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Texas’ homeowners have options for accessing their home equity through loans and lines of credit. With Texas’ homestead protection laws, the rules for home equity borrowing differ from many other states. Understand these differences so you can as a homeowner make better decisions about using your home’s value.

Updated: March 12, 2025

MFP’s Takeaways

Here are the most important points to remember about Texas home equity options:

• 80% LTV Limit – Texas law restricts total home debt to 80% of your home’s value
• 12-Day Waiting Period – Texas requires a 12-day cooling-off period before closing
• Limited to One Home Equity Loan – You can only have one home equity loan at a time
• No Additional Advances – Once closed, you cannot borrow additional funds without refinancing
• No Prepayment Penalties – Texas law prohibits lenders from charging fees for early repayment

Home Equity in Texas

Texas has historically provided strong homestead protections for property owners. Until 1997, home equity loans were prohibited in the state. Today, while homeowners can access their equity, Texas maintains stricter regulations than most states. These rules limit loan amounts to 80% of a home’s value and require specific closing procedures.

The Texas Constitution’s outlines these protections, ensuring homeowners don’t over-leverage their properties. These regulations apply to both traditional home equity loans and home equity lines of credit (HELOCs).

Home Equity Loans vs. HELOCs

What is a Home Equity Loan?

A home equity loan provides a one-time lump sum that is repaid over a fixed term, typically 5 to 30 years. These loans usually have fixed interest rates, making monthly payments predictable. The entire loan amount is disbursed at closing, and borrowers make regular payments until the loan is fully repaid.

In Texas, home equity loans must:

• Have a minimum loan amount of $4,000
• Be secured by your primary residence only
• Close only at the lender’s office, a title company, or an attorney’s office
• Include a 3-day right of rescission after closing

What is a HELOC (Home Equity Line of Credit)?

A HELOC works differently by providing a revolving line of credit that can be drawn upon as needed during a set draw period, typically 10 years. HELOCs usually have variable interest rates tied to the prime rate, and borrowers only pay interest on the amount actually withdrawn.

Texas HELOCs have specific features:

• A 10-year draw period during which you can access funds
• A 20-year repayment period in most cases
• Variable interest rates that can change with market conditions
• Minimum advances may be required by some lenders

Main Differences Between Home Equity Loans and HELOCs

The following table highlights the key differences between these two borrowing options in Texas:

Qualifying for Home Equity in Texas

Home Equity Requirements

Texas imposes specific requirements for home equity borrowing:

• Total home-secured debt cannot exceed 80% of your home’s fair market value
• Loans must be for a minimum of $4,000
• You must wait at least 12 days after application before closing
• You must wait at least one year between home equity loans
• Loans can only be secured by your primary residence

These requirements protect homeowners from excessive borrowing while still allowing access to equity.

Credit Score & Income Requirements

Lenders evaluate borrowers based on:

• Credit scores typically need to be 620 or higher for most lenders
• Higher scores (700+) qualify for better interest rates
• Stable income history, usually verified with two years of documentation
• Employment verification and income stability

Debt-to-Income (DTI) Ratio

Your DTI ratio affects loan approval in Texas:

• Most lenders prefer a DTI ratio below 43%
• The ratio is calculated by dividing monthly debt payments by gross monthly income
• Lower DTI ratios may qualify for better rates and higher loan amounts
• Some lenders may allow higher DTI ratios with compensating factors like excellent credit

Property Eligibility

In Texas, only certain properties qualify for home equity borrowing:

• Must be your homestead (primary residence)
• Must be a single-family home, condo, or townhouse
• Rural homesteads are limited to 10 acres for urban properties and 100 acres for rural properties (200 acres for families)
• Investment properties and second homes do not qualify

Lenders and Their Offerings in Texas

Texas homeowners can choose from various lenders for home equity products. Each institution offers different rates, terms, and customer service experiences.

The table below summarizes some major home equity lenders in Texas:

Online lenders are also entering the Texas market, often with streamlined application processes and competitive rates.

Texas Home Equity Loans Rates – March 2025

Real rates. Not teasers. The Texas home equity rates below are provided by homeowners members throughout Texas who took a home equity loan last few weeks. The rates are not the same as what you see online elsewhere because those are usually teaser rates. The rates here may be a little below or higher what you see on other sites but they are real rates homeowners recently received.

The goal: give a better idea who offer the best equity rates for your credit score. We’re also proving members’ satisfaction ratings for lender type and credit scores.

Smart Uses of Home Equity for Texans

Home equity funds can be used for various purposes, with some uses being more financially sound than others. The best uses include:

• Home improvements and renovations that increase property value
• Debt consolidation to replace high-interest debt with lower-rate home equity
• Educational expenses for yourself or family members
• Emergency funds for unexpected medical bills or major repairs
• Business investments with clear return potential

Less advisable uses include:

• Purchasing depreciating assets like vehicles
• Funding vacations or other short-term expenses
• Speculative investments
• Regular living expenses

Things to Take into Account Before Borrowing

Before Texans take a home equity loan or HELOC, consider these factors:

• Risk level – Your home serves as collateral, putting it at risk if you default
• Closing costs – These typically range from 2-5% of the loan amount
• Tax implications – Interest may be tax-deductible if used for home improvements (consult a tax professional)
• Market conditions – Property values can decrease, affecting your equity
• Total cost of borrowing – Calculate the full cost including interest and fees

Additional Texas-specific factors include:

• 3% fee cap on loan expenses (excluding appraisal, survey, title insurance)
• Prohibition against closing at non-office locations
• Required notices and disclosures specific to Texas

Is a Home Equity Loan or HELOC Right for You?

Determining the best option depends on your specific needs and financial situation:

A home equity loan may be right if you:

• Need a specific amount for a one-time expense
• Prefer predictable payments
• Want protection from interest rate increases
• Plan to use all funds immediately

An HELOC may be right if you:

• Need flexibility to borrow as needs arise
• Want to pay interest only on what you use
• Can manage potential payment fluctuations
• Need funds for ongoing projects or future expenses

In either case, Texas homeowners should carefully review all documentation, understand the specific terms, and ensure they can comfortably manage the payments before proceeding.

For personalized advice about home equity options in Texas, you should speak with a financial advisor or mortgage professional familiar with Texas-specific regulations.

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