What Is a Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new, larger mortgage. The difference between the old balance and the new loan becomes cash that goes into your bank account at closing. You've converted home equity into liquid capital.
How Cash-Out Works
Current mortgage balance: $280,000 at 5.0%.
Home worth: $450,000.
New mortgage: $340,000 at 6.5%.
Cash to you: $60,000 (the difference). You now have a larger mortgage, but you have capital in hand.
How Much Equity Can You Access
Texas has a strict rule: 80% Combined Loan-To-Value (CLTV) maximum.
Equity Access Formula
Home value: $450,000.
80% of home value: $450,000 x 0.80 = $360,000 (maximum new loan).
Current mortgage: $280,000.
Maximum cash-out: $360,000 minus $280,000 = $80,000.
Subtract closing costs (2 to 3%): $80,000 minus $9,000 = $71,000 net cash.
You have $170,000 in equity but can only access $80,000 due to the 80% CLTV limit. New mortgage: $360,000 at 6.5%. Cash at closing: $71,000 (after $9,000 closing costs).
You can't access all your equity. The Texas 80% limit is the ceiling.
Texas-Specific Cash-Out Rules (Section 50(a)(6))
Texas law is strict on cash-out refinances. These rules are non-negotiable.
Texas Section 50(a)(6) Requirements
80% CLTV maximum. You cannot borrow more than 80% of current home value as a combined total of all liens.
12-day waiting period. After you apply, 12 days must pass before closing. This is mandatory. You cannot close earlier. Use the time to review documents and make sure you understand the terms.
3-day right of rescission. After closing, you have 3 business days to cancel the loan if you change your mind. No questions asked. This is automatic and legally protected.
One cash-out refi per 12 months. You can do multiple refinances (rate-and-term), but only one cash-out per year.
Homestead property only. Cash-out refinances apply to your primary residence. Investment properties have different rules.
No agricultural property. If your home is on agricultural land, different rules apply. Standard residential property is straightforward.
These rules exist to protect borrowers from over-leveraging. Respect them.
What to Do With the Cash
Renovations and home improvements. Kitchen remodel, bathroom upgrade, new roof, HVAC replacement, energy efficiency upgrades. These add value and are legitimate uses.
Debt consolidation. Pay off credit cards, auto loans, personal loans. Convert high-interest debt to mortgage debt at a lower rate. (See debt consolidation guide for full analysis.)
Investment property down payment. Buy a rental property. Your home equity becomes your investment capital. See: Investment Property Loans Houston.
Education funding. Pay for college, graduate school, trade school for yourself or your children.
Business capital. Fund a business startup or expansion. Leverage your home to fund growth.
Emergency reserve fund. Build liquidity for unexpected expenses, job loss, healthcare costs.
The point: use the capital strategically. Don't pull cash out for lifestyle spending without a plan.
Cash-Out vs HELOC vs Home Equity Loan
Three ways to access your equity. Each has different characteristics.
Comparison: Cash-Out Refi vs HELOC vs Home Equity Loan
Cash-out refinance: New mortgage replaces old one, lump sum at closing. Fixed or ARM rate. Texas rules: 80% CLTV, 12-day wait, 3-day rescission, one per year. Closing costs: 2 to 3% of new loan. Rate: 6.5 to 6.75% typical. Best for: large amount, want fixed rate, okay with replacing mortgage.
HELOC (Home Equity Line of Credit): Revolving credit, draw only what you need. Variable rate (tied to prime). Closing costs: $0 to $2,000. Rate: variable, currently approximately 8.5% (prime + margin). Best for: flexible drawing, lower closing costs, variable rate okay.
Home equity loan: Fixed amount as lump sum. Fixed rate. Closing costs: 2 to 3%. Rate: 7.5 to 8.0% typical (higher than first mortgage). Best for: fixed rate, lump sum, keeping first mortgage intact. More details: Home Equity Loan Houston.
Recommendation for Houston: If you want a low rate and are replacing your mortgage anyway, cash-out refinance. If you want flexibility and lower costs, HELOC. If you want fixed rate on second mortgage, home equity loan.
Requirements for Cash-Out Refinance
Qualification Requirements
Credit score: 620+ for conventional, 580+ for FHA.
LTV limit: 80% CLTV maximum in Texas. Non-negotiable.
Income verification: Recent pay stubs, tax returns, employment verification.
Appraisal: Lender orders appraisal to establish current home value. Cost: $400 to $600 (typically paid by you).
Equity position: Need at least 20% equity in your home. If you're above 80% LTV already, you can't do a cash-out refi.
No recent late payments: Credit history matters. Lenders want to see clean payment history (no 30+ day lates in past 12 months).
Frequently Asked Questions
What's the timeline?
30 to 45 days typical. The 12-day waiting period is built in. Appraisal 1 to 2 weeks, underwriting 1 to 2 weeks, clear to close 2 to 3 days.
What are closing costs and how are they calculated?
Closing costs run 2 to 3% of the new loan amount. On a $360,000 loan, that's $7,200 to $10,800. Includes origination fee, appraisal, title insurance, lender fees, recording fees. Your lender will provide a detailed Loan Estimate within 3 days of application.
Can I do an FHA cash-out refinance?
Yes. FHA allows cash-out refinances with different LTV limits than Texas homestead. FHA goes to 85% LTV. FHA has 12-month seasoning requirement (must have owned for 12 months), job history requirements, credit 580+. See: FHA Loans Houston.
What if I'm already at or over 80% LTV?
You cannot do a cash-out refinance in Texas if you're already above 80% CLTV. You'd need to pay down your mortgage first or wait for home appreciation to get below 80%. Alternative: use a HELOC if you have equity.
Is the mortgage interest tax-deductible?
Mortgage interest is deductible (up to $750,000 of mortgage debt under current tax law). But the use of proceeds matters for some taxpayers. If you use cash for business, the interest might be different. Consult a tax professional.
What about the appraisal?
You pay for the appraisal, typically $400 to $600. The lender orders it. If the appraisal comes in low (lower than expected value), you have less equity to access. Example: you expected $450K but appraisal comes at $420K. Your 80% CLTV is now $336K, not $360K.
Can I do a cash-out refi on an investment property in Texas?
Different rules apply. Investment property cash-outs have different CLTV limits (often 80% LTV vs the homestead rule). Closing costs might be higher. Talk to your lender about investment property specifics.
Turn Equity Into Capital
Your home is your largest asset. The equity you've built through payments and appreciation is real wealth. A cash-out refinance lets you unlock it for strategic uses, renovations that increase value, debt consolidation that lowers your overall cost of debt, investment capital that generates returns.
The Texas 80% rule protects you from over-leveraging. The 12-day wait and 3-day rescission protect you from rushing into bad decisions. Respect these rules and use a cash-out refinance strategically.
Brandon works with Houston homeowners on cash-out refinances regularly. He calculates your exact borrowing power, compares HELOC vs cash-out options, shows you real closing costs and timeline, and helps you make a clear decision about whether tapping your equity makes sense. If it does, he executes it cleanly.
Related Resources
- Refinance Houston - Rate-and-term and cash-out options
- Home Equity Loan Houston - Second lien alternative to cash-out
- Houston Mortgage Rates - Current rate environment
- Investment Property Loans Houston - Use cash-out for investment down payment
- FHA 203k Loan Houston - Renovation-specific financing
- Conventional Loans Houston - Standard refinance programs
Find Out How Much Equity You Can Access
Brandon calculates your available cash, compares your options, and walks you through Texas cash-out rules so you make the right decision. Free equity analysis, no obligation.
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