ii) | You must receive an itemized fee disclosure at least one business day before closing. |
| Once a year, 50(a)(6)(M)(iii) | No closing before the first anniversary of any other 50(a)(6) loan on the same homestead. |
| Where it closes, 50(a)(6)(N) | Only at the lender’s office, an attorney’s office or a title company. |
| Non-recourse, 50(a)(6)(C) | No personal liability unless you committed actual fraud. |
| Court-ordered foreclosure, 50(a)(6)(D) | The lien can be foreclosed only by court order. |
| 3-day rescission, 50(a)(6)(Q)(viii) | You and your spouse can cancel within three days after closing. |
| Spousal consent, 50(a)(6)(A) | Every owner and every owner’s spouse must consent to the lien. |
Why FHA Cash-Out Is Harder in Texas
Two parts of Texas law make an FHA cash-out on a homestead difficult:
- Mortgage insurance counts toward the 2% cap. The Texas Finance Commission’s interpretation at 7 TAC Section 153.5(11) says premiums a borrower must pay to insure an equity loan, including mortgage insurance, are fees subject to the 2% limit. FHA’s 1.75% upfront MIP alone uses up most of that 2%, leaving little room for origination, credit report, recording and other covered charges.
- The “no additional collateral” rule. Section 50(a)(6)(H) says the loan can’t be secured by anything other than the homestead. In Opinion KP-0183 (2018), the Texas Attorney General concluded the VA guaranty counts as additional collateral, which blocks VA cash-out loans on Texas homesteads. Whether the same reasoning reaches FHA insurance hasn’t been settled in a published opinion.
The practical result is that many lenders don’t offer FHA cash-out on Texas homesteads at all, and Texas homeowners more often use a conventional 50(a)(6) cash-out or a home equity line of credit. Ask any lender directly before you apply.
Outside Texas, none of these state rules apply. Herring customers in Oklahoma and Colorado follow the standard HUD requirements above.
Costs: Upfront and Annual MIP
An FHA cash-out carries the same mortgage insurance as any FHA loan, set by HUD Mortgagee Letter 2023-05:
| Loan term | Base loan | LTV | Annual MIP | How long |
|---|---|---|---|---|
| More than 15 years | $726,200 or less | 90% or less | 0.50% | 11 years |
| More than 15 years | Over $726,200 | 90% or less | 0.70% | 11 years |
| 15 years or less | $726,200 or less | 90% or less | 0.15% | 11 years |
Since a cash-out is capped at 80% LTV, annual MIP drops off after 11 years. That’s better than an FHA purchase loan with 3.5% down, where MIP lasts for the life of the loan. The 1.75% upfront premium is charged either way.
Worked Example: A $320,000 Home in Amarillo
Here’s how the numbers work for a homeowner with a $320,000 home and a $150,000 mortgage balance. The 6.5% rate is an assumption, not a quote.
| Item | Amount |
|---|---|
| Appraised value | $320,000 |
| Maximum base loan (80%) | $256,000 |
| Upfront MIP (1.75%), financed | $4,480 |
| Total loan amount | $260,480 |
| Payoff of current mortgage | $150,000 |
| Cash available before closing costs | about $106,000 |
| Principal and interest at 6.5%, 30 years | about $1,646/month |
| Annual MIP at 0.50%, first year | about $107/month |
| Texas 2% fee cap on $260,480 | $5,210 |
| Cap left after the $4,480 upfront MIP | $730 for all other covered fees |
The last two rows show the Texas problem in dollars. Taxes and insurance (say $7,000 and $3,000 a year in Potter County) stay roughly the same either way, adding about $833 a month to whichever loan you choose.
Not sure which equity option costs less? We’ll put an FHA cash-out, a conventional cash-out and a HELOC side by side for your home. Start your cash-out refinance application.
FHA Cash-Out vs. Conventional Cash-Out vs. HELOC
| Feature | FHA cash-out | Conventional cash-out (Texas 50(a)(6)) | Herring Texas HELOC |
|---|---|---|---|
| Max borrowing | 80% LTV | 80% LTV | 75% combined LTV |
| Credit score | HUD floor 500; lender minimums higher | 620 minimum on Herring’s refinance page | 660 minimum |
| Max DTI | Up to 56.99% with compensating factors | Lender and investor limits | 40% |
| Mortgage insurance | 1.75% upfront plus 0.50% annual for 11 years | None at 80% LTV or less | None |
| Your first mortgage | Replaced | Replaced | Kept |
| Rate type | Usually fixed | Usually fixed | Variable (WSJ Prime plus margin) |
| Loan size | Up to the county FHA limit | Up to $832,750 conforming limit | $25,000 to $150,000 |
| Texas rules | 50(a)(6) | 50(a)(6) | 50(a)(6) and 50(t) |
How to choose:
- If your current rate is low, a HELOC lets you keep it and borrow only what you need. In the Amarillo example, a 75% HELOC could open a line of up to $90,000 ($240,000 minus $150,000) without touching the first mortgage.
- If your credit is strong and you have 20%+ equity after the cash-out, a conventional cash-out avoids FHA’s upfront and annual MIP entirely.
- If your credit or debt ratio rules out conventional, FHA’s more flexible underwriting is its main advantage, where it’s available.
See our full comparison of a HELOC vs. a cash-out refinance, our Texas HELOC guide and the overview of a Texas cash-out refinance.
Using an FHA Cash-Out to Consolidate Debt
Debt consolidation is the most common reason people take cash out. It can cut your monthly payments a lot, but it changes the terms of that debt.
| $35,000 of credit card debt | Monthly payment | What changes |
|---|---|---|
| Rolled into a 30-year mortgage at 6.5% | about $221 | Total interest about $44,600 if kept 30 years; now secured by your home |
| Repaid over 5 years at 6.5% | about $685 | Paid off far sooner with much less interest |
A few points before you consolidate:
- Unsecured debt becomes secured. Credit cards can’t take your home. A mortgage can.
- Pay it down faster if you can. Putting the old card payment toward the new mortgage principal recovers most of the interest savings.
- Texas allows the lender to require payoffs. Section 50(a)(6)(Q)(i) lets a lender require that proceeds pay off debt owed to another lender or secured by the homestead, but not other debts.
- Lower DTI helps the approval. Paying off revolving debts at closing can bring your debt-to-income ratio into range.
Steps to Apply for an FHA Cash-Out Refinance
- Check eligibility. Confirm 12 months of ownership and occupancy, 12 months of on-time payments and at least six payments on the current loan.
- Estimate your equity. Take 80% of a realistic value and subtract what you owe. Our refinance calculator can help with payments.
- Compare options. Ask for an FHA, conventional and HELOC comparison, especially on a Texas homestead.
- Apply and gather documents. Pay stubs, W-2s or tax returns, bank statements, your mortgage statement and homeowners insurance.
- Appraisal. An FHA appraiser confirms value and property condition.
- Texas waiting periods. On a homestead, closing can’t happen until the 12th day after application or the home equity notice, whichever is later.
- Close and fund. In Texas, closing must be at a title company, attorney’s office or the lender’s office, then the 3-day rescission period runs before funds go out.
Herring Bank NMLS #415783. Equal Housing Lender. This article is general information, not legal advice or a commitment to lend. Texas home equity rules are summarized from the Texas Constitution and Texas Administrative Code and should be confirmed with your lender or attorney. Payment figures are illustrations only. All loans are subject to credit approval, property eligibility and underwriting.
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This article is for educational purposes only and does not constitute financial, legal, or tax advice. It is not a commitment to lend. Loan programs, rates, and eligibility requirements are subject to change without notice. Consult a qualified professional before making financial decisions.
