What is a Texas 50(a)(6) Cash-Out Refinance?

A Texas 50(a)(6) Cash-Out Refinance is a type of refinance available in Texas that allows homeowners to tap into their home’s equity and receive cash. This specific type of refinance is governed by Texas law under Article XVI, Section 50(a)(6) of the Texas Constitution, which places certain restrictions and protections to ensure homeowners aren’t overburdened by home equity loans.

Key aspects of a Texas 50(a)(6) Cash-Out Refinance include:

  1. Home Equity Limit: Texas law limits the amount of equity you can borrow against to 80% of your home’s value. This means you must leave at least 20% equity in your home after the refinance.

  2. Lender Protections: Lenders are required to provide specific disclosures, including detailed information about fees and the loan's terms, to ensure homeowners fully understand the financial commitment.

  3. Fees: Total fees for a Texas 50(a)(6) refinance are capped at 2% of the loan amount, not including certain items like title insurance, appraisal, or survey fees.

  4. One Loan Per Year: Texas homeowners can only take out one home equity loan or refinance under the Texas 50(a)(6) rules per year.

  5. Non-Homestead Exemptions: You can only use a 50(a)(6) refinance on your primary residence. Investment properties and second homes do not qualify under these rules.

  6. Closing Process: The closing process for a 50(a)(6) loan is more stringent than a typical refinance. The borrower must wait 12 days after receiving disclosures before closing on the loan, and the closing must occur at the lender's office, title company, or attorney's office.

  7. Lender Restrictions: A Texas 50(a)(6) loan cannot be converted back into a traditional mortgage. Once a property is refinanced under 50(a)(6), any subsequent refinancing will also be subject to these rules.

This type of refinance is popular among Texas homeowners looking to access their home’s equity for renovations, debt consolidation, or other major expenses, but it comes with specific regulations designed to protect both the borrower and the lender.