Home Equity Loan Texas: Options, Credit Score, and Cash-Out Use

Key Takeaways: 

• Texas law caps home equity borrowing at 80% of your home’s value, and there are specific credit and income requirements you need to meet to qualify in 2026. 
• A home equity loan gives you a lump sum at a fixed rate, while a cash-out refinance replaces your whole mortgage. Each works better in different situations.
• Most Texas homeowners have usable equity right now but are not tapping it. Knowing the rules, rates, and requirements can help you make a smarter move.

Your home is not just a place to live. It is one of the most powerful financial tools you own. And right now, most Texas homeowners are not using it. Texas records just 11 HELOC originations per 10,000 homes, the lowest rate in the country by a wide margin. That means billions in equity is sitting untouched across the state. As of April 2026, the median home price in Texas sits at $338,384.

Even with a modest mortgage balance, many homeowners have tens of thousands in usable equity right now. A home equity loan lets you tap into that value. You can use it to fix up your home, wipe out debt, cover big expenses, or invest in your future. Texas has strict rules around these loans. We break all of them down in this blog, as we cover credit score needs, loan limits, cash-out uses, current 2026 rates, and how our team can help you every step of the way.

What Is a Home Equity Loan?

A home equity loan is a type of home mortgage loan. You borrow against the value of your home and it tends to serve as collateral for the loan. You get the money as a lump sum. Then you pay it back in fixed monthly amounts over a set term. This is different from a HELOC. A HELOC works like a credit card. You draw money as you need it. A home equity loan gives you all the cash at once. That makes it easier to plan your budget.

Home equity loans often have lower rates than personal loans. That is because your home backs the debt. Lower risk for the lender usually means lower rates for you.

How Home Equity Loans Work in Texas

Texas has some of the toughest home equity rules in the country. These rules protect homeowners from over-borrowing. They also keep you from losing your home due to too much debt. Here is what you need to know:

• 80% LTV cap: In 2026, the maximum loan-to-value (LTV) for a Texas home equity loan or HELOC is 80%, meaning you must keep at least 20% equity in your home after the loan closes.
• One loan at a time: You can only have one home equity loan or cash-out refinance at a time.
• 12-day waiting period: The Texas Constitution requires a 12-day waiting period before a home equity loan can be closed.
• One loan per year: You can only utilize your home’s equity once every 12 months.
• Primary residence only: You can only take out home equity loans on your primary residence.

These rules may feel strict at first, but they exist to keep you safe. They also keep Texas homeowners financially protected for the long term.

How Much Can You Borrow?

The math is simple. Let us say your home is worth $338,000. You still owe $150,000 on your mortgage. Here is how to figure out your max loan:

• $338,000 x 80% = $270,400 (Texas max)
• $270,400 minus $150,000 (what you owe) = $120,400

So you could borrow up to $120,400. You are allowed to borrow up to 80% of your home’s value. We subtract your mortgage balance from that number to find the amount you can borrow. This protects you from borrowing too much. It also keeps your home from going underwater.

If your home value dips, you still have a cushion of equity beneath you. Therefore, you have to keep in mind that closing costs and fees may reduce the final cash amount you receive. You have to always ask your lender for a full breakdown before you sign anything.

What Credit Score Do You Need?

Your credit score matters a lot. It affects both your approval chances and your interest rate. A stronger score means lower monthly payments over the life of the loan.

Here is what most lenders look for in Texas in 2026:

• 620 minimum for most HELOC programs.
• 660 to 680 is more commonly required for a traditional home equity loan.
• 700 and above gets you much better rates.
• 740 and above puts you in the best rate tier.

Typically, you need a credit score of at least 620 for HELOC approval, even though some lenders may require higher scores to offer lower interest rates. For a standard home equity loan, most lenders prefer 680 or higher. The rate difference between a 640 and 740 score on a cash-out refinance can be 1 to 1.5 percentage points. That adds up to thousands of dollars over time. Even a small score boost before you apply can save you a lot of money.

For the very best rates on a HELOC in Texas, maintain a credit score of 680 or higher. Ideally, 700 or above. A higher score indicates you present lower risk to lenders.

Tips to raise your credit score fast:

• Pay all bills on time, every month
• Keep credit card use below 30% of your limit
• Do not open new accounts right before applying
• Check your credit report for errors and dispute them
• Keep old accounts open to build credit history length

Our team can help you understand your score and we also offer options for low FICO score borrowers. So, you should not let a low score stop you from reaching out to us.

Current Home Equity Loan Rates in Texas (2026)

Rates have improved meaningfully in 2026. The national average HELOC interest rate is 7.43% as of June 3, 2026. In Texas specifically, average HELOC rates have softened to around 7.85%, down from 8.50% in January, with the Federal Reserve’s rate cuts pushing the prime rate to 7.50%. For comparison, the average HELOC rate offered on a $100,000 home equity line of credit was 7.09% in April of 2026, which is much lower than the average of 8.46% in April 2025.

Fixed-rate home equity loans give you stable monthly payments. Variable-rate HELOCs may start lower but can rise over time. If you want predictability in your budget, a fixed rate is often the safer pick. Shopping around is always a good idea. Even a 0.5% difference in rate can save thousands over a 10 or 15-year loan. Our team at Dream Home Mortgage helps you compare your options with no pressure.

How Can You Use the Cash?

Once approved, you can use the money for almost anything. Here are the most common uses for a home equity loan in Texas:

• Home Improvements This is the most popular use by far. You fix your home and also raise its value at the same time. Interest may be tax deductible when the money goes toward home improvements. Things like a new roof, kitchen remodel, or bathroom upgrade all count.
• Debt Consolidation You can pay off high-rate credit cards with a single lower-rate loan. One payment replaces many. By 2024, debt consolidation had surged to 39% of originations and is rapidly closing in on renovations as the dominant use case. That trend has continued into 2026. We also offer a Debt Consolidator tool to help you plan your payoff.
• Education Costs Paying for college or a trade program? A home equity loan can cover tuition and related fees. The rates are usually better than private student loan rates. It is a smart way to invest in your future.
• Emergency Expenses Medical bills or a sudden job loss can hit hard and fast. A home equity loan gives you a real financial cushion when you need it. But only use it for true emergencies. This is not free money. It is backed by your home.
• Investment Some homeowners use the cash to buy a rental property or fund a business venture. This can build long-term wealth if done wisely. You can check out our DSCR Loan options for investment property needs.

What You Cannot Do in Texas: You cannot use a Texas home equity loan for business purposes on your homestead. You also cannot take one out on investment or vacation properties.

Home Equity Loan vs. Cash-Out Refinance in Texas

Many people confuse these two products. Both let you access equity. But they work very differently. Here is a quick breakdown:

Home Equity Loan:

• A second loan on top of your existing mortgage
• Fixed interest rate for the full term
• Lump sum payout from the start
• Separate monthly payment added to your current one

Cash-Out Refinance:

• Replaces your current mortgage with a new, bigger one
• You get the difference in cash at closing
• May offer a new interest rate on your full loan balance
• One single monthly payment going forward

Texas homeowners can use home equity loans, HELOCs, or cash-out refinances, but each option comes with distinct rules and repayment structures. Which one is right for you? It depends on your current rate, how much cash you need, and your long-term goals. We offer Cash-Out Mortgage Refinance options. Our team can help you pick the right product for your situation.

Physicians who originally purchased with a specialized mortgage may also want to review when refinancing a physician mortgage after reaching 20% equity makes sense before choosing a cash-out or conventional refinance.

Qualify for a Home Equity Loan in Texas

Beyond your credit score, lenders look at several other factors. Meeting all of these gives you the best shot at approval:

• Equity: At least 20% built up in your home
• Income: Steady proof of earnings from your job or other sources
• Debt-to-Income (DTI) ratio: Ideally, your DTI ratio should be under 43%.
• Property type: Must be your primary home in Texas
• Loan seasoning: A one-year seasoning period applies if you previously did a home equity product on the same Texas homestead.

You will also need to gather documents like pay stubs, tax returns, bank statements, and a recent home appraisal. Having these ready speeds up the process and avoids delays at closing.

First-Time Buyers & Home Equity Options

If you just bought your home, you may not have much equity yet. But over time, your equity grows naturally. As you pay down your mortgage and your home value rises, equity builds up month by month. For buyers still looking to purchase their first home, we have a strong first home buyer program.

We also offer down payment assistance up to $15,000 for eligible buyers. Getting into your home sooner means you start building equity sooner too. Once you own a home and build enough equity, a home equity loan becomes a real and powerful option for you down the road.

Why DHM Stands Out Among Texas Mortgage Lenders 

Since 1998, our team has closed thousands of loans across Texas. Not because of flashy ads. Because clients refer their friends, family, and coworkers to us. That kind of trust is earned, not bought. We are licensed in all 50 states. Based right here in Plano, TX. And genuinely invested in getting you the right deal.

Getting a rate quote is easy. However, getting a lender who actually looks out for you is harder. If rates drop 25% or more after your lock, DHM re-locks your rate. And borrowers who have been turned away elsewhere often find that DHM has a program that fits: 

• Credit scores starting at 580
• DTI ratios up to 57% for FHA and 49.9% for conventional
• EAD card holders, H1-B visa holders, and ITIN borrowers
• Borrowers who need cash-out, jumbo, FHA, VA, or conventional home mortgage loans Texas.

Get the Cash Your Home Has Already Earned You!

You have worked hard to build equity in your home. Now it is time to let that equity work for you. A home equity loan in Texas gives you real financial power when you need it most. Whether you want to fix up your home, pay off high-rate debt, cover a big expense, or invest in your future, we are here to help make it happen. Our team of experts mortgage brokers is here to make home mortgage loans Texas easy and stress-free. We find the right loan for your needs and your budget.

Are you ready to take the next step? Book a free consultation session with one of our loan experts today. You can also call us directly at (972) 245-5626 or pre-qualify online now. Let us help you make the most of your home and your hard-earned equity.

FAQs

1. What is the minimum credit score for a home equity loan in Texas?
   Most lenders in Texas require a credit score of at least 620 to 680. Higher scores get you better rates.
2. How much can I borrow with a home equity loan in Texas?
   You can borrow up to 80% of your home’s value minus what you still owe on your mortgage.
3. Can I use a home equity loan for any purpose in Texas?
   Yes, for most personal uses. You cannot use it for business purposes or on investment properties.
4. How long does it take to get a home equity loan in Texas?
   Texas law requires a 12-day waiting period. Full closing usually takes a few weeks total.
5. Can I get a home equity loan with bad credit in Texas?
   Some lenders accept lower scores. Dream Home Mortgage has flexible options for credit-challenged borrowers.