The Quick Read: Yes. A conventional refinance can pay off your current mortgage and hand you the difference in cash. The new loan is capped at a share of your home’s appraised value, usually 80% on a primary residence. What you receive is what is left after the old loan, any second lien and the financed costs come out. Subject to lender guidelines and full file review.
How Does a Conventional Cash-Out Refinance Work?
You replace your current mortgage with a new, larger one. Part of the new loan pays off the old one. The rest comes to you as cash. That is the whole mechanism.
Two features define it:
- A new first mortgage. The old rate, term and balance disappear. The new loan’s terms replace them.
- A cap tied to appraised value. The lender sets a maximum loan as a percentage of what the home appraises for.
It is not backed by FHA or VA. Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders rather than lending directly. Its cash-out refinance programs cover the conventional version described here, subject to lender guidelines.
Can You Cash Out All of Your Equity?
No. The cap limits the new loan as a share of the appraised value. At the cap, you keep the rest of the value as equity.
On a one-unit primary residence, the conventional cap is 80% of appraised value. So you must leave 20% equity in the home. A federal consumer guide makes the same point: no option lets you convert 100% of your equity into cash.
Many homeowners assume “80%” means they can borrow 80% of their equity. It doesn’t. It means the new loan can reach 80% of the home’s value.
How Much Cash Will You Actually Receive?
You receive less than the cap suggests. The cap sets the ceiling for the new loan. Then several things come out before cash reaches you.
Here is the order of the math:
1. Start with the appraised value.
2. Multiply by the cap to get the largest new loan.
3. Subtract the payoff of your existing first mortgage.
4. Subtract any second lien that must be paid off.
5. Subtract closing costs and prepaid items you choose to finance.
6. What remains is your cash.
Run a purely illustrative example in percentages of value. Say the cap is 80% and your first mortgage balance is 55% of value. Financed costs take a few percent more. Your cash lands near 20% of the home’s value, not 25%. Fees shrink the check, and a financed cost also raises your balance.
A larger loan can also bump into the conforming loan limit. Check your county’s figure. Past it, the loan becomes a jumbo loan, which follows different rules.
For a look at whether taking every available dollar is wise, see Lendmire’s piece Should a Homeowner Take the Maximum Cash on a Cash-Out Refinance?.
Who Qualifies for a Conventional Cash-Out Refinance?
You need equity, a workable credit profile, manageable debt and the right ownership history. Across the wholesale programs Lendmire places files with, these are the tests that decide most files.
| Test | What the lender looks at |
|---|---|
| Leverage | 80% LTV on a one-unit primary residence |
| Credit | Wholesale programs start at a 620 decision score |
| Debt load | Automated findings allow a total ratio up to 50% |
| Seasoning | First mortgage 12 months old; 6 months on title |
| Occupancy | Primary, second home or other use sets the cap |
Quick definitions: LTV (loan-to-value) is the new loan divided by the appraised value. Total ratio, also called DTI, is your monthly debts divided by your monthly gross income.
Credit works as a sliding scale. Fannie Mae’s Eligibility Matrix asks for higher scores as leverage climbs on cash-out loans. Some lenders also set a higher floor than the agencies. Reserves matter too. Fannie Mae’s guide says that when the automated system is used and DTI exceeds 45%, six months of reserves are required.
Everything here is subject to lender guidelines. Nothing is a commitment to lend.
What Are the Two Waiting Clocks?
Two clocks run at once, and people often confuse them. The first mortgage you are paying off must be at least 12 months old, counted from its note date to the new note date. At least one borrower must also have been on title for six months.
The same Fannie Mae guide section lists exceptions. The 12-month test does not apply to subordinate liens paid off in the deal. It also does not apply to a co-owner buyout under a legal agreement. Property that came through inheritance, or was awarded in a divorce, has no six-month wait.
Delayed financing is a separate exception. If you bought with cash, you may be able to take cash out before six months. The purchase must have been arm’s-length. The settlement statement must show that no mortgage financing was used.
Wondering about a very recent purchase? Lendmire’s piece Can a Homeowner Do a Conventional Cash-Out Refinance in Six Months? goes deeper.
Does Occupancy Change the Limit?
Yes. Occupancy and unit count set the ceiling. Here is how the agency matrix lays it out for cash-out loans:
| Property use | Maximum LTV |
|---|---|
| One-unit primary residence | 80% |
| Two- to four-unit primary residence | 75% |
| Second home | 75% |
| Investment property | 75% |
Higher-leverage options are generally unavailable on cash-out. If the property is a second home or a rental, the table above is the answer: occupancy decides the leverage.
One wholesale lane goes further. For a thirty-year fixed loan on a primary residence with a conforming balance, it reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio ceiling and its own six months of seasoning. It is not written on a Texas homestead, where the state constitution has its own cash-out rules. Availability varies by lender and borrower.
Where Do the Rules Block You?
A few situations catch people off guard.
A home you own free and clear. A new mortgage on a paid-off home still counts as cash-out. Many owners assume that having no loan to replace makes it something else. It doesn’t.
A second lien. A rate-and-term refinance can pay off only a second loan that was used to buy the home. Pay off a different second lien with a new first mortgage, and the loan generally becomes cash-out.
A listed home. If the home was listed for sale, it must be off the market by the disbursement date.
Ineligible features. Fannie Mae’s archived guide lists several: temporary rate buydowns, installment land contract payoffs and financing delinquent real estate taxes without an escrow. Confirm against the current guide before you rely on that list.
Property type. Some manufactured homes face tighter or no cash-out eligibility. Ask for the current matrix.
Local law. A few states, Texas among them, have their own cash-out rules.
Here is a practitioner note. Files stall most often on timing, not credit. A borrower learns the first mortgage is a month too young, or that title has not been held long enough. Check both clocks before you pay for an appraisal.
What Does the Appraisal Do?
It drives everything. A cash-out refinance requires a new appraisal, and the appraised value sets your LTV. A higher value means a larger allowed loan. A lower value shrinks it.
When the appraisal comes in low, you have a few options:
- Take less cash, or none.
- Ask the lender whether the appraiser can reconsider with additional comparable sales.
- Pay down the balance to fit the cap.
- Wait and try again later.
Don’t plan to spend money that depends on a number you don’t have yet.
What Happens Between Application and Cash in Hand?
The steps run in a fixed order:
1. You apply and receive a Loan Estimate.
2. The lender screens the clocks, occupancy and property type.
3. The appraisal comes back.
4. Underwriting reviews income, assets, credit and monthly expenses.
5. You review your Closing Disclosure against the Loan Estimate.
6. You sign.
7. Your right to cancel runs out, and then funds are released.
On a refinance of your primary residence, you have until midnight of the third business day to cancel. Because of that window, the cash does not arrive at the signing table. Plan for the gap.
Closing costs and prepaid items can be financed into the loan. That reduces your cash and increases your balance. Cash-out loans also carry price adjustments, which rise as leverage rises and fall as credit scores improve. Compare the full terms on your Loan Estimate.
How Does It Compare With a HELOC or Home Equity Loan?
A cash-out refinance replaces your first mortgage. A home equity loan or HELOC sits on top of it as a second lien. That difference drives the decision.
| Feature | Cash-out refinance | HELOC / home equity loan |
|---|---|---|
| Structure | One new first mortgage | Second loan on top |
| Existing loan | Replaced | Left in place |
| Payment effect | New terms apply to the whole balance | Adds a separate payment |
| Best when | Your current loan terms are not worth keeping | You like your current loan |
If your existing first mortgage has terms worth keeping, a second lien leaves it untouched. If you need to change the loan anyway, a cash-out refinance handles everything in one loan. A federal guide notes that the payment may rise and the payoff period may lengthen, since cash-out loans are usually repaid over 30 years.
Does a Limited Cash-Out Refinance Count?
Not as cash-out. A rate-and-term refinance, which the agencies call limited cash-out, pays off your first mortgage, closing costs and any purchase-money second. It allows only incidental cash back.
The leverage is higher. On a one-unit primary residence it reaches 95% LTV, and 97% where the existing loan is agency-owned and the first-time-buyer program allows it. Mortgage insurance applies above 80% and can be removed later, as the borrower may request cancellation at 80% of the original value. Servicers must end it automatically at 78%.
If you want only a better loan and almost no cash, this is usually the cleaner route. If you want real cash, it isn’t one.
Should You Do It?
That depends on what the money does. Spending it on something that builds value, or on debt with a cost you can’t otherwise cut, is a different decision from covering ongoing expenses.
A CFPB report on cash-out borrowers found that paying off other bills and debts was the most common use. It covered borrowers from 2014 to 2021. The same report cautioned that paying non-mortgage debts with mortgage debt can raise foreclosure risk. Credit scores jumped at first and then slipped, though they stayed above pre-refinance levels. Card balances drifted back toward earlier levels within a year.
This one is a genuine judgment call. Cash-out can make sense when it replaces something worse. It gets risky when the same spending habits refill the cards.
A quick self-check before you apply:
- Do you know your home’s likely value?
- Do you know your payoff balance?
- Have both clocks run?
- Can you carry a larger balance on a longer term?
- Do you have a plan for every dollar?
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, larger first mortgage that pays off the old one and gives you the difference in cash.
LTV (loan-to-value): The loan amount divided by the home’s appraised value.
Seasoning: The waiting period a lender requires, here the age of your first mortgage and your time on title.
Delayed financing: An exception that lets a recent cash buyer borrow against the home before the usual wait ends.
Free and clear: A home with no mortgage on it.
Limited cash-out refinance: A refinance that pays off the existing loan and costs, with only a small amount of cash back.
Next Step
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.
Frequently Asked Questions
Does a paid-off home count as a cash-out refinance?
Yes. You are turning equity into cash, even though there is no old loan to replace.
How long must I wait before taking cash out?
Typically, the first mortgage being paid off must be at least 12 months old, and one borrower must have held title for six months. Exceptions cover inheritance, a legal award in a divorce, and delayed financing after a cash purchase. Lender guidelines can add their own requirements.
Can I use the money for anything?
Generally, yes. Think carefully about the use, since the debt is secured by your home.
What if my appraisal comes in low?
A low appraisal reduces the maximum loan, so your cash shrinks or disappears. You can take less, bring cash to the table, ask whether the appraiser can reconsider with more comparable sales, or wait. The cap works off the appraised value, not the price you hoped for.
Can I do this on a second home or a rental?
Yes, though the cap drops to 75% on second homes and investment property. Occupancy and unit count set the leverage. Terms depend on the lender and the full file review.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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. CFPB, Using Your Home Equity guide
2. Fannie Mae Eligibility Matrix
3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. Fannie Mae archived Selling Guide B2-1.3-03
5. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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: Conventional Cash-Out Refinance for Homeowners Who Compare Program Terms · 5 Myths About Qualifying for a Conventional Cash-Out Refinance · Conventional Cash-Out Refinance Definition for a Primary Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.