What Makes Texas Home Equity Loans Different
Texas has some of the most restrictive home equity lending laws in the country. Article XVI, Section 50(a)(6) of the Texas Constitution governs cash-out refinances and certain no-cash-out refinances on homestead properties. These loans come with strict requirements that don't exist in other states.
The key distinction is that Texas law determines whether Section 50(a)(6) applies, not Fannie Mae's standard refinance definitions. A loan that Fannie Mae would normally classify as a no-cash-out refinance might still fall under Section 50(a)(6) requirements if it meets certain criteria under Texas law.
Say you own a home in Dallas worth $400,000 with a current mortgage balance of $200,000. You want to refinance to a lower rate and pull out $50,000 for home improvements. This would be a Section 50(a)(6) loan regardless of how Fannie Mae typically categorizes cash-out refinances.
Property and Borrower Requirements
The property must be a single-family home that serves as your primary residence in Texas. It must also qualify as your homestead under Texas law, which means you use it as your main family residence and have claimed the homestead exemption.
Investment properties and second homes don't qualify. Neither do properties with more than one unit. The homestead requirement is strict - you can't have multiple homesteads, and the property must be where you actually live.
Living trusts can qualify as borrowers, but only if the trust meets both Fannie Mae's living trust requirements and Texas law requirements for qualifying trusts that can own homestead property.
Loan-to-Value Limits and Appraisal Requirements
The maximum loan-to-value ratio is 80%, but it may need to be lower depending on other Fannie Mae requirements for your specific loan type. This 80% limit is firm - there are no exceptions or ways to exceed it.
The appraisal process includes special Texas requirements. Your lender must provide an appraisal that meets both standard Fannie Mae requirements and the specific Texas constitutional requirements in Sections 50(a)(6)(Q)(ix) and 50(h).
You and your lender must sign a written acknowledgment of the property's fair market value as of the loan closing date. The appraisal report gets attached to this acknowledgment. This isn't just a formality - it's a constitutional requirement that protects borrowers by ensuring they understand their property's value.
Required Documents and Forms
Texas Section 50(a)(6) loans require special uniform instruments that differ from standard Fannie Mae forms. You cannot use regular Fannie Mae notes and security instruments for these loans.
The required documents include:
- Texas Home Equity Note (fixed-rate or adjustable-rate versions)
- Texas Home Equity Security Instrument
- Texas Home Equity Affidavit and Agreement
- Texas Home Equity Fixed/Adjustable Rate Rider (for ARM loans)
- Special riders for condominiums or planned unit developments if applicable
The affidavit must be recorded along with the security instrument. This document contains important borrower protections and acknowledgments required by Texas law.
Your lender will handle preparing these documents, but you should understand that they contain different terms and protections than standard mortgage documents. The affidavit, in particular, includes specific borrower rights and lender obligations that don't exist in other states.
Eligible Loan Types
Only certain loan products qualify as Texas Section 50(a)(6) mortgages. You can get a fixed-rate mortgage or specific adjustable-rate mortgages: 3/6-month, 5/6-month, 7/6-month, or 10/6-month ARMs.
The loan must be a conventional first lien mortgage. Government loans like FHA, VA, or USDA don't fall under Section 50(a)(6) because they have their own federal regulations.
Special purpose cash-out refinance mortgages are not allowed under Section 50(a)(6). This includes things like mortgages specifically designed for energy improvements or other special programs.
Refinancing Existing Section 50(a)(6) Loans
If you currently have a Section 50(a)(6) mortgage, you have two options for refinancing. You can refinance into another Section 50(a)(6) mortgage, which means following all the same strict requirements again.
Alternatively, you might be able to refinance into a Section 50(a)(4) mortgage, which has different Texas constitutional requirements. Section 50(a)(4) mortgages that pay off Section 50(a)(6) loans can be sold to Fannie Mae as regular no-cash-out refinances if they meet standard requirements in [[4301.4]].
Your lender will need to determine which type of refinance is appropriate based on your specific situation and loan purpose.
Why These Rules Exist
Texas created these strict home equity lending rules to protect homeowners from predatory lending practices. The state constitution limits how much equity you can access and requires specific consumer protections.
The 80% loan-to-value limit prevents borrowers from over-leveraging their homes. The special forms and affidavits ensure borrowers understand their rights and the loan terms. The appraisal acknowledgment requirement prevents inflated property values that could lead to unsustainable debt levels.
These protections came about because Texas historically had very restrictive home equity lending laws, and when the state opened up home equity lending in the 1990s, lawmakers wanted strong consumer safeguards in place.
Common Complications and Gotchas
The biggest challenge is determining whether Section 50(a)(6) applies to your specific refinance. This isn't always obvious, and the consequences of getting it wrong are severe. If a lender originates a loan that should have been a Section 50(a)(6) mortgage but wasn't, Fannie Mae can force the lender to buy back the loan immediately.
Lenders often require legal counsel review to confirm compliance with Texas constitutional requirements. This can add time and cost to your loan process.
The special uniform instruments requirement means your lender must use the correct Texas-specific forms. Using standard Fannie Mae forms by mistake would violate the constitutional requirements.
Title insurance requirements are also different for Section 50(a)(6) loans, as outlined in [[4702.1]], [[4702.3]], and [[4702.5]]. Your lender will need to ensure the title company understands these special requirements.
If your lender makes any error in originating the loan that results in a violation of Section 50(a)(6), the consequences can include forfeiture of principal or interest, invalidation of the mortgage lien, or forced modification of loan terms. These aren't just regulatory penalties - they're constitutional protections that can't be waived.
References
For the official guidelines, see 4301.7: Texas Equity Section 50(a)(6) Mortgages in the Fannie Mae Selling Guide.
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Original Freddie Mac Guideline Text
This section contains requirements related to:
General requirements for Texas Equity Section 50(a)(6)
Eligible Mortgages
Refinances of Texas Equity Section 50(a)(6) Mortgages
Mortgaged Premises; appraisal; fair market value
Loan-to-value (LTV) and total LTV (TLTV) ratios
Eligibility to sell and service Texas Equity Section 50(a)(6) Mortgages
Texas Equity Uniform Instruments and other documents
(a)
General requirements for Texas Equity Section 50(a)(6)
The generally accepted commercial terms used to describe Mortgages originated under Article XVI of the Texas Constitution (“cash-out refinance”, “rate-term refinance”) may not correspond to the meaning given the same or comparable terms when used in
Chapter 4301
.
Sellers must understand the distinctions between Freddie Mac’s refinance definitions in
Chapter 4301
and the provisions of Section 50(a)(6) and are responsible for determining:
When Section 50(a)(6) applies, regardless of the definitions of cash-out and “no cash out” refinance transactions used in
Chapter 4301
Whether the proposed refinance of a Mortgage secured by the Borrower’s homestead in the State of Texas is a Mortgage that must be originated pursuant to Section 50(a)(6) of Article XVI of the Texas Constitution
(b)
Eligible Mortgages
A Texas Equity Section 50(a)(6) Mortgage must be:
A conventional First Lien Mortgage that is a:
Fixed-rate Mortgage, or
3/6-Month, 5/6-Month, 7/6-Month or 10/6-Month ARM
A cash-out refinance Mortgage as described in
Section 4301.5
or a “no cash-out” refinance Mortgage as described in
, depending on the applicable facts
A Texas Equity Section 50(a)(6) Mortgage may not be a special purpose cash-out refinance Mortgage.
(c)
Refinances of Texas Equity Section 50(a)(6) Mortgages
Sellers may refinance a Texas Equity Section 50(a)(6) Mortgage into:
Another Texas Equity Section 50(a)(6) Mortgage, or
A refinance Mortgage permitted by Section 50(a)(4) of Article XVI of the Texas Constitution (a “Section 50(a)(4) Mortgage”)
Note: Section 50(a)(4) Mortgages used to pay off a Texas Equity Section 50(a)(6) Mortgage and meeting all applicable Texas Constitutional requirements are not subject to the requirements of this section and are eligible for sale to Freddie Mac as “no cash-out” refinance Mortgages, provided all requirements of
Section 4301.4
are met.
(d)
Mortgaged Premises; appraisal; fair market value
Each Mortgage must be secured by a Mortgaged Premises that is:
A 1-unit Primary Residence,
The Borrower’s homestead
A Living Trust that meets the eligibility requirements of
Section 5103.5
may be a Borrower for a Texas Equity Section 50(a)(6) Mortgage if the Living Trust also meets the requirements for a “qualifying trust” under Texas law for purposes of owning residential property that qualifies for the homestead exemption.
The Seller must provide an appraisal that:
Meets Freddie Mac requirements, and
Complies with Section 50(a)(6)(Q)(ix) and Section 50(h) of Article XVI of the Texas Constitution
To meet the requirements for acknowledgment of fair market value, the Seller must:
Along with the owner of the homestead, execute a written acknowledgment of the “fair market value” of the homestead property as of the date the extension of credit is made
Attach the appraisal report to the acknowledgment
(e)
LTV and TLTV ratios
The maximum LTV and TLTV ratios for Texas Equity Section 50(a)(6) Mortgages must not exceed 80% and must be lower if necessary to comply with the LTV/TLTV ratio requirements of
Sections 4203.1(b)
and
4301.4
for “no cash out” and cash out refinances, as applicable.
(f)
Eligibility to sell and service Texas Equity Section 50(a)(6) Mortgages
Unless otherwise notified in writing, Sellers are eligible to deliver Texas Equity Section 50(a)(6) Mortgages.
The Servicer must be eligible to service Texas Equity Section 50(a)(6) Mortgages in accordance with
Section 8104.1(a)
and related Servicing provisions.
(g)
Texas Equity Uniform Instruments and other documents
Texas Equity Section 50(a)(6) Mortgages must be originated using the most recent version of the following special Fannie Mae/Freddie Mac Texas Home Equity Uniform Instruments:
Texas Equity Uniform Instruments and other required forms
Note
Texas Home Equity Note (Fixed Rate - First Lien) - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3244.1
Texas Home Equity Fixed/Adjustable Rate Note – 30-day Average SOFR (First Lien) Form 3442.44
Security Instrument
Texas Home Equity Security Instrument (First Lien) - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3044.1
Rider
Texas Home Equity Fixed/Adjustable Rate Rider – 30-day Average SOFR (First Lien) Form 3142.44
Borrower Affidavit
Texas Home Equity Affidavit and Agreement (First Lien) - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3185.
The affidavit must be recorded together with the Security Instrument and any applicable riders.
Condominium Rider
Texas Home Equity Condominium Rider - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3140.44, if the property is a Condominium Unit
Planned Unit Development (PUD) Rider
Texas Home Equity Planned Unit Development Rider - Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3150.44, if the property is in a PUD
Seller may access the Fannie Mae/Freddie Mac Texas Home Equity Uniform Instruments at
https://sf.freddiemac.com/tools-learning/uniform-instruments/overview
(opens in new window)
.
The Seller must prepare, obtain and/or provide any and all other documentation that the Seller determines is necessary to originate Texas Equity Section 50(a)(6) Mortgages in compliance with all applicable laws.
(h)
Seller represents and warrants that:
Neither the Seller nor its Correspondents or Mortgage Brokers have been found by any federal regulatory agency to have engaged in the practice of refusing to make loans because the applicants for the loans reside in a certain area or the property proposed to secure the loans is located in a certain area
All refinance Mortgages that fall within the provisions of Section 50(a)(6) of the Article XVI of the Texas Constitution have been originated as Texas Equity Section 50(a)(6) Mortgages and comply with Section 50(a)(6) of Article XVI and related provisions of the Texas Constitution, as amended, and all other applicable laws.
Note: Freddie Mac recommends that the Seller obtain advice from Texas legal counsel that confirms that the Seller’s lending and servicing policies, procedures and practices are in compliance with Section 50(a)(6) of Article XVI of the Texas Constitution, all other applicable Texas Constitutional provisions, statutes, court decisions, regulations and rules and applicable State and federal law.
The estate or interest in the Mortgaged Premises is vested in the Borrower. There is no defect in the Borrower’s title to the Mortgaged Premises.
The Mortgage is a valid and enforceable First Lien on the Mortgaged Premises
(i)
Specific remedies
Any action taken, or not taken, in connection with the origination of a Texas Equity Section 50(a)(6) Mortgage that results in any of the following (even if such action is a result of lender’s effort to cure a failure to comply with the provision of the Section 50(a)(6)) is a breach of the representations and warranties in this Section 4301.7, and Freddie Mac shall be entitled to any of the remedies stated in
Section 3601.1
, including the right to require the Seller to repurchase the Mortgage immediately upon Freddie Mac’s request, at a price determined in accordance with
:
A forfeiture of any principal or interest due under the Mortgage
The invalidation of the Mortgage as a First Lien
The abatement of accrual of interest and the Borrower’s obligations under the Mortgage
A reduction in the principal amount of the Mortgage
Any modification of the amount, interest rate, term or other provision of the Mortgage
(j)
Related provisions
In addition to the requirements in this section, other requirements related to Texas Equity Section 50(a)(6) Mortgages are described in the following Guide provisions:
Additional requirements related to Texas Equity Section 50(a)(6) Mortgages
,
4702.3
and
4702.5
,
8201.1
and
9206.2(d)
