Rising home values in Texas have made cash-out refinance options more appealing than ever. Homeowners can now access up to 80% of their home's appraised value, which lets them realize the potential of their growing equity.

The landscape has changed since 2018 when stricter regulations limited cash-out refinancing. Recent updates have simplified the process for homeowners to use their equity. Current interest rates range from 4% to 6%, which are substantially lower than personal loans or credit cards. Homeowners can replace their existing mortgage with a larger loan and use the funds to improve their homes or consolidate debt.

Property values keep climbing in Texas, creating new opportunities for homeowners. Let's get into the current rules and requirements to help you decide if a cash-out refinance fits your financial goals.

The Texas Real Estate Boom: Understanding Current Market Trends

Texas's real estate market shows remarkable growth, making this the perfect time for homeowners to think about a cash out refinance. Market trends help explain why property owners want to learn about their equity options.

Record-breaking home appreciation rates across major cities

Texas's home values demonstrate strong growth and resilience. Property values have climbed far above national averages in many areas. The median home price has surged by 173% since 2011, while median household income grew by only 53%. This gap has created substantial equity for many homeowners.

Different areas show varying levels of growth. Austin-Round Rock leads with dramatic price increases. Dallas-Fort Worth, Houston, and San Antonio maintain steady gains. Texas homes have gained 107.60% in value in the last decade, with yearly growth averaging 7.58%. This steady appreciation has turned modest home investments into valuable assets with rich equity potential.

Population growth's effect on housing demand

New residents drive Texas's booming real estate market. The state adds about 1,300 people daily through births and migration. This steady population growth creates an unprecedented need for housing in major metropolitan areas.

New jobs, especially in high-paying sectors, attract more people to Texas. The state has created over one million new jobs since the pandemic, especially in professional services and IT. Fort Worth's population grows by nearly 20,000 people yearly for the past three years. This population surge means housing demand outpaces supply, creating perfect conditions for property values to rise.

Low inventory levels push values higher

Limited housing supply continues to drive property values up across Texas. Builders can't keep up with population growth despite their best efforts. Up For Growth estimates Texas needs about 322,000 more homes. Dallas-Fort Worth requires more than 85,000 additional housing units alone.

Months of inventory - which suggests how long it would take to sell all available homes at current pace - reached 3.7 months in Q3 2023, up from 2.7 months in Q3 2022. Though inventory has improved, it stays below the six-month mark that typically signals a balanced market. Sellers maintain their advantage, which keeps pushing home values higher.

These market conditions give existing homeowners a great chance to utilize their growing equity through a Texas cash out refinance and access substantial funds for investments or improvements.

Defining Section 50(a)(6) loans

Texas law refers to cash-out refinancing as a Section 50(a)(6) loan or "Texas A6 loan." This designation comes from the Texas Constitution, which used to impose strict limits on home equity lending. Texas Proposition 2 in 2017 substantially reduced these restrictions. The amendment gave homeowners more flexibility while protecting their interests.

The concept is simple. You replace your current mortgage with a bigger loan and receive the difference in cash when closing. This money helps with home improvements or debt consolidation.

The 80% loan-to-value chance

The life-blood of Texas cash-out refinance rules centers on the 80% loan-to-value (LTV) requirement. Your new loan can't exceed 80% of your home's appraised value, which means you must keep 20% equity in your property. To name just one example, see a home appraised at $300,000 - the maximum loan amount would be $240,000 ($300,000 × 0.80).

Lenders must keep their closing costs at or below 2% of the loan amount. This excludes third-party costs like appraisal fees and title insurance. The 2017 constitutional amendment reduced this cap from 3%.

Calculating your available equity in a rising market

Today's homeowners have $313,000 of equity in their homes on average—a 6% increase from last year according to ICE Mortgage Monitor. Finding your available equity requires three steps: determine your home's current market value, calculate 80% of that value, and subtract your existing mortgage balance.

Here's a practical example: Your home's value rises to $500,000 and you owe $200,000 on your mortgage. Your maximum potential loan would be $400,000 (80% of $500,000). After paying off your $200,000 mortgage, you could access up to $200,000 in cash. Texas property values continue rising, making this calculation more favorable.

Texas Cash-Out Refinance Rules You Need to Know

Understanding Texas rules is vital if you want a cash-out refinance. The state has specific rules that protect homeowners and lenders. You need to know these requirements before you start.

The once-per-year refinancing limitation

Texas has strict timing rules for cash-out refinancing. The law allows you to get a Texas cash-out refinance just once every 12 months. This rule stops homeowners from pulling out too much equity too fast and getting into financial trouble. You'll need to wait a full year after closing before you can refinance the property again through any method.

Six-month waiting period for new homeowners

The law says you must own your home at least six months before you can apply for a cash-out refinance. This waiting period makes sure you build some equity and have stable ownership. Your property might gain value faster, but this six-month rule stays firm whatever the market does.

2% fee cap on lender charges

Texas cash-out refinances come with built-in cost protections. Lenders can't charge more than 2% of the loan amount for closing costs. The cap dropped from 3% to 2% with recent changes, which made these loans cheaper. This limit covers only lender fees like origination and processing - not outside costs such as appraisal fees, attorney fees, title insurance, or mortgage insurance premiums.

Primary residence requirements

Texas cash-out refinance rules work only for your primary home. A Texas Section 50(a)(6) loan must be secured by a single-unit principal residence that counts as your homestead under Texas law. These rules don't affect investment properties or second homes, which gives investors more options. Farm homesteads can now get cash-out loans too, which opens up new choices for rural homeowners.

Strategic Uses of Cash-Out Funds in a Growing Economy

Getting a Texas cash-out refinance opens up several smart ways to use your funds in today's growing economy. Interest rates typically range from 4% to 6%, and these funds can help homeowners make the most of their financial position.

Home improvements that further increase property value

Smart homeowners often put their cash-out refinance money into home upgrades that boost their property's value. Kitchen remodeling projects give impressive returns with about 92% ROI. A good kitchen upgrade costs between $25,000 and $40,000 and adds great value to your home's market appeal and livability.

Bathroom updates also pay off well. Even small cosmetic changes can increase your home's value by $1.71 for every $1.00 you invest. Adding solar panels helps cut utility bills and qualifies you for tax credits. These smart upgrades give you two benefits: better living space now and more equity later.

Investment opportunities in additional Texas real estate

Your cash-out funds could also help buy more property. Texas welcomes about 1,300 new residents daily, which keeps real estate needs strong. Many homeowners, like the Johnson's, put their refinanced money toward rental property down payments. These investments can bring in monthly income - sometimes $1,200 or more. This strategy lets you build wealth through more real estate by using your existing equity.

Debt consolidation advantages with current interest rates

Debt consolidation makes good financial sense too. Mortgage refinancing rates are much lower than credit cards or personal loans. You can save hundreds each month by moving your credit card debt from 18% interest to 7% mortgage debt. Plus, mortgage interest often stays tax-deductible, which means extra savings on your taxes.

Conclusion

Texas homeowners now have excellent opportunities to leverage their property's equity due to rising home values. Previous strict regulations limited our choices, but today's rules let us tap into 80% of our home's value through cash-out refinancing. This option provides substantial funds at competitive rates.

The market definitely favours this type of financing right now. Property values keep climbing thanks to strong population growth, limited housing inventory, and steady appreciation rates. Many Texas homeowners have discovered substantial untapped equity they could use to fund home improvements, real estate investments, or debt consolidation.

A smooth cash-out refinance process requires understanding the timing requirements and limitations properly. Recent rule changes and the 2% fee cap have made these loans more available. The funds need strategic deployment to maximize long-term financial benefits.

Texas property values continue their upward climb, making cash-out refinancing a powerful tool to achieve financial goals. Smart investments through equity can generate returns that exceed refinancing costs instead of letting that equity remain idle.