Texas HELOC Rules: 80% LTV Cap, 2% Fee Limit, and Closing

Texas HELOC rules are stricter than any other state’s, and they sit in the Texas Constitution rather than in ordinary statutes. Total secured debt on your home cannot exceed 80% of its fair market value. Fees are capped at 2% of the loan amount. Every draw must be at least $4,000. The closing has to happen in person at a lender’s office, an attorney’s office, or a title company. And if a lender breaks any of these rules and fails to fix the problem within 60 days after you notify them, it forfeits all principal and interest on the loan.

The 80% Loan-to-Value Cap

When you open a HELOC, the combined total of all debt secured by your home cannot exceed 80% of its fair market value. That includes your existing mortgage, any other liens, and the full credit limit on the new line, not just what you plan to draw at closing.¹

On a home appraised at $400,000, total secured debt maxes out at $320,000. If you already owe $200,000 on a first mortgage, the largest HELOC limit available to you is $120,000. The lender establishes fair market value through an appraisal or another accepted valuation method at the time the line is set up.

This ceiling is a hard cap. No exceptions, no workarounds. It also holds throughout the life of the line: the maximum principal available under the account, combined with your other secured debt, can never exceed 80% of the home’s value as of the date the HELOC was established.¹

The 2% Fee Cap

Total fees charged in connection with a Texas HELOC cannot exceed 2% of the original principal amount. The cap covers every charge from the lender or a third party that’s necessary to originate, evaluate, maintain, record, insure, or service the loan. Interest and bona fide discount points used to buy down the rate are calculated separately and do not count.²

Four categories of cost sit outside the 2% cap:

Appraisal fees paid to a third-party appraiser
Property survey fees paid to a state-registered or licensed surveyor
Title insurance at the state base premium for a mortgagee policy with endorsements
Title examination reports, if the cost is less than the state base premium for a policy without endorsements

Those excluded costs can push your out-of-pocket closing expenses well above 2%, but the fees that count against the constitutional limit are tightly defined. One other detail: capped fees can only be charged when the HELOC is first established. The lender cannot tack on fees for individual draws later.¹

The $4,000 Minimum Draw

Every draw on a Texas HELOC has to be at least $4,000. That applies to the initial advance at closing and to every draw afterward. If you need $1,500 for a repair, you’ll have to draw $4,000 anyway.¹

Texas also blocks a few common ways of accessing revolving credit. Your lender cannot give you a credit card or debit card tied to the line, and it cannot send preprinted convenience checks you didn’t ask for. Draws happen through methods you specifically request.¹

Which Properties Qualify

A Texas HELOC can only be secured by your homestead, meaning your principal residence. Investment properties, second homes, and vacation rentals don’t qualify. Since a 2017 constitutional amendment, property with an agricultural-use tax valuation is now eligible too, which removed an older restriction that had blocked most agricultural homesteads from home equity lending.¹

One Equity Loan at a Time

You can hold only one home equity loan or HELOC secured by your homestead at any given time. You cannot carry a closed-end home equity loan and a HELOC together on the same property.

There’s also a one-year seasoning rule. A new home equity extension of credit cannot be made if the same homestead secured a prior equity loan that closed less than a year earlier. The clock runs from the closing date of the prior loan, and paying it off early doesn’t reset it. Even if you repaid a HELOC in month three, you’d wait until month twelve to open a new equity loan on the same home.¹

Waiting Periods and Disclosures Before Closing

Two cooling-off periods sit inside the closing process. The first is triggered by a constitutional disclosure called the “Notice Concerning Extensions of Credit.” Your lender has to deliver this on a separate written instrument, and the loan cannot close until at least 12 calendar days have passed. That gives you nearly two weeks to review terms and risks before signing anything.¹

The second waiting period comes right before closing. You have the right to receive a final itemized disclosure of all actual fees, points, costs, and charges at least one day before the loan closes.³

The constitutional notice itself warns you that the loan is secured by your homestead, explains the foreclosure risk, and describes the lender’s forfeiture obligation if the loan fails to comply with constitutional requirements. It’s not standard boilerplate. It’s a specific document the Texas Constitution requires.

Where the Closing Has to Happen

A Texas HELOC must be closed at the permanent physical office of the lender, an attorney, or a title company. That means an actual location. Not your kitchen table, not a coffee shop, not a video call. The point is to make sure you sign these documents in a professional setting, away from sales pressure at your home.⁴

A 2023 bill (HB 264) would have created exceptions for military members, people with disabilities, and incarcerated borrowers through remote online notarization or a power of attorney. It did not pass. The in-person closing requirement applies to every borrower.

The Three-Day Right to Cancel

After the HELOC closes, you have three days to cancel it without penalty. The right belongs to every owner and every owner’s spouse. If the third day falls on a Sunday or federal holiday, the deadline moves to the next business day.⁵

Your lender cannot disburse any funds during this rescission window. To cancel, notify the lender in writing by mail, telegram, or another written communication. The cancellation takes effect when you send it, not when the lender receives it.⁶

Using the HELOC After Closing

During the draw period, you can borrow and repay repeatedly up to your credit limit, subject to the $4,000 minimum on each advance. Each periodic payment during the draw period has to cover at least the accrued interest, which blocks negative amortization. When the draw period ends, the HELOC converts to a repayment phase, typically 10 to 20 years, with substantially equal installments of principal and interest and no further draws.

Your lender cannot unilaterally change the terms of the HELOC after closing. Changing the interest rate index, repayment schedule, or other material terms generally requires refinancing into a new, fully compliant loan.

Converting to a Fixed-Rate Loan

Texas allows a HELOC to be converted into a closed-end home equity loan. The conversion locks in whatever balance you owe at that point and replaces the revolving line with a fixed rate and set repayment schedule. All the constitutional requirements, including the 80% LTV cap and the one-year seasoning rule, still apply.

Refinancing a Texas HELOC

A home equity loan generally keeps its constitutional character after refinancing. A refinanced equity loan stays subject to the 80% LTV cap, the 2% fee limit, the closing location rule, and every other restriction, even if you take no additional cash out.

Section 50(f)(2) of the Texas Constitution offers one escape. You can refinance an equity loan into a non-equity loan if three conditions are met: the refinance cannot close before the first anniversary of the original equity loan’s closing date, no additional funds can be advanced beyond what’s needed to pay off the existing loan and closing costs, and the combined loan-to-value ratio has to stay at or below 80%.⁷

A successful (f)(2) refinance frees the new loan from the ongoing equity-loan restrictions. The one-at-a-time limit and the one-year seasoning rule no longer apply to that debt, which opens the door to a new HELOC later without waiting on the old restrictions to lapse.

Foreclosure Requires a Court Order

Most Texas foreclosures proceed without a judge. Home equity loans are the exception. Before a lender can post your home for sale after a HELOC default, it has to get a court order authorizing the foreclosure. That extra judicial step is protection that borrowers with conventional mortgages don’t have.

The lender files a verified application in the district court of the county where the property sits, describing the debt, the lien, the default, and the notices sent to you.⁸ If you file your own lawsuit contesting the foreclosure in the same county, the lender’s expedited proceeding is automatically paused and eventually dismissed, and the dispute plays out through standard litigation.

What Happens When Lenders Break the Rules

The penalty for constitutional non-compliance is severe. The lender forfeits all principal and interest on the loan. But forfeiture doesn’t happen on its own. You have to notify the lender in writing that the loan fails to comply. The lender then has 60 calendar days from the day after receiving your notice to correct the problem.¹

Cure within the 60-day window and the forfeiture penalty doesn’t apply. Fail to cure and the lender loses the right to collect any principal or interest. The clock only starts running once your notice is specific enough to identify the violation. A vague complaint may not trigger the cure period at all.⁹

This is one of the strongest borrower remedies in American mortgage law. If you think your HELOC was not originated in compliance with the constitution, having a Texas real estate attorney review the documents is worth the cost. The stakes on both sides are unusually high.

Federal Tax Treatment of HELOC Interest

Interest on a Texas HELOC is deductible on your federal return only if you used the borrowed funds to buy, build, or substantially improve the home securing the loan. Interest on HELOC funds used to pay off credit cards, cover tuition, or fund a vacation is not deductible.¹⁰

When interest does qualify, it falls under the home acquisition debt limit of $750,000, or $375,000 if you’re married filing separately. That limit covers the combined balance of your mortgage, HELOC, and any other debt secured by your home that was used for acquisition or improvement. The One Big Beautiful Bill Act of 2025 made the $750,000 ceiling permanent, so the threshold applies for 2026 and beyond.¹⁰

Tracking how you spend each draw matters. If you draw $50,000 and put $30,000 into a kitchen renovation and $20,000 toward a car loan, only the interest on the $30,000 is potentially deductible. Keeping receipts for how each draw was spent is the simplest way to back up the deduction if the IRS asks.

1
Justia Law. Texas Constitution Article XVI Section 50 – Homestead Exemptions
2
Texas Credit Union Department. 153.5 Two Percent Fee Limitation Section 50(a)(6)(E)
3
Justia. Texas Administrative Code Title 7 Section 153.13 – Preclosing Disclosures
4
Cornell Law School. Texas Administrative Code 7 Section 153.15 – Location of Closing
5
Texas Administrative Code. Texas Administrative Code Title 7 Section 153.25 – Right of Rescission
6
Consumer Financial Protection Bureau. Regulation Z Section 1026.23 – Right of Rescission
7
Cornell Law School. Texas Administrative Code 7 Section 153.45 – Refinance of an Equity Loan Section 50(f)
8
Texas Rules Project. Texas Rules of Civil Procedure Rule 736 – Expedited Foreclosure Proceeding
9
Cornell Law School. Texas Administrative Code 7 Section 153.92 – Counting the 60-Day Cure Period
10
Internal Revenue Service. Real Estate Taxes, Mortgage Interest, Points, Other Property Expenses