Texas 50(a)(6) Guidelines: Equity Cap, Fees, and Closing Rules

A Texas home equity loan governed by Article XVI, Section 50(a)(6) of the state constitution has to stay within 80 percent of your home’s fair market value, keep origination-type fees under 3 percent of the principal, follow a fixed sequence of disclosures and waiting periods, close at an approved location with every owner and spouse consenting, and remain non-recourse against you personally. The Texas 50(a)(6) home equity loan rules are unusually strict, and a lender that misses any of them can be forced to refund charges, adjust the loan, or in the worst case forfeit all principal and interest.¹

The 80 Percent Equity Cap

The combined balance of every mortgage and lien on your homestead, including the new home equity loan, cannot exceed 80 percent of the property’s fair market value at the time the loan is made.¹ A professional appraisal sets that value at closing. Strong credit and high income don’t buy any flexibility; the number turns entirely on the appraisal and the debt already recorded against the property.

Say your home appraises at $400,000. Total secured debt is capped at $320,000. If your purchase mortgage balance is $200,000, the largest home equity loan available is $120,000. The lender has no discretion to exceed the threshold, and a loan that does is constitutionally defective from the start.

The 3 Percent Fee Cap

Fees charged to originate, evaluate, record, insure, or service the loan cannot together exceed 3 percent of the principal.¹ On a $200,000 loan that’s $6,000. The current cap took effect January 1, 2018, replacing the earlier 2 percent limit; older articles still describe the pre-2018 rule.

Four categories sit outside the cap:

Bona fide discount points that actually correspond to an interest-rate reduction and aren’t disguised origination fees.²
Third-party appraisals, where the appraiser is not an employee of the lender.
Property surveys performed by a Texas-licensed surveyor.
Title insurance premiums at the basic rate plus authorized endorsement premiums published by the Texas Department of Insurance.

Charges that do count toward the 3 percent include credit report fees, flood zone determinations, tax certificates, inspections, appraisal management services, and document recording fees.² Note that state-mandated taxes are not automatically excluded, despite what some older guidance says. Review your closing disclosure line by line and run the math.

One Home Equity Loan at a Time

Your homestead can secure only one Section 50(a)(6) loan at any given moment.¹ Other liens can coexist if they fall into a different constitutional category — a purchase-money mortgage, a tax lien, or a home improvement loan — but two separate home equity loans on the same property are not permitted.

Refinances are also time-gated. You cannot refinance a home equity loan more than once per year, measured from closing date to closing date, and the same one-year wait applies before taking out a new home equity loan after paying off a prior one on the property.¹

Refinancing Into a Conventional Mortgage

Since 2018, a seasoned home equity loan can be refinanced into a standard rate-and-term mortgage that sheds the 50(a)(6) restrictions. Three conditions apply: at least one year must have passed since the home equity loan closed, the refinance can include no cash back beyond actual refinancing costs, and both you and your spouse must sign an affidavit confirming those conditions.³ The new lien is then treated as a purchase-money mortgage, and the property is free to secure a future equity loan if you ever want one.

Home Equity Lines of Credit

HELOCs are allowed with an extra safeguard on draws. If the outstanding principal balance exceeds 50 percent of the home’s fair market value as determined when the account was opened, no further draws are permitted until you pay the balance back below that mark.⁴ The 80 percent combined loan-to-value ceiling still governs the total credit line at origination.

What Property Qualifies

Only your homestead — your primary residence — can secure a Section 50(a)(6) loan. Investment properties and vacation homes do not qualify. Texas defines homestead size by location:

Urban homestead: up to 10 acres, one or more contiguous lots, plus improvements.⁵
Rural homestead of a family: up to 200 acres across one or more parcels.
Rural homestead of a single adult: up to 100 acres across one or more parcels.⁵

Agricultural homesteads used to be off-limits unless the property was primarily used for milk production. The 2017 constitutional amendment repealed that prohibition, and ag-designated homesteads are now treated the same as any other for equity-lending purposes.⁶

Consent, Notice, and Powers of Attorney

Every owner of the homestead and every owner’s spouse must consent to the loan in writing, whether or not the spouse holds an ownership interest and whether or not the spouse is a borrower.¹ Texas is a community property state, and a spouse who never signed can later attack the lien as defective. Expect the lender to collect identifying information for everyone involved.

Before closing, the lender must deliver a specific disclosure — the “Notice Concerning Extensions of Credit” prescribed by Section 50(g) — on a separate document from the loan paperwork.¹ It summarizes the 80 percent cap, the fee cap, the right to cancel, and the judicial foreclosure requirement. Delivery of this notice also starts the 12-day clock described below.

If an owner or spouse cannot appear in person, a power of attorney can stand in, but the Texas Supreme Court has treated signing the POA as itself part of the closing. That means the POA must also be signed at the office of the lender, a title company, or an attorney — not at home, not at a coffee shop.⁷ Separately, the lender cannot make you sign a confession of judgment or a POA authorizing anyone to appear in court on your behalf.

The Closing Timeline

Several waiting periods are mandatory. Nobody can waive them, including you. Missing any of them can invalidate the lien, not merely delay it.

The 12-Day Wait Before Closing

The loan cannot close until at least 12 calendar days have passed after the later of two events: the date you submitted your loan application, or the date you received the Notice Concerning Extensions of Credit.¹ The count begins the calendar day after the later event.⁸ If the lender changes loan terms and reissues the disclosure, the 12-day clock may reset.

The One-Day Preclosing Disclosure

At least one business day before closing, you must receive a final itemized disclosure listing the actual fees, points, interest, costs, and charges that will appear at the table.⁹ The lender can modify the disclosure on the closing date itself only if a genuine emergency or other good cause exists, and you sign a written statement confirming you were told about your right to the one-day advance review.

Where the Loan Must Close

Signing has to happen at the office of the lender, a title company, or a licensed attorney.⁷ A kitchen table, a coffee shop, or a real estate agent’s office will not do. Courts have voided liens on that basis alone. Every owner and spouse must be present at the authorized location to sign.

The Three-Day Right to Cancel

After closing, every owner and spouse has three calendar days to cancel the loan with no penalty and no cost.¹⁰ If the third day falls on a Sunday or a federal holiday, the deadline moves to the next day that isn’t. The lender cannot disburse funds during the rescission window. To cancel, deliver written notice within that window. No explanation is required.

Non-Recourse and Judicial Foreclosure

A Section 50(a)(6) loan is non-recourse. The lender cannot pursue you or your spouse personally for the debt, and if the foreclosure sale doesn’t cover the balance, the lender absorbs the loss.¹ The only exception is actual fraud — a material lie in the loan application. Short of that, the property is the lender’s only remedy.

The lender also cannot accelerate the loan because your home’s market value drops or because you default on some other, unsecured debt.¹ You can prepay at any time without penalty.

If you default, the lender cannot use the non-judicial foreclosure route that applies to most Texas mortgages. A home equity lien can only be foreclosed by court order, either through a full lawsuit and judgment or through an expedited order under Rules 735 and 736 of the Texas Rules of Civil Procedure.¹¹ Either way, a judge has to sign off, and you get an opportunity to raise defenses first.

What Happens If the Lender Breaks the Rules

If a lender fails to meet any constitutional requirement, you can send written notice identifying the violation. The lender then has 60 days to cure it.¹ What “cure” means depends on what went wrong:

Overcharges on fees or interest: refund the excess.
Loan exceeds 80 percent LTV: written acknowledgment that the lien is valid only up to the permitted amount.
Prohibited terms or amounts: written notice modifying the offending provision and adjusting your account so you owe no more than the constitution allows.
Missing disclosures or signatures: deliver the documents or obtain the signatures.
Any other violation: refund you $1,000 and offer to refinance the loan for the remaining term at no cost, on the same or better terms.

If the lender does not cure within 60 days, it forfeits all principal and interest on the loan.¹ The entire debt can be wiped out. That forfeiture is what makes every other rule on this page enforceable, and it’s why Texas home equity lending carries more compliance overhead than nearly any other mortgage product in the country.

1
Justia. Texas Constitution Article 16 Section 50 – Homestead; Protection From Forced Sale; Mortgages, Trust Deeds, and Liens
2
Texas Credit Union Department. 7 Texas Administrative Code 153.5 – Two Percent Fee Limitation
3
Texas Legislature Online. Bill Analysis S.J.R. 60
4
Texas Legislative Council. Facts at a Glance – Recent Changes in Texas Home Equity Laws
5
State of Texas. Texas Property Code PROP 41.002 – Definition of Homestead
6
Texas Legislative Council. Analyses of Proposed Constitutional Amendments – 85th Legislature
7
Legal Information Institute. 7 Texas Admin Code 153.15 – Location of Closing: Section 50(a)(6)(N)
8
Office of Consumer Credit Commissioner. Regulated Lenders – Advisory Bulletins and Disclosures
9
Legal Information Institute. 7 Texas Admin Code 153.13 – Preclosing Disclosures: Section 50(a)(6)(M)(ii)
10
Legal Information Institute. 7 Texas Admin Code 153.25 – Right of Rescission: Section 50(a)(6)(Q)(viii)
11
Texas State Law Library. The Foreclosure Process