Can I do a cash-out refinance on my VA home loan in Texas?
By Kyle Melvin · NMLS #1486450 · REV Mortgage · Licensed in Texas ·
Short answer
Not the way most people mean it. A refinance that hands you cash against a Texas homestead is a home equity loan under Article XVI, Section 50(a)(6) of the Texas Constitution, and those rules — a ceiling of 80% of fair market value across all liens, a non-recourse lien, a 12-day waiting period, a cap on what the lender may charge — do not line up with VA's cash-out program, so lenders generally will not put cash in your hand on a Texas homestead with a VA loan. What VA still does in Texas is the no-cash version of the same product: paying off the existing mortgage and allowable costs into a new VA loan, which VA calls a Type I cash-out.
Two different sets of rules meet on this question, and Texas wins.
VA's side is straightforward. The VA cash-out refinance comes in two shapes under Chapter 6 of the VA Lenders Handbook: a Type I, where the new loan does not exceed the payoff of the old one, and a Type II, where it does — the one that produces cash. VA permits a Type II up to 100% of appraised value, though lender overlays sit well below that.
What Texas does to it
Texas protects the homestead in its constitution, not just its statutes. Article XVI, Section 50(a)(6) says that a loan secured by equity in a homestead — any loan that pulls money out — must satisfy a list of conditions: all liens together may not exceed 80% of fair market value, the borrower gets a 12-day waiting period after the required notice, the lender's charges are capped, closing happens at the office of the lender, a title company or an attorney, and the lien is non-recourse — the home is the lender's only remedy.
That last one is the wall. VA's guaranty assumes the veteran stays personally liable, and VA's own cash-out rules and disclosures are written around that assumption. The two frameworks do not reconcile cleanly, and the practical result is that lenders do not originate a cash-in-hand VA refinance on a Texas homestead. The cash, when Texas homeowners take it, comes from a conventional Section 50(a)(6) refinance, a home equity second lien, or a HELOC — none of them VA products, and none of them carrying the funding fee.
What your VA loan can still do here
- Lower the rate. An IRRRL refinances a VA loan into a new one with no appraisal and, usually, no re-verification of income — no cash, by design. The streamline answer covers the tests it has to pass.
- Restructure without cash. A Type I pays off the existing lien and allowable costs. This is also how a conventional or FHA loan in Texas converts to VA.
- Stack the state benefits. If your rating changed since you closed, the property tax exemptions on the Texas veteran benefits page may be worth more than the refinance was.
Three things this answer cannot settle without facts you did not give: whether the property is your homestead or a rental, whether your current loan is a VA loan, and whether you are exempt from the funding fee. And the honest downside of any cash-out, in Texas or not: the whole balance reprices at today's rate, so pulling a small amount out of a loan you got at a much lower rate usually costs more than the cash is worth.
Questions people also ask
- Can I do a cash-out refinance on my VA home loan in Texas?
- Not in the sense of walking away from closing with money. Texas governs equity taken out of a homestead through Article XVI, Section 50(a)(6) of its constitution, and those requirements conflict with VA's cash-out rules, so lenders route Texas homeowners to a conventional Section 50(a)(6) refinance, a home equity second lien or a HELOC instead. A VA refinance that takes no cash out is still available.
- Does the Texas rule apply to a rental property I own in Texas?
- No. Section 50(a)(6) protects the homestead — the property you own and occupy as your principal residence. A Texas rental is not a homestead and is not subject to those limits. VA's cash-out program still requires you to occupy the home, though; the one VA refinance that works on a home you have since moved out of is an IRRRL, which only asks you to certify that you lived there before.
- What if my current loan is already a Texas home equity loan?
- Since the 2017 amendment to the state constitution, Section 50(f)(2) lets an existing home equity loan be refinanced into an ordinary non-home-equity loan when the conditions are met — among them at least a year since the home equity loan closed, no new cash to the borrower, and the 80% ceiling. That is the route by which such a loan can become a VA loan. Ask the lender to confirm the current conditions before you count on it.
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