What is the 80% rule for Texas home-equity loans?

Under Article XVI, Section 50(a)(6) of the Texas Constitution, a home-equity loan plus all other liens against the homestead cannot exceed 80% of the home's fair market value at the time the loan is made. The owner must retain at least 20% equity. On a $400,000 home, total liens are capped at $320,000, so if a first mortgage is $200,000, the maximum new equity loan is $120,000. Exceeding the cap can invalidate the lien.

What is the 12-day notice?

It is the written Notice Concerning Extensions of Credit that a lender must give before making a home-equity loan. The loan cannot close until at least the 12th day after the owner applies for the loan or receives the notice, whichever is later. This cooling-off period gives the borrower time to understand the terms and is separate from the federal three-day rescission right that applies after closing. Missing the 12-day period can invalidate the lien.

Are Texas home-equity loans recourse or non-recourse?

They are non-recourse. Under Section 50(a)(6), the loan must be without personal liability for the borrower and spouse unless the loan was obtained by actual fraud. That means if the homeowner defaults and the foreclosure sale does not cover the balance, the lender generally cannot pursue the borrower's other assets for the shortfall. The home itself is the lender's security, and actual fraud is the narrow exception to the non-recourse protection.

How many home-equity loans can I have?

Only one Section 50(a)(6) loan may be secured by the homestead at any given time. In addition, a new equity loan generally cannot close before one year has passed from the closing date of a prior equity loan on the same property, unless the owner requests an earlier closing on oath due to a declared state of emergency. This one-loan-at-a-time and one-year-spacing rule is a frequently tested limit.

Where must a Texas home-equity loan close?

The Constitution requires the loan to close at the physical office of the lender, an attorney, or a title company — not at the borrower's home or another informal setting. This is one of the procedural safeguards that, if violated, can render the lien invalid. The security instrument must also disclose that the loan is a Section 50(a)(6) extension of credit, and the lender must release the lien when the loan is paid in full.

Texas Home Equity Loans: Constitution 50(a)(6) Rules

TL;DR

Texas has some of the most protective home-equity lending rules in the country, and they sit directly in the state Constitution at Article XVI, Section 50(a)(6). A home-equity loan or cash-out refinance secured by a Texas homestead must follow strict constitutional limits, and violating them can make the lien invalid. The headline rule is the 80% cap: the equity loan plus all other liens against the homestead cannot exceed 80% of the home's fair market value, so the owner must keep at least 20% equity. Lender fees are capped at 2% of the loan amount — a limit lowered from 3% by a 2017 constitutional amendment effective January 1, 2018 — though certain third-party charges like appraisal and title premiums are excluded from that cap. The loan cannot close until at least the 12th day after the owner applies or receives the required written notice, whichever is later, giving a cooling-off period. The loan is non-recourse: absent actual fraud, the lender cannot pursue the borrower personally beyond the home. Only one Section 50(a)(6) loan may be secured by the homestead at a time, and a new one generally cannot close within a year of a prior equity loan. These loans must close at the office of the lender, an attorney, or a title company.

Why Section 50(a)(6) matters

Texas historically prohibited home-equity lending entirely, and when the state finally allowed it in 1997, it wrote the rules into the Constitution rather than an ordinary statute. That is why the protections are unusually durable and why the exam treats them as constitutional law, not just lending regulation. A loan that borrows against homestead equity — whether structured as a standalone home-equity loan, a home-equity line of credit, or a cash-out refinance — is a Section 50(a)(6) extension of credit and must satisfy every requirement in the section. If it does not, the lien securing the loan can be declared invalid, which is a powerful remedy for the homeowner.

The rules exist to protect the homestead, the same property that Texas shields from forced sale for most debts. Home-equity lending is one of the narrow categories of debt for which a homestead can be foreclosed, so the Constitution surrounds it with safeguards. Understanding those safeguards means understanding how they interact with the broader homestead protections, covered in our guide to constitutional homestead protection.

The core constitutional limits

Several numeric limits define a valid Section 50(a)(6) loan, and the exam tests them directly. The first is the 80% combined loan-to-value cap: at the time the loan is made, its principal plus the balances of all other liens against the homestead cannot exceed 80% of the fair market value. On a home worth $500,000 with a $250,000 first lien, the maximum new equity borrowing is $150,000, because $250,000 plus $150,000 equals 80% of $500,000. The second is the fee cap: lender fees are limited to 2% of the loan amount, a figure reduced from the original 3% by the 2017 amendment effective in 2018. Bona fide third-party charges such as appraisal fees, survey costs, and title insurance premiums are generally excluded from the 2% cap.

The loan is also non-recourse under the Constitution: unless the borrower or spouse obtained the loan by actual fraud, the lender's remedy is limited to the property, with no personal liability for any deficiency. Only one Section 50(a)(6) loan may exist against the homestead at any given time, and a new equity loan generally cannot close before one year has passed since the closing of a prior equity loan on the same property. These interlocking limits are why home-equity lending is a favorite exam topic — several distinct numbers, each of which can invalidate the lien if missed. The foreclosure consequences of default connect to our guide to nonjudicial foreclosure under Property Code Chapter 51.

Notice, timing, and closing rules

Beyond the dollar limits, Section 50(a)(6) imposes procedural safeguards. The lender must give the owner a written notice — commonly called the 12-day notice, formally the Notice Concerning Extensions of Credit Defined by Section 50(a)(6) — and the loan cannot close until at least the 12th day after the owner submits the application or receives that notice, whichever is later. This cooling-off period is separate from and in addition to the federal three-day right of rescission that follows closing on many home-secured loans. The owner also may not be required to close before one business day after receiving a final itemized disclosure of the actual fees and charges.

The Constitution also dictates where the loan may close: at the physical office of the lender, an attorney, or a title company, not at the borrower's home or another informal location. The security instrument must contain a disclosure stating the loan is the type defined by Section 50(a)(6), and when the loan is paid off the lender must provide a release of lien. These formalities matter because a defect in any of them — a missed 12-day period, a closing at the wrong location, an over-cap fee — can render the lien invalid and expose the lender to losing its security. For candidates gauging how heavily lending topics appear on the exam, our Texas real estate practice test includes questions on these constitutional limits.

Frequently Asked Questions

What is the 80% rule for Texas home-equity loans?: Under Article XVI, Section 50(a)(6) of the Texas Constitution, a home-equity loan plus all other liens against the homestead cannot exceed 80% of the home's fair market value at the time the loan is made. The owner must retain at least 20% equity. On a $400,000 home, total liens are capped at $320,000, so if a first mortgage is $200,000, the maximum new equity loan is $120,000. Exceeding the cap can invalidate the lien.
What is the fee cap on a Section 50(a)(6) loan?: Lender fees are capped at 2% of the loan amount. This was lowered from 3% by a constitutional amendment approved in 2017 and effective January 1, 2018. Certain bona fide third-party charges — such as appraisal fees, survey costs, and title insurance premiums — are generally excluded from the 2% cap. Older study materials that still cite a 3% cap are out of date on this point.
What is the 12-day notice?: It is the written Notice Concerning Extensions of Credit that a lender must give before making a home-equity loan. The loan cannot close until at least the 12th day after the owner applies for the loan or receives the notice, whichever is later. This cooling-off period gives the borrower time to understand the terms and is separate from the federal three-day rescission right that applies after closing. Missing the 12-day period can invalidate the lien.
Are Texas home-equity loans recourse or non-recourse?: They are non-recourse. Under Section 50(a)(6), the loan must be without personal liability for the borrower and spouse unless the loan was obtained by actual fraud. That means if the homeowner defaults and the foreclosure sale does not cover the balance, the lender generally cannot pursue the borrower's other assets for the shortfall. The home itself is the lender's security, and actual fraud is the narrow exception to the non-recourse protection.
How many home-equity loans can I have?: Only one Section 50(a)(6) loan may be secured by the homestead at any given time. In addition, a new equity loan generally cannot close before one year has passed from the closing date of a prior equity loan on the same property, unless the owner requests an earlier closing on oath due to a declared state of emergency. This one-loan-at-a-time and one-year-spacing rule is a frequently tested limit.
Where must a Texas home-equity loan close?: The Constitution requires the loan to close at the physical office of the lender, an attorney, or a title company — not at the borrower's home or another informal setting. This is one of the procedural safeguards that, if violated, can render the lien invalid. The security instrument must also disclose that the loan is a Section 50(a)(6) extension of credit, and the lender must release the lien when the loan is paid in full.

Bottom Line

Texas home-equity lending is governed by Article XVI, Section 50(a)(6) of the state Constitution, and its limits are strict because a defect can invalidate the lien. The equity loan plus all other liens cannot exceed 80% of the home's fair market value, keeping at least 20% equity in the owner's hands. Lender fees are capped at 2% of the loan amount — reduced from 3% effective January 1, 2018 — with bona fide third-party charges excluded. The loan cannot close before the 12th day after application or notice, whichever is later; it is non-recourse absent actual fraud; only one such loan may encumber the homestead at a time, spaced at least a year apart; and it must close at a lender, attorney, or title company office. For related topics, see our guides to constitutional homestead protection, nonjudicial foreclosure, and the Texas real estate practice test.

Source: Texas Constitution Article XVI, § 50(a)(6) (home-equity lending); 7 TAC § 153. Texas Constitution Art. XVI § 50 (FindLaw) · Notice Concerning Extensions of Credit (Texas Finance Commission) · Texas Constitution Art. XVI (capitol.texas.gov)