The Quick Read: A cash-out refinance has no down payment of its own. It releases cash from the home you own, and that cash can go toward the down payment on your next home. On a one-unit principal residence the new loan tops out at 80% of the appraised value. What you can use is that amount, minus your payoff, minus closing costs, subject to lender guidelines and full file review.
The title asks two questions at once. The first: how much cash can I put toward my next purchase? The second: how much equity must I leave in the house I am refinancing? The second answer sets the ceiling for the first. This article covers both.
What a Conventional Cash-Out Refinance Actually Is
A cash-out refinance replaces your current first mortgage with a larger one. The new loan pays off the old balance and any other liens. You keep the difference as cash.
A rate-and-term refinance (the “limited cash-out” kind) works differently. It pays off the old loan and closing costs and returns only incidental cash. It cannot be used to tap equity for a down payment.
“Conventional” means the loan follows Fannie Mae and Freddie Mac guidelines instead of FHA or VA rules. Across the wholesale programs we place files with, the cash-out lane is where the equity-versus-cash tradeoff gets decided. You can see how Lendmire approaches these loans on its cash-out refinance programs page.
How Much Equity Stays in the House?
On a one-unit principal residence, conventional cash-out is capped at 80% LTV. LTV, or loan-to-value, is the new loan balance divided by the appraised value. So you must keep at least 20% equity. Two- to four-unit principal residences, second homes and investment property cap at 75%. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Fannie Mae’s Eligibility Matrix lists these caps by occupancy and unit count. Some lenders set stricter limits of their own, so the cap you see on a given file can sit lower.
One wholesale lane we use reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio and a thirty-year fixed loan on a primary residence with a conforming balance. It carries its own six months of seasoning. It is not written in Texas, where a cash-out on the homestead is capped by the state constitution at the agency figure. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The Formula: How the Cash Gets Calculated
Here is the math in four steps, with no dollar amounts needed.
1. Start with the appraised value. The appraiser’s number counts, not your estimate.
2. Multiply by the cap. That gives the maximum new loan.
3. Subtract your payoff. This includes the first mortgage and any other liens you must clear.
4. Subtract closing costs financed into the loan. What remains is your usable cash.
Run it in percentages. Say your home appraises at 100% of its value and carries a payoff equal to 50% of it. At the 80% cap, the gross cash is 30% of the home’s value. Closing costs come out of that. A lower appraisal shrinks the number fast, because the cap applies to value, not to what you hoped it was worth.
Reverse Sizing: Start From the Down Payment You Need
Most buyers should work backward. Begin with the down payment on the next home, then add that purchase’s closing costs. That total is the cash you need in hand.
Add the refinance’s own closing costs and your current payoff. The result is the new loan amount. Now divide it by the appraised value and compare it to the cap. If the ratio lands above 80%, the plan does not fit, and you need a smaller target, a different source, or more equity.
The next home’s down payment depends on how you will use it. Under the program parameters we work with, a principal residence goes to 95% LTV, or 97% for a first-time buyer on a one-unit fixed-rate loan. Second homes go to 90%. Occupancy decides the leverage, so size the down payment against the right row. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
What Shrinks the Cash
Several things pull the number down between the equity math and your bank account.
- Other liens. A second mortgage or HELOC gets paid off from proceeds.
- Closing costs. Cash-out loans carry upfront price adjustments based on credit score, loan purpose and other features. Fannie Mae’s Selling Guide notes these cash-out adjustments stack on top of other adjustments that apply.
- Appraisal shortfall. A lower value cuts the ceiling directly.
- Credit and ratios. Our wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a 50% total ratio ceiling.
- Reserves. Fannie Mae requires six months of reserves on automated cash-out files with a DTI above 45%. Reserves are the savings you hold after closing.
A small draw can also fail the cost test. When closing costs eat a large share of the cash, you are paying a lot to borrow little.
Waiting Periods: Seasoning Rules
Seasoning is the waiting period a lender requires before you can refinance. Two clocks run on a cash-out.
First, at least one borrower must have been on title for six months. Second, the first mortgage being paid off must be at least 12 months old, counting note date to note date. Freddie Mac states the same ownership and first-lien tests in its Seller/Servicer Guide, with named exceptions.
Many borrowers assume six months is the only wait. It isn’t. The 12-month clock on the existing loan catches people who refinanced recently.
The delayed financing exception waives the six-month title wait for a recent cash buyer. It requires an arm’s-length purchase with the source of funds documented. Inheritance and legal-award exceptions also exist.
Refinance First, Purchase Second
This is the step people get wrong. An approved refinance is not a down payment. The loan must fund and the cash must land in your account before it counts.
Here is the sequence.
1. The refinance closes. The old first lien is paid off and net cash is disbursed to you.
2. The cash sits in your account as documented funds.
3. The purchase file treats it as an asset, and the lender traces where it came from.
Fannie Mae lists cash-out proceeds on the subject property as not acceptable borrower funds for that same property. Cash from your current home, used to buy a different one, is commonly treated as a documented asset. Underwriting confirms it file by file, so ask before you commit to a contract.
Keep the paper trail clean. Expect to show one monthly statement covering 30 days of account activity, plus the closing disclosure from the refinance.
Both Payments at Once
When the cash funds a second purchase, you carry two mortgages. The larger payment on your current home sits next to the new payment on the next one. Lenders qualify both together.
That affects your debt-to-income ratio, or DTI, which compares monthly debts to monthly income. It also affects reserves. A borrower who clears the ratio on the refinance alone can still fall short once the purchase loan is added.
Also check the cushion afterward. At an 80% cap, you start with only 20% equity in the refinanced home. If prices dip, that cushion thins.
Where the General Rule Breaks
Some cases do not fit the standard 80% picture.
- Two- to four-unit homes cap at 75%.
- Single-width manufactured homes carry a much lower cash-out cap, 65% on a one-unit home.
- Co-owner buyouts can qualify as limited cash-out when the owners held the property jointly for at least 12 months. The borrower taking sole ownership may not receive any proceeds.
- LLC or trust title can count toward the six months in some cases under Freddie Mac rules, but title must move into your name by the note date.
- State rules. Some states have special home-equity rules, so check yours.
- Student loan cash-out. Fannie Mae waives the price adjustment on loans that meet its student loan cash-out requirements.
Gift funds can’t help here if the next property is an investment home. Fannie Mae does not allow gifts on investment property.
Cash-Out, HELOC, or Something Else?
The CFPB’s guide on using home equity points out that a cash-out refinance can extend your payoff time and raise your payment. It also resets your loan terms. A home equity loan or HELOC leaves your first mortgage intact.
| Option | First mortgage | Best when |
|---|---|---|
| Cash-out refinance | Replaced | Your current loan has no special value |
| HELOC | Stays in place | You want to keep your existing loan |
| Saving or waiting | Stays in place | The purchase is not urgent |
If your existing first mortgage has favorable terms, replacing it is a real cost. Lendmire’s piece Smaller HELOC vs Larger Cash-Out Refinance for a Rental Down Payment walks through that tradeoff.
Risks to Weigh
Your home is the collateral. The CFPB has noted that paying non-mortgage debts with mortgage debt can increase the risk of foreclosure. You are also swapping a smaller loan for a larger one, so the monthly commitment generally rises.
No home equity option lets you convert 100% of your equity to cash, per the CFPB. The caps exist for that reason. 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
LTV (loan-to-value): The new loan balance divided by the appraised value of the home.
Seasoning: The waiting period a lender requires on title or on your existing loan before a refinance.
Limited cash-out refinance: A refinance that pays off the old loan and costs but returns only incidental cash.
DTI (debt-to-income): Your monthly debt payments compared with your monthly income.
Reserves: Savings you still hold after closing, measured in months of payments.
Frequently Asked Questions
Is there a down payment on a cash-out refinance?
Not in the purchase sense. Instead, the lender requires you to keep equity in the home, which is the LTV cap. On a one-unit principal residence that means at least 20% stays in the house.
Can I use the cash for a down payment on another property?
Yes, a cash-out refinance places no restriction on how you use the proceeds. The cash must fund first and land in your account, and the purchase lender will want to document it. Whether it counts for the next purchase is confirmed by that file’s underwriting.
How much cash will I actually receive?
Less than the equity math suggests. Take the appraised value times the cap, then subtract your payoff, other liens and closing costs. A low appraisal or a large existing balance shrinks the figure fast.
Does the new property have its own down payment?
Yes, and it depends on how you will occupy it. A principal residence goes to 95% LTV, or 97% for qualifying first-time buyers. Second homes go to 90%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Can a no-cash-out refinance fund a down payment?
No. A limited cash-out refinance returns only incidental cash and cannot pay off a second lien that wasn’t used to buy the home. It is a different product with a different cap.
What to Do Next
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. All figures here are subject to lender guidelines and full file review, and nothing here is a commitment to lend. Run the reverse-sizing math first, and let the cap decide whether the plan fits.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For current guidelines across Lendmire’s conventional loan options, see its conventional loan programs page.
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References
1. Fannie Mae Eligibility Matrix
2. Fannie Mae Selling Guide B2-1.3-03 Cash-Out Refinance Transactions
3. Freddie Mac Seller/Servicer Guide §4301.5
4. CFPB: Using Home Equity guide
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: Can a Homeowner Do a Conventional Cash-Out Refinance in Six Months? · Conventional Cash-Out Refinance Definition for a Primary Home · Conventional Cash-Out Refinance for Homeowners Who Compare Program Terms
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.