Home Equity Loans and HELOCs in Texas | 2026

Every state has unique rules and restrictions regarding home financing. Texas is no exception.

In the Loan Star State, if you want to liquidate some of your home’s accrued equity, laws limit how much you can cash out and when you are allowed to tap into it. While these rules may appear stricter than normal, they are in place to cushion Texas homeowners against over-leveraging their properties.

Take a moment to better understand different ways to tap into your home equity in Texas, various home equity rules in Texas, their pros and cons, and more.

Ways to tap into Texas home equity

As in any state, there are three primary ways to use your home equity in Texas: a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance.

Home equity loan

A home equity loan is a second mortgage that provides a lump sum of cash, repaid through fixed monthly payments over a set term.

Home equity line of credit (HELOC)

A HELOC lets you borrow against your home equity without refinancing your primary mortgage. It works like a revolving line of credit with a set borrowing limit.

Cash-out refinance

A cash-out refinance replaces your current mortgage with a larger loan and gives you the difference in cash at closing.

“Texas’s laws are indeed more stringent compared to other states,” said Min Hwan Ahn, a real estate attorney. “The purpose of these rules is to protect homeowners from being loaned more money than what their house is worth.”

Lauren Mendoza, the founder of Bank Standard, agrees.

“These laws are designed to prevent homeowners from over-leveraging their properties and falling into financial distress. They reflect Texas’s historically conservative approach to borrowing and property rights, which are intended to minimize foreclosures and shield homeowners,” Mendoza said. “Understanding these laws can help Texas homeowners make informed financial decisions.”

Texas home equity laws

Several home equity rules apply that homeowners and lenders should be aware of. Here’s a rundown.

Rule #1

In Texas, you can only take out up to 80% of your home’s equity, which means up to 80% of your property’s appraised value. You must retain at least 20% equity in your home.

For example, say your home is worth $300,000 and your outstanding mortgage balance is $80,000. The max equity you could liquidate in this example would be $160,000 ($300,000 x 80% - $80,000).

But if you paid off that $300,000 mortgage entirely, the most equity you could cash out would equate to 80% of the home’s value, or $240,000.

Rule #2

You are only allowed to take out a home equity loan on your primary residence (a one- to four-unit home) in Texas. That means you cannot pursue a home equity loan on an investment property, second home, or rental property.

Rule #3

Only one home equity loan is allowed at a time in Texas. You must pay off your existing home equity financing before you are permitted to get another home equity loan.

Rule #4

Furthermore, you can cash out home equity only one time every 12 months. This is true even if you have fully repaid your last cash-out refi or home equity loan.

Rule #5

A mandatory waiting period is required, too, to permit necessary due diligence and understanding of your rights as a borrower. Specifically, home equity financing is not allowed to be finalized any sooner than 12 days from the date of application.

Other related rules

Closing on a home equity loan must be conducted exclusively at the permanent office of a lender, lawyer, or title company, and the actual borrower must be present at closing.

Borrowers are given a grace period of 3 business days after closing, during which they can cancel the loan without fees or penalties. Borrowers are allowed to use their liquidated home equity funds for any lawful reason, as well.

In addition, home equity loans cannot be converted into any other type of loan, but they can be paid off in full prior to their scheduled due date without any extra fees or penalties assessed. Also, the lender cannot obligate the borrower to pay off the loan earlier than agreed to due to a default on a different loan or a decrease in home value.

Pros and cons of these Texas home equity rules

The primary benefit of many of these Texas laws is that they provide a financial safety net, preventing homeowners from getting into financial hot water with their home equity.

“Logically, these rules might seem restricting. But during a market downturn, they can protect homeowners from being left with a loan more significant than their home’s value,” Ahn said. “Imagine if the market crashes as it did in 2008; if that happens, these laws can prevent a lot of heartaches.”

The obvious drawback of these restrictions “is that Texas homeowners might not be able to tap into as much of their equity as homeowners in other states – potentially limiting their financial flexibility,” said Mendoza.

The bottom line on home equity loans and HELOCs in Texas

From a distance, some of these Texas regulations may appear onerous, excessive, and perhaps unfair. Then again, these rules include numerous safeguards that prevent Texas homeowners from making home equity decisions they could later regret.

“I believe these Texas rules and laws benefit and protect homeowners and borrowers more than they limit them,” said Gagan Saini, the Texas-based CEO of JiT Home Buyers. “They provide an extra layer of protection and ensure that borrowers are not taking on more debt than they can afford to pay back. My advice is to make sure you fully understand the laws and rules before pursuing a home equity product in Texas.”

If you’re a Texas homeowner who wants to tap your property’s equity, reach out to a local lender today.