The Quick Read: A cash-out refinance can fund a second home down payment, but only up to a ceiling set by the equity you can leave in your current home. On a conventional one-unit primary residence, cash-out leverage tops out at 80% LTV. A second home purchase runs to 90% LTV, so the minimum down payment is 10% of the price. Whichever number is smaller controls how much of the purchase the refinance can carry. Every figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
What Is a Cash-Out Refinance Doing Here?
A cash-out refinance replaces your current mortgage with a bigger one and hands you the difference in cash. The CFPB describes it the same way and notes that closing costs often apply.
For a second home purchase, the cash becomes your down payment, closing costs and reserves. That works. The catch: your primary home carries a larger loan afterward, and the lender on the second home counts both payments.
Lendmire arranges these loans as a mortgage broker through wholesale lenders. The cash-out refinance programs page covers the primary-home side in more detail.
How Much Equity Can You Actually Pull Out?
On a conventional one-unit primary residence, the cash-out ceiling is 80% LTV. On a two- to four-unit primary residence it is 75%. The Fannie Mae Eligibility Matrix lists the same limits. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
So the math runs backward from your home’s appraised value:
1. Take the appraised value and multiply by the maximum LTV.
2. Subtract the balance of the loan you are paying off.
3. Subtract the closing costs on the new loan.
4. What remains is the cash you can take out.
Run that as a formula, not a guess. The appraisal drives the whole thing, and the lender orders it.
One narrow exception sits outside that 80% ceiling. A single wholesale lane reaches 89.99% LTV with no mortgage insurance, but only on a thirty-year fixed primary residence at a conforming balance, with a 680 score, a 50% ratio and its own six months of seasoning. Treat it as a special lane, not the general cash-out limit, and size your plan on 80%. It is not written in Texas, where a cash-out on the homestead is capped by the state constitution at the agency figure. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
How Much Cash Does the Second Home Need?
The second home’s cash need is its down payment plus closing costs plus reserves. The minimum down payment is 10% of the price at the 90% LTV limit for second homes. That is a floor, not a typical outcome. Your credit score, ratios and the lender’s reserve requirements can push the real number higher. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Compare it to the cash-out result. If the refinance nets more than the total cash need, the purchase is funded. If it nets less, you cover the gap with savings, or you adjust the price.
| Question | Short answer | What it means |
|---|---|---|
| Can proceeds cover the down payment? | Yes, generally | The cash is documented after the refinance disburses |
| Can they cover closing costs and reserves? | Yes, if the cash is there | Budget these on top of the 10% floor |
| Does the refinance guarantee the purchase loan? | No | The second home is a separate approval |
| Can the second home be a rental? | No | Occupancy decides the leverage |
What the Lender Looks for on Both Loans
Across the wholesale programs placed through Lendmire, a cash-out file is underwritten in two layers. The first is the refinance itself. The second is the purchase it funds.
On the refinance:
- Title seasoning: at least one borrower on title for 6 months, with exceptions for delayed financing, inheritance and legal awards.
- Loan seasoning: the first mortgage being paid off must be at least 12 months old, measured note date to note date. Freddie Mac’s Guide Section 4301.5 states both tests.
- The home cannot be listed for sale when the loan disburses. Fannie Mae’s cash-out guidance says the same.
On the purchase:
- Credit: the conventional programs start at a 620 decision score, and the automated finding governs most files.
- Ratios: the total ratio ceiling is 50% on automated approvals. Manually underwritten loans sit at 36% or 45%, with reserve and score factors.
- Both payments count. The new, larger primary-home payment and the second-home payment go into the ratio together. That is where many files stall.
Credit events carry waiting periods set by the agencies: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
Sequencing: Which Closes First?
The refinance has to close and disburse before the purchase for the cash to count as verified. Here is the usual order:
1. Confirm primary-home eligibility, including both seasoning tests.
2. Order the appraisal and size the cash-out against the 80% ceiling.
3. Close the refinance and let the proceeds land in your account.
4. Document the funds with the closing statement and the deposit.
5. Close the second home with the paper trail in the file.
Documentation matters because unverified funds are not acceptable for a down payment, closing costs or reserves, and large deposits need a source. Fannie Mae’s asset rules spell this out. A cash-out closing statement plus the matching deposit is the clean trail.
Borrowed funds secured by an asset are acceptable for down payment, closing costs and reserves, and the lender must count the payments as debt. That is stated in Fannie Mae’s borrowed-funds section. Equity in real estate qualifies as that asset. Ask your loan officer how to sequence your specific purchase deadline against the refinance.
Where the General Rule Breaks
Government loans. An FHA Streamline or VA IRRRL cannot fund a second home down payment. HUD limits cash on an FHA Streamline to $500. The VA IRRRL exists to lower the cost of an existing VA loan, not to produce cash. A borrower with those loans needs a full cash-out refinance, which means full underwriting.
Limited cash-out. A rate-and-term refinance allows only incidental cash back. It will not fund a down payment.
Occupancy. A second home must be one you occupy for part of the year. It cannot be a rental, and rental income cannot qualify the loan. Fannie Mae’s occupancy rules say so. A property you plan to rent falls outside this loan type. Labeling a rental as a second home to get better terms is misrepresentation, not a workaround.
Jumbo balances. Above the conforming limit, the jumbo lanes take over: a 660 decision score, leverage to 90% and a 50% ratio ceiling on the fixed lanes. Ask for the cash-out ceiling on your jumbo lane specifically, because the lender’s overlays differ from the conforming 80%.
A low-rate first mortgage. A cash-out refinance resets the terms on the whole balance. A home equity loan or HELOC leaves the first mortgage in place, as the CFPB notes. If your current loan is a good one, weigh that.
Cash-Out vs. Other Ways to Fund the Down Payment
| Option | Fits when | Watch out for |
|---|---|---|
| Cash-out refinance | You have equity and a loan you would refinance anyway | Whole balance reprices; larger primary payment |
| HELOC or home equity loan | Your first mortgage terms are worth keeping | Second payment counts in the ratio |
| Savings | You have verified cash on hand | Reserves left thin after closing |
| Waiting | Seasoning or ratios fall short | Price and availability may move |
What the Decision Looks Like in Practice
Picture a homeowner with a one-unit primary residence and a loan that is past the 12-month mark. Their appraisal supports the 80% ceiling, and after paying off the first mortgage and the refinance costs, the leftover cash exceeds 10% of the second home’s price plus its closing costs. The refinance can carry the purchase. Then the lender adds both payments to the ratio. If the total sits under the ceiling, the deal works forward.
Now flip it. The leftover cash covers only part of the down payment. Options: a smaller purchase, a larger cash contribution, paying down other debt to improve the ratio, or waiting.
Know the risks before you commit. The CFPB’s equity guide warns that a cash-out refinance may lengthen the payoff time and raise the payment, and that the interest rate and other terms change. Your home is the collateral, so missed payments can lead to foreclosure. You also carry two sets of taxes, insurance and upkeep. 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 mortgage that pays off the old one and returns the difference as cash.
LTV (loan-to-value): the loan balance divided by the home’s appraised value.
Seasoning: the minimum time you must have held title or the existing loan before a cash-out is allowed.
Second home: a one-unit property you occupy for part of the year, not a rental.
Reserves: verified savings left after closing, counted by the lender.
Frequently Asked Questions
Can I use cash-out proceeds for the down payment?
Yes. Borrowed funds secured by an asset, including home equity, are acceptable for a down payment, closing costs and reserves. The lender counts the new payment as debt and wants the cash documented through the closing statement and your deposit.
Can the refinance also cover closing costs and reserves?
Yes, if the net cash is large enough. Add the down payment, closing costs on both loans and required reserves, then compare that total to the cash-out after refinance costs.
Does a bigger down payment avoid mortgage insurance?
Mortgage insurance is required above 80% LTV. A second home at the 10% minimum is at 90% LTV, so insurance generally applies. It can be cancelled at 80% of the original value on request and terminates automatically at 78%, under the Homeowners Protection Act.
What if the refinance works but the purchase falls through?
You keep the larger loan on your primary home either way. The second-home approval is separate, so the refinance does not guarantee it. That is why it is wise to review both qualifications before closing the refinance.
Do I have to keep the refinanced home as my primary residence?
Yes. The 80% cash-out leverage assumes a one-unit principal residence you occupy. Misstating occupancy on either property is misrepresentation. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
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.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
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.
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References
1. CFPB
2. Fannie Mae Eligibility Matrix
3. Freddie Mac Guide Section 4301.5
4. Fannie Mae’s cash-out guidance
6. Fannie Mae’s borrowed-funds section
7. HUD FHA Streamline Refinance
8. Fannie Mae Selling Guide: Occupancy Types
9. CFPB Office of Research blog (cash-out refinances 2013–2023)
10. CFPB: Using Home Equity to Meet Financial Needs
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much Cash a Debt Consolidation Cash-Out Refinance Releases · How Much Down Payment a Cash-Out Refinance Gives on a Low First Mortgage · How Much More a Cash-Out Refinance Costs for a Home Addition or ADU
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.