What Makes a Loan Subject to Texas Section 50(a)(6)
Texas Section 50(a)(6) refers to a specific provision in the Texas Constitution that governs cash-out refinance loans on homestead property. If you live in Texas and want to refinance your primary residence to take cash out, your loan will likely fall under these rules.
Here's the key distinction: Texas law determines whether your loan is a Section 50(a)(6) loan, not Fannie Mae's definitions. Your lender might classify your refinance as a "limited cash-out" for Fannie Mae purposes, but Texas law could still consider it a cash-out refinance subject to Section 50(a)(6) restrictions.
Say you're refinancing to pay off your existing mortgage plus $15,000 in credit card debt. Fannie Mae might call this a limited cash-out refinance, but under Texas law, it's likely a Section 50(a)(6) loan because you're consolidating non-mortgage debt.
Eligible Loan Types and Products
Not all mortgage products work for Texas Section 50(a)(6) loans. The restrictions are specific and non-negotiable.
You can only get a first-lien mortgage — no second mortgages, home equity lines of credit, or subordinate financing. The loan must have monthly payments and fully amortize over its term.
For interest rate options, you have these choices:
- Fixed-rate mortgages of any term
- 5-year ARM (plan 4927)
- 7-year ARM (plan 4928)
- 10-year ARM (plan 4929)
These ARM products work like standard adjustable-rate mortgages, with one major difference: they cannot be assumed by a future buyer. This restriction applies for the entire life of the loan, not just the initial fixed period.
Several loan types are completely off-limits. You cannot get an ARM product other than the three listed above. Interest rate buydowns — where you pay extra upfront to reduce your initial rate — are not allowed on Section 50(a)(6) loans.
Property Requirements and Homestead Rules
Your property must be a single-unit primary residence that qualifies as your homestead under Texas law. This is stricter than typical Fannie Mae requirements.
Investment properties, second homes, and multi-unit properties (duplexes, triplexes, fourplexes) are not eligible. The property must be where you actually live as your primary residence.
Acceptable property types include detached homes, townhomes, condominiums, PUD units, and manufactured homes. For manufactured homes, the home must be classified as real property under Texas law and meet all of Fannie Mae's manufactured housing requirements.
Texas homestead law includes acreage limits that vary by location. In most areas, your homestead cannot exceed 10 acres. In some municipalities, the limit is smaller. Your lender will verify that your property doesn't exceed the applicable limit when you apply.
If you own adjacent land, you'll need to provide a survey showing that the mortgaged homestead property is a separate parcel within the acreage limits. You can't simply claim that part of a larger tract qualifies as your homestead.
Trust Ownership Considerations
You can hold title in a revocable living trust and still get a Section 50(a)(6) loan, but the trust must meet specific requirements.
The trust must qualify as an "inter vivos revocable trust" under Fannie Mae guidelines B2-2-05: Inter Vivos Revocable Trusts. Additionally, it must meet Texas law requirements for a "qualifying trust" that can own residential homestead property eligible for the homestead exemption.
This means the trust must be revocable, you must be the primary beneficiary during your lifetime, and the trust terms must not conflict with Texas homestead protections. Your attorney will need to confirm the trust structure complies with both Fannie Mae and Texas requirements.
Lender Responsibilities and Legal Compliance
Your lender has significant responsibilities when originating a Section 50(a)(6) loan. They cannot rely solely on Fannie Mae's loan classification system to determine Texas law compliance.
The lender must independently determine whether Texas Section 50(a)(6) applies to your transaction. They must also correctly classify the loan for Fannie Mae delivery purposes — as either a cash-out or limited cash-out refinance — and apply the appropriate pricing adjustments.
These are separate determinations. Your loan might be subject to Section 50(a)(6) under Texas law while being delivered to Fannie Mae as a limited cash-out refinance, or vice versa.
If you're refinancing an existing Section 50(a)(6) loan into a conventional loan that doesn't require Section 50(a)(6) compliance, your lender must prepare and record a specific affidavit referenced in Section 50(f-1) of the Texas Constitution.
Common Complications and Gotchas
The biggest trap is assuming that Fannie Mae's loan classification determines Texas law compliance. Many borrowers and even some loan officers make this mistake.
Your lender might tell you that your refinance qualifies as a "limited cash-out" for Fannie Mae purposes, leading you to believe Section 50(a)(6) doesn't apply. But if you're paying off any non-mortgage debt or taking cash for any purpose other than home improvements, Texas law likely considers it a cash-out refinance subject to Section 50(a)(6).
Property ownership structures can create issues. If you own your home jointly with someone who doesn't live there, or if you have complex ownership arrangements, the homestead qualification becomes murky. Texas homestead law is specific about who can claim the homestead exemption.
Acreage calculations sometimes surprise borrowers. You might think you own "about an acre," but the actual surveyed area could exceed Texas limits. This is particularly common in rural areas where property boundaries aren't clearly marked.
ARM product restrictions catch some borrowers off-guard. If you want a 3-year ARM or a different ARM structure, you'll need to look at non-Section 50(a)(6) loan options, which might mean giving up the cash-out feature.
Required Documentation and Evidence
Your lender will need standard mortgage documentation plus Texas-specific items. Expect to provide a homestead affidavit confirming that the property is your primary residence and qualifies for the Texas homestead exemption.
If your property is close to acreage limits, you'll need a current survey showing exact property boundaries and total acreage. The survey must be prepared by a licensed surveyor and clearly identify the homestead property as a separate parcel if you own adjacent land.
For trust-owned properties, you'll need the complete trust agreement and any amendments. Your attorney may need to provide an opinion letter confirming that the trust qualifies under both Fannie Mae guidelines and Texas homestead law.
The lender will also document their determination of Section 50(a)(6) applicability and their rationale for the Fannie Mae loan classification. This creates a paper trail showing they made independent legal determinations rather than relying solely on automated systems.
Why These Rules Exist
Texas Section 50(a)(6) was added to the state constitution to provide consumer protections for homestead property while allowing limited cash-out refinancing. Before this provision, Texas homestead law generally prohibited using your home as collateral for debt.
The restrictions on loan types and property eligibility ensure that only true homestead properties benefit from these protections. The acreage limits prevent large landowners from claiming excessive homestead exemptions.
The non-assumable requirement for ARM products relates to mortgage-backed securities disclosures. When Fannie Mae pools these loans into securities, investors need to know that the loans cannot be assumed, which affects the securities' characteristics and pricing.
The separate determination requirements for lenders exist because Texas law and federal secondary market rules serve different purposes. Texas protects homestead rights, while Fannie Mae manages investment risk. Sometimes these objectives create different loan classifications for the same transaction.
References
For the official guidelines, see B5-4.1-02: Texas Section 50(a)(6) Loan Eligibility in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B5-4.1-02, Texas Section 50(a)(6) Loan Eligibility (12/16/2020)
Refinance Classifications
Eligible Loan Products and Transaction Types
Texas Section 50(a)(6) Loan Security Property
Refinance Classifications
Lenders should be aware that Fannie Mae’s classification of loan transactions as “cash-out refinance” or “limited cash-out refinance” may differ from the way loans are classified under Texas law.
Lenders should not rely on Fannie Mae’s categorization of refinance loans for purposes of determining whether compliance with the provisions of Texas Constitution Section 50(a)(6) is required. Rather, such lenders should consult with their counsel to determine the applicability of Texas Constitution Section 50(a)(6) to a particular loan transaction.
Texas law determines whether or not a loan is a Texas Section 50(a)(6) loan, and Fannie Mae’s policy determines whether the loan must be delivered as a cash-out refinance transaction or as a limited cash-out refinance transaction.
The lender is responsible for determining:
the applicability of Texas Constitution Section 50(a)(6) regardless of Fannie Mae’s definitions of cash-out and limited cash-out refinance transactions; and
if the loan should be delivered to Fannie Mae as a cash-out refinance or a limited cash-out refinance transaction, including the applicable special feature codes and payment of all applicable LLPAs.
All loans that constitute Texas Section 50(a)(6) loans under Texas law must comply with these provisions, regardless of whether the loan is classified as a “cash-out refinance” or “limited cash-out refinance” in the Selling Guide. See B5-4.1-03, Texas Section 50(a)(6) Loan Underwriting, Collateral, and Closing Considerations
For any refinance of a Texas Section 50(a)(6) loan that results in a loan originated in accordance with and secured by a lien permitted by Article XVI, Section 50(a)(4) of the Texas Constitution, an affidavit referenced in Section 50(f-1) Article XVI of the Texas Constitution must be prepared and recorded in connection with each such transaction.
Eligible Loan Products and Transaction Types
Texas Section 50(a)(6) loans must be fully amortizing loans with payments due on a monthly basis. The following are eligible as Texas Section 50(a)(6) loans:
first lien mortgages only;
fixed-rate loans; and
five-, seven-, and ten-year ARM plans (4927, 4928, and 4929 Texas 50(a)(6), respectively).
Note: These ARM plans should be structured in the same way that they are for other loans, except that the loan may not be assumable at any time over its full term. Only the ARM plans listed above are eligible, due to the MBS disclosure impact resulting from the non-assumable nature of these ARMs.
The following are not eligible as Texas Section 50(a)(6) loans:
loans that are not in first-lien position,
ARM plans not listed above, and
loans with temporary interest rate buydowns.
Texas Section 50(a)(6) Loan Security Property
A Texas Section 50(a)(6) loan must be secured by a single-unit principal residence constituting the borrower’s homestead under Texas law. Loans secured by two- to four-unit properties, investment properties, or second homes are not eligible. The security property may be
a detached dwelling,
an attached dwelling,
a unit in a PUD project,
a unit in a condo project, or
a manufactured home. (A manufactured home is eligible only if it is classified as real property under Texas law, and satisfies all special Fannie Mae eligibility criteria for manufactured homes.)
The borrower’s homestead property may not exceed the applicable acreage limit as determined by Texas law when the Texas Section 50(a)(6) loan is originated.
A borrower that owns adjacent land must submit appropriate evidence, such as a survey, that the mortgaged homestead property is a separate parcel that does not exceed the permissible acreage.
Note: An inter vivos revocable trust that meets Fannie Mae's borrower eligibility criteria (as described in
B2-2-05, Inter Vivos Revocable Trusts), may be a borrower under a Texas Section 50(a)(6) loan, provided that the trust meets the requirements for a "qualifying trust" under Texas law for purposes of owning residential property that qualifies for the homestead exemption.
