What a Homestead Is In Texas
Your homestead is the home you live in as your principal residence. Texas gives it unusually strong legal protection. Article XVI, Section 50 of the Texas Constitution protects a homestead from forced sale by most creditors, and it allows a valid lien on a homestead for only a short list of specific kinds of debt.
There’s also a property tax side. To claim the residence homestead exemption, the Texas Comptroller says you need an ownership interest in the property and you must use it as your principal residence. You also can’t claim the exemption on another residence homestead, in Texas or anywhere else.
That means one homestead. Your rentals and flips aren’t homesteads.
The Texas Home Equity Loan Rules
Section 50(a)(6) of the same part of the constitution sets the rules for Texas home equity loans, and they’re strict. Fannie Mae’s guidelines for these loans set the maximum loan-to-value at 80%, including any other loans on the home. The homestead itself secures the loan, and no other property can.
There are other rules on timing, fees, and how often you can take one out. Your lender and title company will walk you through those. The part that matters for investors is simple: these rules only apply to your homestead.
Can You Get a Home Equity Loan on an Investment Property in Texas?
Not a Texas home equity loan in the 50(a)(6) sense. That product is for homesteads. Borrowing against a rental is a different kind of loan with its own lender rules. If you want to pull cash out of a rental or investment property, the usual options are a cash-out refinance with a lender that handles investment property, a commercial loan, or a short-term hard money loan.
Larry lends on investment property of any type. He doesn’t make home equity loans, and he doesn’t lend on homesteads.
Why Larry Requires You to Own a Separate Homestead
Every borrower with Larry the Lender needs to own a home that’s separate from the property they’re borrowing against. With the strong protections Texas gives homesteads, lenders on investment property generally want it clear that the property securing the loan isn’t anyone’s homestead. Owning your own home somewhere else is the plain way to show that.
If you live in the property, or plan to, Larry isn’t the right lender. A mortgage or a Texas home equity loan from a bank or credit union is.
What this means for your next deal
If you’re thinking about using your own home’s equity to fund a deal, that’s a Texas home equity loan on your homestead, with the 80% cap and the rest of the 50(a)(6) rules. It’s a separate decision with real risk to the home you live in. Talk it through with your lender and an attorney first.
