Home equity loan vs HELOC vs cash-out refinance in Texas

All three let you borrow against the equity you have built in your home. They differ in how the money arrives, what happens to the mortgage you already have, and how you pay it back. This guide lays them side by side and explains the Texas rules that apply to every Texas homestead.

How do the three options compare?

Terms differ by lender and loan. This table describes how the products are generally structured, not an offer of credit.

What is a home equity loan?

A home equity loan borrows against your home and pays you a lump sum after closing and a 3-business-day cancellation period.

Most often it sits behind your first mortgage as a second loan, so you keep your first mortgage and add a second payment. It can also be the only loan on a home you own free and clear, or pay off your current mortgage as a new first lien. Because the amount is set up front, it suits a one-time cost with a known price, such as a roof or a single large bill. In Texas it is sometimes called a Section 50(a)(6) loan, after the part of the Texas Constitution that governs it.

What is a HELOC?

A HELOC is a home equity line of credit: a revolving account you borrow from as needed, up to a limit.

You draw money when you need it, repay it, and draw again during the draw period. In Texas, each draw must be at least $4,000, and the full credit limit plus your other home loans must fit within 80% of the home's value when the line is opened. During the draw period, payments can cover at least the interest on what you owe. After the draw period ends, you repay the balance in regular installments. HELOCs have their own rules in Section 50(t) of the Texas Constitution.

What is a cash-out refinance?

A cash-out refinance replaces your current mortgage with a new, larger one and gives you the difference in cash.

You end up with one loan and one payment instead of two. In Texas, a cash-out refinance on your homestead that gives you cash beyond paying off your current loan and closing costs is generally a home equity loan under Section 50(a)(6), so the same rules and protections apply. Read how families use them in our guide on cash-out refinance in Texas, or see our refinance options in Houston.

What are the Texas rules for borrowing against a homestead?

Texas protects homeowners by limiting how much equity you can borrow and by building in waiting time before you close.

These rules come from Article XVI, Section 50 of the Texas Constitution. For a home equity loan under Section 50(a)(6), they generally include:

• 80% limit. The loan, added to all other debt secured by your homestead, generally cannot exceed 80% of the home's fair market value on the date the loan is made.
• 12-day wait. The loan generally cannot close before the 12th day after the later of your application or the date the lender gives you the required notice.
• One at a time, once a year. A new home equity loan generally cannot close before the first anniversary of the closing of an earlier one on the same homestead. You also cannot add one while your home already has another Texas home equity loan on it.
• Where you close. The loan must close only at the office of the lender, an attorney or a title company.
• 3 business days to cancel. After closing, you generally can cancel until midnight of the third business day, and the money is released after that period ends.
• Every owner signs. Each owner and each owner's spouse must agree to the loan in writing.
• No personal liability. The loan is generally without personal liability unless there is actual fraud. The lender can still foreclose on the home through a court order if the loan is not repaid.
• 2% fee cap. Certain fees paid to originate, evaluate and service the loan are capped at 2% of the loan amount. Some costs, such as the appraisal, the survey and the base title insurance premium, are not counted toward that cap.
• HELOCs. A home equity line of credit is governed by Section 50(t), which treats it as an open-end account with its own conditions, including a $4,000 minimum per draw.

Sources, checked October 20, 2026: Texas Constitution, Article XVI, Section 50 (Texas Legislature); the home equity interpretations in Texas Administrative Code, Title 7, Chapter 153; and the federal right to cancel in Regulation Z, Section 1026.23 (CFPB). Rules can change by constitutional amendment, so confirm the current text before you rely on it.

How do you choose between them?

Start with the mortgage you already have. If its terms work for you, a second loan keeps them in place, unless that mortgage is already a Texas home equity loan. If you would rather have one loan and the new terms work, a cash-out refinance does that. Then think about timing: one known expense points to a lump sum, and costs spread over months point to a credit line. A loan officer at Warens Financial Group compares equity options for your situation, in English or Spanish, so you can see the numbers side by side before you decide.

Frequently asked questions

What is the difference between a home equity loan and a HELOC in Texas?

A home equity loan pays you one lump sum after closing and the 3-business-day cancellation period, and you repay it on a schedule. A HELOC is a revolving line of credit you can draw from, repay and draw from again, with each draw at least $4,000. Either one can sit behind your current mortgage or be the first lien, and both fall under the Texas homestead rules.

How much can I borrow against my home in Texas?

For a home equity loan, Texas generally limits the combined balance of all loans on your homestead to 80% of its fair market value on the date the loan is made. HELOCs fall under their own subsection of the Texas Constitution, Section 50(t). For a HELOC, the full credit limit plus your other home loans must fit within that 80% when the line is opened.

How long does a Texas home equity loan take to close?

Texas requires a waiting period. A home equity loan generally cannot close before the 12th day after the later of your application or the date the lender gives you the required notice. It must close only at the office of the lender, an attorney or a title company. After closing, you generally have until midnight of the third business day to cancel, and the money is released after that period ends.

Can I get two Texas home equity loans in the same year?

Generally no. A new home equity loan cannot close before the first anniversary of the closing date of an earlier one on the same homestead, with a narrow exception for a declared emergency.

When does a cash-out refinance make more sense than a second loan?

When you want one monthly payment and the terms of a new first mortgage work for you. If your current first mortgage has terms you want to keep, a loan that sits behind it may fit better. One limit: if your current mortgage is already a Texas home equity loan, you cannot add a second home equity loan or HELOC on top of it. A loan officer can compare the numbers side by side for your situation.

Does Warens Financial Group offer home equity loans or HELOCs?

This guide is education. Warens Financial Group helps Texas homeowners with refinance options, including cash-out refinance, and a loan officer can walk through which way of using your equity fits your situation.

Disclaimer: This article is for general educational purposes only and is not financial advice, legal advice, a commitment to lend, or an offer of credit. Texas home equity rules are set by the Texas Constitution and can change. Terms, costs and eligibility vary by lender and loan, and borrowing against your home puts your home at risk if you cannot repay. Warens Financial Group, NMLS #2532048. Franklin Warens, Mortgage Broker, NMLS #1249423. Equal Housing Opportunity.