Texas Home Equity Loans and HELOCs

Home equity is the difference between a home's current value and debts secured by it. Texas homeowners may borrow against that equity, but the Texas Constitution imposes protections and limits that differ from generic national summaries.

Home-equity loan versus HELOC

• A home-equity loan generally provides a lump sum with scheduled repayment and often a fixed rate.
• A HELOC provides a revolving line, commonly with a variable rate and separate draw and repayment periods.
• Both place the homestead behind the debt, so available equity is not the same as affordable borrowing.

The Texas 80 percent limit

For a qualifying Section 50(a)(6) transaction, total debt secured by the homestead generally may not exceed 80 percent of fair market value at closing. Existing liens, appraisal, lender limits and costs reduce what is actually available.

Compare the complete terms

• Rate, index, margin, caps and floors.
• Draw period, repayment period and payment under a higher-rate scenario.
• Closing costs, annual fees, inactivity charges and early-closure terms.
• Alternatives such as savings, staged work, personal credit or a refinance.

Do not treat appreciation as income or a HELOC as the emergency fund. Maintain cash reserves separate from the line.