VA cash-out refinance in Texas: why you can't get one (and what works instead)

Can you get a VA cash-out refinance in Texas?

No.

If your home is your Texas homestead and you're trying to take equity out through a VA-guaranteed cash-out refinance, the problem isn't your eligibility for the VA benefit. It isn't that VA has a nationwide rule against the loan. The conflict comes from Texas home-equity law.

The Texas Attorney General addressed this exact question in Opinion KP-0183 on February 26, 2018. The request asked whether veterans with VA home loans could execute a cash-out refinance on their Texas homestead.

The answer was no.

That can be confusing, because VA does have a cash-out refinance program. Under the current federal rule in 38 CFR § 36.4306, VA can guarantee qualifying cash-out refinance loans.

Texas is different because of the way its constitution treats home-equity debt. A VA guaranty and a Texas home-equity loan cannot be combined in the way a VA cash-out refinance requires. This is not a rule saying Texas veterans can't use VA loans. It is a specific conflict between the VA guaranty and the Texas Constitution's rules for borrowing against equity in a homestead.

Why does Texas block it?

The Texas Attorney General's Opinion KP-0183 gives the clearest answer:

Because of the guaranty by the federal government, which is additional collateral, Texas Constitution, article XVI, subsection 50(a)(6)(H) prohibits a U.S. Department of Veterans Affairs cash-out refinance loan.

Texas Attorney General Opinion KP-0183, February 26, 2018

Article XVI, section 50(a)(6)(H) of the Texas Constitution says a Texas home-equity loan cannot be secured by additional real or personal property other than the homestead. Texas administrative rules also treat a guaranty or surety on an equity loan as additional property. And every VA loan carries a federal guaranty.

Put those together and you have the conflict. Texas says the equity loan cannot have that additional collateral. A VA cash-out refinance requires the VA guaranty. Both conditions cannot exist on the same Texas home-equity loan.

The Attorney General explained that even if the other terms of a VA cash-out loan were written to comply with Texas law, the VA guaranty itself creates the problem.

An Attorney General opinion is not a statute. It is persuasive authority interpreting the constitution and the law. In practice, lenders do not make VA cash-out refinance loans on Texas homesteads because of this conflict.

There are other Texas rules on the home-equity loan itself. Section 50(a)(6)(B), for example, limits the total principal secured against the homestead to no more than 80 percent of the home's fair market value when the loan is made. But changing the loan amount does not solve the VA problem. The guaranty is what creates the conflict.

If you have a question about how Texas homestead law applies to your specific property, that is a question for a Texas real estate attorney.

What Texas does not block: purchase loans and rate-and-term refinances

Texas does not have a general restriction on VA loans.

The Attorney General made that point directly in footnote 7 of the same opinion: "Subsection 50(a)(6) governs home equity loans and does not apply to a traditional U.S. Department of Veterans Affairs purchase money mortgage or a refinance loan."

Section 50(a)(6) is the home-equity provision that creates the cash-out problem, and the Attorney General is saying it does not reach purchase loans or ordinary refinances. A VA purchase loan is not the problem, and neither is a VA refinance that takes no equity out.

So content claiming that "VA loans are restricted in Texas" is wrong. The restriction is on the home-equity cash-out transaction, not on the VA loan program as a whole. A Texas veteran has the same access to VA purchase loans and rate-and-term refinances as a veteran in any other state. The issue appears only when you try to combine the federal VA guaranty with a Texas home-equity loan.

What are your options if you need cash out of a Texas home?

If the goal is actually to receive cash from your home's equity, a VA-guaranteed cash-out refinance is not the way to do it on a Texas homestead. The alternative is a Texas home-equity loan that complies with article XVI, section 50(a)(6) without using the VA guaranty, and that loan has to follow Texas home-equity rules.

One of those rules is the 80 percent ceiling. The principal of the new home-equity loan, combined with the outstanding principal balances of other valid debt secured against the homestead, cannot exceed 80 percent of the home's fair market value when the extension of credit is made.

Texas also limits certain fees under section 50(a)(6)(E). The current constitutional language caps covered fees at two percent of the original principal amount, while excluding the specific appraisal, survey, title insurance and title examination costs listed in the constitution.

Those are Texas rules, separate from VA's.

Start with what you're actually trying to do. If you want cash in hand, you're in the Texas home-equity rules. If you want a better loan without taking cash out, a VA refinance may still be open to you.

Does this affect a VA IRRRL?

No. An IRRRL — VA's Interest Rate Reduction Refinance Loan, often called a streamline refinance — advances no cash to the borrower.

That is why footnote 7 of KP-0183 covers it. The Texas home-equity provision does not apply to a traditional VA refinance loan, so the constitutional conflict that kills a VA cash-out refinance never arises.

VA's current funding-fee page lists the IRRRL funding fee separately from its cash-out refinance fees:

These are fees set by VA, not lender charges. VA's funding-fee guidance also lists several exemption categories, including many veterans receiving or eligible to receive VA compensation for a service-connected disability.

The fee table does not change the Texas cash-out rule. It shows that VA runs separate refinance programs under federal rules. VA sets the terms of its guaranty; private lenders make the loans.

Can a Texas home-equity loan become a regular loan later?

Yes, but Texas puts strict conditions on that conversion.

Article XVI, section 50(f)(2) allows debt that includes a Texas home-equity loan to later be refinanced into a loan that is no longer treated as a section 50(a)(6) home-equity loan, but only when all of the constitutional conditions are met.

First, the refinance cannot close before the first anniversary of the original home-equity loan.

Second, the refinance cannot advance additional cash. The constitution allows funds needed to refinance the existing covered debt, along with actual costs and reserves required by the lender, but it does not allow you to use this conversion to pull more money out.

Third, the new principal amount, together with other valid debt secured by the homestead, cannot exceed 80 percent of the home's fair market value.

There is also a required written notice. The lender has to provide it on a separate document and at least 12 days before closing. The notice spells out what you give up:

WILL PERMIT THE LENDER TO FORECLOSE WITHOUT A COURT ORDER" … "WILL BE WITH RECOURSE FOR PERSONAL LIABILITY AGAINST YOU AND YOUR SPOUSE.

Texas Constitution, article XVI, section 50(f)(2)(D)

So this conversion should not be described as a simple workaround that turns home-equity debt into ordinary debt. The legal treatment of the loan changes, and the Texas Constitution requires the borrower to be warned about what that change means.

It also does not create a second chance to take cash out. Section 50(f)(2) specifically prohibits advancing additional funds beyond the allowed refinance amounts, costs and reserves.

If you already have Texas home-equity debt and are considering this type of refinance, the exact lien history and property facts matter. Questions about the legal effect on your specific homestead belong with a Texas real estate attorney.

How VA cash-out works everywhere else, and the 90% myth

Most national articles describe a program you cannot use on a Texas homestead, which makes the federal rules harder to follow than they need to be.

The current federal rule under 38 CFR § 36.4306 says the new VA cash-out loan must not exceed 100 percent of the reasonable value of the dwelling.

You may also see a 90 percent number attached to VA cash-out loans, presented as if VA caps the loan there.

It does not.

Under the current regulation, 90 percent appears as one of eight conditions that can satisfy VA's net tangible benefit test. The regulation separately requires the new loan to give the borrower a net tangible benefit, and the lender has to run that test.

Two different rules are getting mixed together. The federal maximum is 100 percent of reasonable value. A loan-to-value ratio of 90 percent or less — how much you're borrowing against what the home is worth — is one way to satisfy the benefit test. They are not the same thing.

Many lenders also apply their own 90 percent limit. That is a lender overlay, not a VA rule.

The regulation also sets how long you have to wait before a cash-out refinance can receive the VA guaranty. The new loan cannot be guaranteed until the later of 210 days from your first monthly payment, or the date your sixth monthly payment is made.

Those are federal rules for the cash-out program. They do not override Texas homestead law. That is why a national article can correctly describe a VA cash-out product while still giving a Texas homeowner the wrong answer.

If the property is a Texas homestead, start with the Texas rule: you cannot combine a section 50(a)(6) home-equity cash-out loan with the VA guaranty.

Common questions

Is this a lender rule or a state law?

The restriction comes from the Texas Constitution and its treatment of home-equity loans. Texas Attorney General Opinion KP-0183 interpreted those provisions to prohibit a VA-guaranteed cash-out refinance because the guaranty counts as additional collateral.

Can I still buy a home in Texas with a VA loan?

Yes. Footnote 7 of KP-0183 specifically says section 50(a)(6) does not apply to a traditional VA purchase-money mortgage, so the home-equity restriction does not block VA purchase loans. If you're starting there, the VA loan requirements in Texas walk through what actually gets checked.

Does this affect a VA IRRRL?

No. An IRRRL advances no cash, and the Attorney General's footnote says the Texas home-equity provision does not apply to a traditional VA refinance loan.

If I already have a Texas home-equity loan, can I refinance out of it?

Yes, if the conditions in Texas Constitution section 50(f)(2) are met. The refinance cannot close before the first anniversary, cannot advance additional cash, must stay within the 80 percent fair-market-value limit, and requires the constitutional notice at least 12 days before closing.

How much is the VA funding fee on a refinance?

VA's current fee page lists a 2.15% fee for a cash-out refinance on first use, 3.3% after first use, and 0.5% for an IRRRL. VA also lists exemption categories, including many veterans who receive or are eligible to receive VA compensation for a service-connected disability.

This article is educational content only. It is not a commitment to lend, an offer of credit, or legal or tax advice. Program rules change; the facts above were verified on the date shown and linked to their official sources. Your scenario gets verified against current guidelines, on your file, before anything is promised.