Texas Home Equity Loan Rules Explained: HELOC vs Home Equity Loan in Texas
Texas caps home equity borrowing at 80% and adds a 12-day wait and a 2% fee cap. See how HELOCs and home equity loans differ for Fort Worth homeowners.
Quick answer: A home equity loan gives you a lump sum at a fixed rate with fixed payments. A HELOC is a revolving line of credit you draw from as needed, usually at a variable rate. In Texas, both fall under Section 50(a)(6) of the Texas Constitution. Total debt on your homestead can't exceed 80% of its value; you must wait at least 12 days to close; and most lender fees are capped at 2%.
Key Takeaways
• Texas limits all loans on your homestead combined to 80% of its fair market value.
• There's a mandatory 12-day waiting period before closing and a 3-day right to cancel after.
• Lender fees are capped at 2% of the loan amount (some costs, like the appraisal and title insurance, aren't included).
• You can have only one home equity loan or HELOC at a time, and generally only one per 12 months.
• Choose a home equity loan for one high, known cost. Choose a HELOC for ongoing or uncertain costs, like a phased renovation.
What is the difference between a home equity loan and a HELOC?
Feature | Home Equity Loan | HELOC |
How you get the money | One lump sum at closing | Draw as needed during the draw period |
Interest rate | Usually fixed | Usually variable |
Payments | Fixed principal + interest | Changes with your balance and rate. Often interest-only during the draw period |
Best for | One-time expenses with a known cost | Ongoing or phased expenses |
Texas 80% limit applies? | Yes | Yes |
Why are Texas home equity rules different?
Texas has some of the strongest homestead protections in the country. It was the last state to allow home equity lending, and the rules are written into the Texas Constitution rather than ordinary law, so changing them requires a statewide vote. They apply to your homestead (primary residence), not to rental or investment properties.
The 80% combined loan-to-value cap
Your first mortgage plus any home equity loan or HELOC can't exceed 80% of your home's appraised value.
Example: Your Fort Worth home appraises at $400,000. 80% of that is $320,000. If you owe $230,000 on your mortgage, you could borrow about $90,000 in home equity.
The 12-day waiting period
You can't close until at least 12 days after the later of your loan application or the date you receive the required Texas home equity notice. The rule gives you time to review the terms, and it can't be waived. Plan your project timeline around it.
The 2% fee cap
Fees you pay to the lender and certain third parties are capped at 2% of the loan amount. On a $90,000 home equity loan, that's a maximum of $1,800. Some costs, such as the appraisal, survey, and title insurance, are excluded from the cap.
Other Texas protections
• 3-day right of rescission after closing.
• One at a time: only one home equity loan or HELOC on your homestead at a time, and generally no more than one per 12 months.
• Spousal consent: both spouses must consent, even if only one is on the loan.
• Closing location: you must close at a lender's office, attorney's office, or title company.
• Non-recourse: the lender's remedy is the home itself, not your other assets, and foreclosure requires a court order.
Which is better for home renovations: a home equity loan or a HELOC?
It depends on how your project is paid out:
• Choose a home equity loan if you have a firm contractor bid and pay most of it upfront, such as a roof replacement or pool. You lock in a fixed rate and a predictable payment.
• Choose a HELOC if your renovation happens in phases, the final cost is uncertain, or you want a cushion for overruns. You pay interest only on what you draw.
How does a variable HELOC rate affect my payment?
Most HELOC rates are tied to the prime rate. When the prime rate moves, your HELOC rate and payment follow. During the draw period, many HELOCs require only interest payments. When the draw period ends, payments include principal and can rise noticeably. Ask your lender for the margin, any rate caps, and an example payment at a higher rate before you sign.
What credit score and equity do I need for a home equity loan in Texas?
Requirements vary by lender, but most look for:
• Equity: enough that your total debt stays at or below 80% of your home's value after the new loan. That's the constitutional limit, not a lender preference.
• Credit score: often 620–680 at minimum, with better pricing at 700+.
• Debt-to-income ratio: commonly 43% or less, including the new payment.
• Owner-occupied homestead: the property must be your primary residence.
Is a cash-out refinance a better option?
Sometimes. A Texas cash-out refinance replaces your current mortgage with a larger one and follows the same 50(a)(6) rules. If your current mortgage rate is lower than today's rates, keeping it and adding a home equity loan or HELOC is often cheaper. If your current rate is higher, a cash-out refinance may make more sense. A loan officer can run both scenarios.
Frequently Asked Questions
How much equity can I take out of my home in Texas?
Total debt on your homestead, including your first mortgage and the new loan, can't exceed 80% of its appraised value. Subtract what you owe from 80% of the value to estimate your maximum.
How long does it take to get a home equity loan in Texas?
Plan for at least two to four weeks. Texas law requires a 12-day waiting period before closing, plus a 3-day right to cancel after closing before funds are released.
Can I get a HELOC on a rental property in Texas?
Texas Section 50(a)(6) rules apply to homesteads. Equity loans on investment properties fall under different lending guidelines and are offered by fewer lenders.
Can I have a home equity loan and a HELOC at the same time in Texas?
No. Texas allows only one home equity loan or HELOC on your homestead at a time.
Is HELOC interest tax-deductible?
Interest may be deductible if the funds are used to buy, build, or substantially improve the home that secures the loan. Ask a tax professional about your situation.
Talk to a Texas home equity specialist
Texas equity loans have more rules than most states, so the details matter. Contact Great Life Mortgage or call (817) 750-0775 to see how much equity you can access and whether a HELOC, home equity loan, or cash-out refinance fits best.
Related reading:
• What Happens If Mortgage Rates Fall After You Buy?
• A Mortgage With an Earlier Finish Line
• How to Choose the Best Mortgage Company in Fort Worth, TX
About the author: Quentin Gaylord is the founder of Great Life Mortgage LLC in Fort Worth, Texas, and has helped families finance homes for more than 35 years. He works with first-time buyers, self-employed borrowers, and clients using FHA, VA, conventional, jumbo, and construction loans. NMLS #298185.
Sources:Texas Constitution, Article XVI, Section 50 · CFPB: What is a HELOC? · Texas Department of Savings and Mortgage Lending
Great Life Mortgage LLC | NMLS #2460313 | Equal Housing Opportunity. Home equity products are subject to credit approval, appraisal, and Texas constitutional requirements. Using home equity puts your home up as collateral. This article is for educational purposes and is not legal or tax advice or a commitment to lend.