The Quick Read: A conventional cash-out refinance replaces your current first mortgage with a larger one and hands you the difference in cash. Leverage is capped at 80% of the home’s value on a one-unit primary residence. The loan also has waiting periods, ratio limits, and a few edge cases that catch people off guard. This guide walks through the mechanics, the exceptions, and how to compare one program’s terms against another’s. Everything here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Key Takeaways
- A cash-out refinance replaces your first mortgage. It is not a second loan sitting beside it.
- On a one-unit primary residence, the conventional ceiling is 80% loan-to-value (LTV). Two- to four-unit homes, second homes, and investment property top out at 75%.
- Seasoning applies. The loan you are paying off must be at least 12 months old, and a borrower must have been on title for 6 months.
- One wholesale lane reaches 89.99% LTV with no mortgage insurance, but it is narrow. It needs a 680 score, a 30-year fixed rate, and a primary residence.
- You compare programs on leverage, seasoning, score floors, and ratio limits. Don’t compare them on a headline number alone. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
What Is a Conventional Cash-Out Refinance?
A conventional cash-out refinance is a new first mortgage that pays off your old one and puts the leftover equity in your pocket. “Conventional” means it follows the underwriting rules of the two big mortgage agencies, Fannie Mae and Freddie Mac. It carries no FHA or VA backing.
Picture a homeowner with a mortgage and a lot of equity. The new loan covers the old payoff, any liens being cleared, and financed closing costs. Whatever is left over is the cash.
That cash can go anywhere. Freddie Mac’s Seller/Servicer Guide describes a cash-out refinance as a mortgage with no specific restrictions on how proceeds are used. Borrowers can put it toward home repairs, debt payoff, tuition, or a down payment on something else. Your lender won’t ask for receipts.
Two things are different from a home equity loan or a HELOC. Those leave your first mortgage in place and add a second payment. A cash-out refinance swaps the whole thing out. That matters if your existing loan has terms you want to keep.
Lendmire arranges these through wholesale lenders, and the page on cash-out refinance programs shows the programs side by side.
How Is the Loan Underwritten, Step by Step?
Underwriting a cash-out refinance runs in a fixed order: eligibility, sizing, credit and ratios, reserves, appraisal, disclosures, and payoff. Each step can narrow what you can take out. Knowing the order tells you where a file is most likely to stall.
1. Eligibility. The lender checks seasoning first. The agencies’ Selling Guide requires the first mortgage being paid off to be at least 12 months old. At least one borrower must also have been on title for six months. Fannie Mae’s announcement SEL-2023-01 measures the 12 months from the old loan’s note date to the new loan’s note date. Count it that way, not from your first payment.
2. Sizing the loan against value. The new loan equals your payoff, plus any liens being paid off, plus financed costs, plus your cash. That total has to fit under the LTV ceiling. LTV is the loan balance divided by the home’s appraised value. The ceiling is set by the Eligibility Matrix, which depends on occupancy, unit count, and property type. The Fannie Mae Eligibility Matrix controls here, not any headline number you saw online.
3. Credit and ratios. Across the wholesale programs Lendmire places files with, the conventional floor starts at a 620 decision score. The automated underwriting finding governs most files, and the total debt-to-income ratio tops out at 50%. Debt-to-income is your monthly debts divided by your monthly income. Manually underwritten loans run tighter, at 36% or 45%, with reserve and score factors from the matrix.
4. Reserves. Reserves are the savings left over after closing. Higher ratios and cash-out transactions can trigger a reserve requirement. Fannie Mae’s automated system asks for minimum reserves on cash-out files when the debt ratio runs high. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
5. Appraisal and title. The appraisal sets the value, and the value sets your equity and your maximum loan. Title work confirms who owns the home and what liens sit on it.
6. Disclosures. You receive a Loan Estimate after applying and a Closing Disclosure before closing. Compare them line by line.
7. Payoff and cash. At closing, the new loan pays off the old first mortgage and any liens being cleared. You receive the remainder after costs.
How Much Cash Can You Actually Take Out?
You can take out the gap between your payoff and the LTV ceiling, minus costs. The ceiling is the cap on the new loan as a percentage of appraised value. Costs and liens shrink the gap before you see a dollar.
Here is a modeled example, in percentages only. Say your home appraises at 100% of value, and your current mortgage payoff is 60% of that value. On a one-unit primary residence with an 80% ceiling, you have 20 percentage points of room. Financed closing costs and any liens you clear come out of that room first. Your cash is what remains.
Now compare a duplex with the same payoff. The ceiling drops to 75%, so the room shrinks to 15 points before costs. Same home value, same payoff, less cash. Occupancy and unit count drive the number.
| Property and use | Cash-out LTV ceiling |
|---|---|
| One-unit primary residence | 80% |
| Two- to four-unit primary residence | 75% |
| Second home | 75% |
| Investment property | 75% |
Investment property is not the subject here, so one line covers it: a lower ceiling applies, and the pricing generally costs more. This guide stays on the home you live in.
There is also a conforming loan limit, set each year by the FHFA, and it varies by county. If your new loan would exceed it, you move into jumbo territory with different rules. Check your county’s figure before you size the loan.
Is There a Way Past 80%?
Yes, in one narrow lane. Across the wholesale programs Lendmire works with, one lane reaches 89.99% LTV with no mortgage insurance. It is built for a specific borrower. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
- A 680 score or higher
- A total ratio of 50% or lower
- A 30-year fixed rate
- A primary residence
- A conforming loan balance
- Its own six months of seasoning
Miss any one of those and the lane is closed. In Texas, a cash-out on the homestead is capped by the state constitution. The wholesale lane is not written there.
Is the higher leverage worth it? It depends. A bigger loan against the same home means a thinner cushion if values dip. Keeping more equity than you strictly need is a legitimate choice. Some borrowers take the extra room, and some take less than they could.
What Does Mortgage Insurance Do Here?
On a cash-out, mortgage insurance is required above 80% LTV, and the standard 80% cash-out loan sits right at that line. If you go higher in a program that allows it, you pay for coverage that protects the lender, not you. Federal law lets you request cancellation at 80% of the original value, with good payment history, no second liens, and no drop in value. The servicer must end it automatically at 78%. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
The 89.99% wholesale lane is the exception. It carries no mortgage insurance at all, which is part of why its requirements are so tight.
Where Does the General Rule Break?
The general rule is that you need seasoning, a conforming balance, and a clean primary-residence file. These edge cases bend or break it. Know them before you assume you are in or out.
- Delayed financing. You bought with cash and want your money back. The delayed financing exception lets you do a cash-out inside the six-month title window. The purchase must be arm’s-length, and you must document where the funds came from.
- Inheritance and legal awards. Inherited property and property awarded in a divorce or legal separation are treated as owned from the transfer date. Confirm the details in the current Selling Guide.
- Delinquent property taxes. Seriously late taxes can be financed into the new loan. The lender sets up an escrow account, subject to applicable law.
- Temporary buydowns. A loan that carries a temporary interest-rate buydown is ineligible as a cash-out.
- PACE liens. A PACE loan is an energy-improvement assessment attached to your property tax bill. Freddie Mac requires the PACE obligation to be paid in full when proceeds are used for that purpose.
- Land contracts. An installment land contract payoff is ineligible as a cash-out.
- Student loans. Fannie Mae can waive the cash-out price adjustment when proceeds pay off eligible student loans. The conditions sit in its Student Loan Cash-Out Refinance section.
- Manufactured homes. The cash-out LTV is much lower than for site-built homes. Some units are limited to limited cash-out. Verify before you plan around one.
Cash-Out or Limited Cash-Out?
These are two different programs, not two names for one. A limited cash-out refinance, also called rate-and-term, pays off your first mortgage, the closing costs, and a purchase-money second lien. You get only incidental cash back. The Selling Guide treats it as a separate transaction type with its own rules.
The leverage difference is large. A limited cash-out on a one-unit primary residence reaches 95% LTV, and 97% where the existing loan is agency-owned and the first-time-buyer program allows it. A true cash-out stops at 80%. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
So if you only want a new term or a different payment structure, and no cash, limited cash-out can be the better tool. If you want cash, you need the full program and its lower ceiling.
How Do You Compare Program Terms?
Compare programs on five terms: leverage, seasoning, score and ratio floors, mortgage insurance treatment, and what the loan can pay off. Lenders differ on these because each investor layers its own guidelines on top of the agency base. That is why “it varies by lender” is true but useless without a checklist.
| Term | Why it matters | What to ask |
|---|---|---|
| Max LTV | Sets your cash | What is the ceiling for my occupancy? |
| Seasoning | Can block the loan | Note date to note date? |
| Score floor | Decides eligibility | Is there a higher floor than 620? |
| Ratio limit | Caps your debts | What ratio applies to my file? |
| MI treatment | Changes monthly cost | Is mortgage insurance required? |
Some lenders set a higher score floor or a lower LTV than the agency allows. Those are overlays. They do not show up in the agency guide, which is why two lenders can look at one borrower and say different things.
Ask for a Loan Estimate from each option and compare them side by side. Costs are split into services you can shop for and services you cannot. Origination charges and title fees are the largest categories. Keep in mind that a “no cost” refinance does not erase costs. They get built into the rate or the balance, which Lendmire’s explainer Who Offers A No Cost Cash Out Refinance? covers in more detail.
What Does the Decision Look Like in Practice?
The decision comes down to what the cash is for and what your current loan is worth. Run each scenario against those two questions, because the answers differ more than you might expect.
Consolidating debt. The CFPB’s research on cash-out refinances draws a hard line. Turning unsecured debt into mortgage debt puts your home at risk if payments become unsustainable. Missing a credit card payment is unlikely to cost you the house. Missing a mortgage payment can. The paper also says this makes sense only when the cost of getting the cash is below the cost of the debt you pay off.
Renovating. Repairs and improvements can add value, which raises your equity for later. This is among the more common uses. Still, the new loan is larger, and the term often restarts, so the monthly payment can rise even if the interest cost per dollar falls.
Keeping a loan you like. If your existing first mortgage has terms you want to keep, replacing it is a real cost. A second lien, such as a HELOC, leaves it alone. This one’s a genuine toss-up, and it turns on how the cost of the new loan compares with the cost of the old one.
Needing a lot of leverage. If 80% leaves you short, the 89.99% lane may fit, but only if you meet every condition. Otherwise, a different structure is probably a better match.
Is a bigger loan always a mistake? No. But a cash-out draws down your current wealth, and the cash is not free. Treat it as borrowing, because it is.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Cash-out refinance: a new first mortgage that pays off the old one and gives you the extra equity as cash.
LTV (loan-to-value): the loan balance as a percentage of the home’s appraised value.
Seasoning: the minimum time you must have owned the home or held the loan before a new loan is allowed.
Note date: the date on the signed loan agreement, used to count seasoning.
Limited cash-out refinance: a refinance that pays off the first mortgage and costs, with only incidental cash back.
Mortgage insurance: coverage that protects the lender on loans above 80% LTV. It cancels on request at 80% and ends automatically at 78%. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Overlay: a lender’s own rule added on top of the agency guideline.
Frequently Asked Questions
How soon can I do a cash-out refinance after buying?
Usually after six months on title, and the loan you pay off must be at least 12 months old. Delayed financing is a narrow exception for people who bought with cash. It requires an arm’s-length purchase and documented funds.
Can I take cash out of a home I own free and clear?
Yes. Fannie Mae’s rule covers a new mortgage on a property with no lien, and that counts as a cash-out. The same LTV ceiling applies, based on your occupancy and unit count. Without a payoff, your whole loan amount is cash after costs.
Is a cash-out refinance the same as a HELOC?
No. A cash-out refinance replaces your first mortgage with one new loan. A HELOC or home equity loan sits beside the first mortgage as a second payment. Which one costs less depends on the terms of your existing loan.
Does the lender restrict how I spend the money?
Not on use, but the loan is still sized against value and underwritten on credit, ratios, and reserves. Freddie Mac describes cash-out as having no specific use restrictions. The limits come from the file, not the purpose.
What if my credit score is just above the floor?
A 620 decision score is the floor across the wholesale conventional programs, but a higher score gives you more options. The 89.99% lane needs a 680. Some lenders add overlays above the agency floor, so ask each one directly.
If You’re Weighing Your Options
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Ask about leverage for your occupancy, how seasoning applies to your dates, and what the Loan Estimate will show. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see conventional loan programs.
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References
1. Freddie Mac Seller/Servicer Guide 4301.5
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. Fannie Mae Selling Guide Announcement SEL-2023-01
4. Fannie Mae Eligibility Matrix
5. Fannie Mae Selling Guide B2-1.3-02
6. CFPB, Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Fannie Mae Cash Out Refinance LTV Investment · Refinance Appraisal Came In High: Can You Borrow More Or Drop PMI Sooner? · Conventional Refinance Debt-to-income Limits: 45%, 50% And The Compensating Factors
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.