Thinking about tapping your Prosper home equity? Texas has a unique 80 percent rule that controls how much you can borrow in a cash‑out refi. If you have heard mixed advice, you are not alone. In this guide, you will learn exactly how the rule works, how lenders apply it, and what it means for you in Prosper, with clear examples and a simple checklist. Let’s dive in.
Texas 80 percent rule, in plain English
What the law says
Texas homestead law places a firm ceiling on many home‑equity and refinance transactions. The combined principal secured by your homestead generally cannot exceed 80 percent of fair market value on the day you refinance. That limit is set in Article XVI, Section 50 of the Texas Constitution. You will also see timing, disclosure, and fee rules that protect homeowners in these transactions. You can read the full text in the Texas Constitution, Section 50.
How to calculate your 80 percent limit
Simple three‑step math
- Get the home’s fair market value, usually from a lender‑ordered appraisal or approved valuation.
- Multiply value by 80 percent to find the maximum total principal allowed on title.
- Subtract the principal of any other liens that will remain after closing. The remainder is the largest new refinance amount that can be recorded and still meet the rule.
Appraisals and timing
Most lenders document value with a new appraisal, especially for Texas Section 50 transactions. Some investors allow limited waivers in certain cases, but Texas home‑equity loans and many conversions usually require an appraisal. See Fannie Mae’s guidance on Texas Section 50(a)(6) underwriting and closing for how value is handled.
Two paths to refinance
If you do not have a Texas home‑equity loan
You can apply for a conventional cash‑out refinance. Investor rules from Fannie Mae and Freddie Mac generally cap primary‑residence cash‑out around 80 percent CLTV. Lender overlays may be stricter, and rates or pricing can vary. Review the current investor limits for limited and cash‑out refis when you compare options.
If you already have a Texas home‑equity loan
If your current loan was made under Texas home‑equity rules (Section 50(a)(6), including many HELOCs), the refinance is different. Texas allows a Section 50(f)(2) conversion to a non‑home‑equity refinance only if key conditions are met. Common requirements include a one‑year seasoning period, specific 12‑day notice timing, the 80 percent CLTV limit, and no cash‑back to you at closing when using the conversion. See the constitutional requirements in Section 50 and a practical lender overview in this Section 50(f)(2) memo.
Prosper numbers and examples
Local price snapshot
Prosper has seen strong values in recent years. As a reference point, a widely followed index reported a typical Prosper home value of about $808,934 as of late 2025. Your actual appraisal will control the 80 percent calculation for your property.
Two quick examples
- Example A, no existing Texas home‑equity loan: Appraised value 810,000. The 80 percent figure is 648,000. If your only lien balance is 300,000, a cash‑out refi could size up to the 648,000 cap under typical investor limits. After paying off 300,000, closing costs, and escrows, the potential cash to you would be what remains within investor rules.
- Example B, converting an existing Texas home‑equity loan: Same 810,000 value means a 648,000 cap. If you owe 300,000 on the first and 100,000 on a Texas home‑equity loan, a Section 50(f)(2) refinance can combine them if the new principal plus any other liens stays at or below 648,000, seasoning and notice requirements are met, and no cash‑back is taken at closing.
Program differences to know
Conventional and FHA
Conventional cash‑out refis typically top out near 80 percent CLTV on a primary residence based on investor rules. Review current limits for limited and cash‑out refis as you compare quotes. FHA has had an 80 to 85 percent ceiling for certain cash‑out scenarios depending on date and policy, which lenders interpret through their current guides. You can scan a summary of FHA cash‑out rules in this overview.
VA cash‑out in Texas
A 2018 Texas Attorney General opinion treats the VA guaranty as prohibited additional collateral for a Texas home‑equity loan. In practice, many Texas homesteads cannot use VA cash‑out under current law. If you are a veteran, discuss details with a Texas‑savvy lender and review the AG opinion here: Texas AG Opinion KP‑0183.
Your step by step checklist
- Confirm whether your current loan is a Texas Section 50(a)(6) home‑equity loan or HELOC. The rules change if it is. Check your closing documents or ask your lender. Review the requirements in the Texas Constitution, Section 50.
- Expect a new appraisal to set fair market value for the 80 percent test. See appraisal considerations in Fannie Mae’s Texas Section 50(a)(6) guidance.
- Run the math: appraised value times 0.80, then subtract principal balances of any liens that will remain. If you need cash at closing, compare a standard cash‑out path versus a Section 50(f)(2) conversion, which does not allow cash‑back.
- If you are a veteran, ask a lender experienced with Texas home‑equity law about VA options. Many homesteads cannot use VA cash‑out under current interpretations of state law. Review the AG opinion for context: KP‑0183.
- Confirm the required Texas disclosures and waiting periods with your lender. The constitution requires a specific written notice and a 12‑day timing window before closing. See Section 50.
- Compare alternatives. You might evaluate a new Texas home‑equity loan, a HELOC, a standard cash‑out refi, or non‑home‑secured options. The Texas Real Estate Research Center offers a helpful primer on home‑equity loans in Texas.
Ready to decide your next step in Prosper? If you are weighing a refi versus selling, or planning improvements funded by equity, connect with a local advisor who understands both the numbers and the neighborhood. Reach out to Stefany Nau for a clear plan tailored to your home, timelines, and goals.
FAQs
What is the Texas 80 percent cash‑out rule for homesteads?
- Texas limits many home‑equity and refinance loans so total principal secured by your homestead does not exceed 80 percent of fair market value on the day of closing, as outlined in Section 50 of the Texas Constitution.
How do lenders calculate the 80 percent limit in Prosper?
- They use your appraised value, multiply by 0.80, then subtract principal on any liens that will remain after closing to find the maximum new refinance amount that can be recorded.
Can I get cash back if I refinance a Texas home‑equity loan?
- Not when using a Section 50(f)(2) conversion. That path requires seasoning, specific notices, the 80 percent CLTV limit, and no cash‑back at closing, per Section 50.
Do I need a new appraisal for a Texas cash‑out refi?
- Usually yes. Lenders typically require a new appraisal to document fair market value for Texas Section 50 transactions, consistent with Fannie Mae’s Texas Section 50(a)(6) guidance.
Are VA cash‑out refinances available for Texas homesteads?
- Often no. A Texas Attorney General opinion treats the VA guaranty as prohibited additional collateral in this context, which has led many lenders to avoid VA cash‑out on Texas homesteads. See AG Opinion KP‑0183.
