In Texas, a home equity loan cannot exceed what percentage of the home's fair market value?
Question & Answer
Review the question and all answer choices
70%
A 70% LTV cap does not exist in Texas home equity law — while 70% would be even more protective of homeowners, the Texas Constitution sets the threshold at 80%, not 70%. Selecting 70% reflects an over-correction in the direction of protection.
80%
90%
A 90% LTV cap would allow borrowers to retain only 10% equity, which would provide far less protection against default and market downturns than the constitutionally mandated 20% equity cushion. Texas specifically rejected higher LTV limits to prevent the overleveraging that caused the 1980s crisis.
100%
Allowing 100% LTV on a home equity loan would mean a homeowner could borrow the entire value of their home, leaving zero equity — this directly contradicts the Texas Constitution's homestead protection philosophy and would expose homeowners to immediate insolvency upon any market decline.
Why is this correct?
Answer B is correct because Article XVI, Section 50(a)(6) of the Texas Constitution explicitly limits home equity loans to 80% of the fair market value of the homestead, meaning the total of all outstanding mortgage debt plus the new home equity loan cannot exceed 80% of the property's appraised value. This constitutional provision was enacted by Texas voters in 1997 when they approved a constitutional amendment allowing home equity lending for the first time in Texas history, but with this strict 80% guardrail built in from the beginning. The Texas Finance Code and Finance Commission rules implement this constitutional requirement, and lenders who violate it face severe penalties including forfeiture of principal and interest.
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