Texas home equity rules: the 80% line and everything around it

Most states bury their home equity rules in statutes that can change with a legislative session. Texas put its rules in the state constitution — Article XVI, Section 50 — where they're far harder to change and carry more weight. The result is one of the most homeowner-protective home equity frameworks in the country.

A little history

Texas didn't permit home equity lending at all until 1997. When voters finally allowed it, they built in a thick layer of protections designed to prevent the kind of equity-stripping that can put families' homes at risk. Those protections still shape every home equity loan, HELOC, and cash-out refinance made in Texas today.

The rules that matter most

1. The 80% cap

This is the big one. All liens against your homestead, combined, generally cannot exceed 80% of the home's appraised value. At least 20% has to stay as your equity cushion — you can't borrow it away.

2. The 2% fee cap

For loans made on or after January 1, 2018, certain lender fees are capped at 2% of the loan amount. That cap deliberately excludes bona fide discount points and legitimate third-party costs like the appraisal, survey, and title insurance — so ask any lender for a breakdown that separates the capped fees from the uncapped ones.

3. The 12-day cooling-off period

You must wait at least 12 days after you apply and receive the required notice before your loan can close. This is a hard constitutional rule — no lender can waive or shorten it. If you're trying to close quickly, plan around it.

4. One loan at a time

Texas allows only one home equity loan on a homestead at a time, and requires a 12-month wait after closing before you can take a new one on the same property. You generally can't stack a second home equity loan or HELOC on top of an existing one.

5. In-person closing

You have to sign your closing documents in person, at a permanent office of the lender, a title company, or an attorney — not at your kitchen table, and generally not by power of attorney. It surprises people who expected to close remotely.

6. Three-day right of rescission

After closing, you get three business days to cancel the transaction with no penalty. Because of this, funds aren't released until the window passes — so a Tuesday closing means money on Friday at the earliest. Factor that into your timing.

7. Non-recourse protection

Texas home equity loans are generally non-recourse: except in cases of actual fraud, the lender's remedy is limited to the home itself, not your other assets or income.

How the rules apply to each product

These protections apply across the board — a cash-out refinance, a HELOC, and a home equity loan are all Section 50 extensions of credit, so all three share the same 80% cap, the same 12-day wait, the same one-loan rule, and the same rescission right. What differs is structure — whether the loan replaces your first mortgage or sits behind it, and whether the rate is fixed or variable.

Why this is good news for homeowners

These rules can feel like friction when you're in a hurry, but they exist because they work: the 20% cushion and the fee and timing protections are a big reason Texas homeowners tend to hold more equity, and weathered the 2008 housing crash better than most. The trade-off is that home equity lending here is a specialized process — one worth doing with someone who runs it by reflex.