Texas Home Equity Loan Rules: Everything You Need to Know

Texas has some of the strongest home equity protections in the country, which means the rules for borrowing look different here than they do in most states. These rules may feel restrictive, but they exist to help homeowners avoid unnecessary risk and keep long-term financial stability in mind.

If you are thinking about tapping into your home’s value for repairs, debt consolidation, or major expenses, it is important to understand how Texas home equity laws work before you apply. In this guide, you will learn the core rules that shape home equity lending in Texas, why they matter, and what they mean for your options as a homeowner.

Why Texas Has Home Equity Protections

Texas has a long history of strong homestead protections, and those protections continue to shape the way today’s home equity loans work. For many years, homeowners could not borrow against their home at all. When the state eventually allowed home equity lending in 1997, strict guidelines were added to reduce the risk of over-borrowing and to help families keep their homes during financial hardship.

These protections are still in place today. They are designed to make sure homeowners keep a safe amount of equity, understand the loan terms, and do not take on more debt than they can manage. While the rules can feel complex at first, they give borrowers clearer expectations and stronger safeguards throughout the lending process.

Texas Home Equity Loan Rules for Borrowers

Understanding Texas home equity rules helps you avoid surprises and determine whether a home equity loan fits your needs. These guide how much you can borrow, where you can close, and how often you can access your equity.

Here’s what you need to know.

1. You can only borrow against 80% of your home’s equity.

This is perhaps the most important rule to keep in mind when taking out a home equity loan, because it limits how much you can borrow.

In Texas, no matter how much your home is worth, you can only borrow up to 80% of its value. This rule applies to both home equity loans and HELOCs and is designed to help homeowners keep a safe amount of equity in place.

To calculate your maximum loan amount, lenders look at your home’s appraised value and subtract what you still owe on your mortgage. The remaining amount up to the 80% limit is the most you can borrow.

For example:

If your home is valued at $450,000 and you owe $200,000 on your mortgage, your maximum borrowing limit is $160,000. This keeps $90,000 in protected equity that you cannot touch through a home equity loan.

The 80% rule may feel limiting compared to other states, but it offers meaningful protection if home values drop or unexpected financial issues arise. It ensures that homeowners keep a financial cushion and lowers the risk of taking on more debt than they can manage.

2. You can only take out one home equity loan at a time.

Texas allows only one home equity loan or HELOC on a property at once. If you already have a home equity loan in place, you must pay it off before taking out another. You also cannot combine a HELOC with a separate equity loan.

This rule prevents homeowners from stacking multiple loans against their property and helps protect long-term equity. If you need new terms or a different structure, you can refinance your current home equity loan, but any refinance will still be treated as a home equity loan under Texas law.

3. You can only take out one equity loan every 12 months.

Even if you repay your first home equity loan or cash-out refinance, you are still only permitted to tap into your equity once per year. This is important to keep in mind if you think you might need another loan a few months down the road.

5. A 12-day notice is required before closing.

Before a home equity loan can close, lenders must provide a Notice Concerning Extension of Credit disclosure and then wait 12 days. This period gives you time to review the terms, ask questions, and confirm that the loan is the right choice. The loan cannot close until the full 12 days have passed.

After closing, borrowers have a three-business-day grace period for cancellation without penalty or charge. In accordance, loan proceeds can’t be delivered until three days after closing.

6. Closing must take place at an approved location.

Texas requires all home equity loans to close at a title company, an attorney’s office, or the lender’s office. Closings cannot take place at your home or a remote location. This rule is designed to ensure that the signing process happens in a professional setting where the documents and disclosures can be reviewed properly.

7. The property must be your primary residence.

Texas only allows home equity loans on a borrower’s primary residence. You cannot use a home equity loan or HELOC on a second home, vacation home, or investment property. This rule reinforces the state’s homestead protections and ensures that equity borrowing is limited to the home you live in full-time.

Lender Requirements for Home Equity Loans

Lenders must also follow their own set of rules when offering home equity loans in Texas. These requirements protect borrowers and ensure that the loan process meets state constitutional standards.

1. Lender fees are capped at 2 percent.

For loans originated on or after January 1, 2018, lenders can charge no more than 2% of the loan amount in lender-controlled fees. This cap does not include common third-party costs like appraisals, surveys, and title insurance.

2. Lenders must be properly licensed to offer home equity financing.

Texas requires lenders to hold the appropriate licensing or authorization to originate home equity loans. This ensures that borrowers work with institutions that meet state regulatory standards.

3. Lenders cannot require other collateral.

A home equity loan must be secured only by the borrower’s homestead. Lenders cannot require vehicles, other real estate, or unrelated assets as additional collateral.

4. Lenders cannot charge prepayment penalties or change loan terms.

Home equity loans can be paid off before they’re due without penalty or extra charge. However, lenders can’t require a loan to be paid earlier than agreed upon based on the home value decreasing or the borrower defaulting on another loan.

The Bottom Line on Texas Home Equity Rules

Home equity loans work differently in Texas, and understanding these rules helps you make confident, informed decisions about borrowing. The state’s protections are designed to limit risk, preserve long-term equity, and ensure that homeowners fully understand the loan before signing. Whether you are considering a lump-sum home equity loan or a HELOC, knowing how the 80% cap, closing requirements, and other rules work will make the process much smoother.

If you are ready to explore your options or want help deciding which type of financing fits your plans, speaking with a knowledgeable lender is a great first step. A team that understands Texas’ unique home equity laws can guide you through the details and help you move forward with confidence.

This article was first published on July 18, 2022.