The Quick Read: A conventional cash-out refinance replaces your current first mortgage with a larger one and hands you the difference as cash. On a one-unit primary residence, the new loan generally tops out at 80% of the appraised value, subject to lender guidelines. It suits homeowners with real equity, a solid credit file and a clear use for the money. It is a poor fit if the main goal is only to get cash fast or to cover everyday spending.
Key Takeaways
- A cash-out refinance replaces your first mortgage. A home equity loan or HELOC sits behind it as a second lien.
- The standard cap is 80% LTV on a one-unit primary residence and 75% on two- to four-unit homes, second homes and investment property.
- The mortgage you are paying off must be at least 12 months old, and a borrower must have been on title for 6 months, with a few exceptions.
- The new loan is underwritten on credit, income, the appraisal and your debt ratio, not just equity.
- Cash is not in your hand on signing day. A right-to-cancel window comes first.
- Closing costs come out of the proceeds, so the cash you net is less than the gap between the old and new balance. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
What Is a Conventional Cash-Out Refinance?
It is a new first mortgage, sized larger than what you owe, with the extra paid to you. “Conventional” means the loan follows Fannie Mae or Freddie Mac guidelines instead of FHA or VA rules. Freddie Mac describes a cash-out refinance as a mortgage with no specific restrictions on how the proceeds are used. The cash can go to a renovation, a debt payoff, or any other purpose.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.40% as of October 15, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
Here is the part first-timers miss. You do not add a second loan. The new loan pays off the old one entirely. You end up with one payment, one lien, and a new balance.
Across the wholesale programs Lendmire places files with, the cash-out lane runs on different rules than a purchase. Leverage is lower, seasoning applies, and the appraisal sets the ceiling.
Lendmire’s cash-out refinance programs cover the conventional version in more detail. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Key Terms Defined
- Equity: the part of your home’s value you own, meaning value minus what you owe.
- LTV (loan-to-value): the new loan amount divided by the appraised value, shown as a percentage.
- DTI (debt-to-income): your total monthly debts, including the new mortgage, divided by your stable monthly income.
- Seasoning: the minimum time you must have held the loan or the title before a cash-out is allowed.
- Rescission: your right to cancel certain refinances within a set window after signing.
- Limited cash-out (rate-and-term): a refinance that pays off the old loan and costs, with only small incidental cash back.
How Much Can You Actually Take Out?
The appraised value decides it. The lender multiplies that value by the LTV cap, then subtracts what you owe and the costs rolled into the new loan. What is left is your cash.
The Fannie Mae Eligibility Matrix sets the cash-out caps. Compare them with purchase leverage, which can reach 97% for a qualifying first-time buyer on a one-unit home with a fixed rate. Cash-out sits well below that.
| Property and occupancy | Typical cash-out LTV cap |
|---|---|
| One-unit primary residence | 80% |
| Two- to four-unit primary residence | 75% |
| Second home | 75% |
| Investment property | 75% |
In plain words, you need roughly 20% equity left in a one-unit home after the new loan is in place. That is the practical meaning of the 80% cap.
One wholesale lane goes further. On a thirty-year fixed, conforming-balance primary residence, it can reach 89.99% LTV at a 680 score and a 50% ratio, with its own six months of seasoning. It is not written in Texas. Whether a file fits that lane depends on lender guidelines and full review.
Mortgage insurance is the other leverage rule. It is required above 80% LTV, so a loan at the standard 80% cap generally avoids it. Any loan above 80%, including a loan in that higher wholesale lane, is reviewed under the mortgage insurance rules of the program it is placed in. Where insurance does apply, you can request cancellation at 80% of the original value with good payment history. The servicer must end it automatically at 78%.
How Is the Loan Underwritten, Step by Step?
Every cash-out file moves through the same checks. Missing one is what sends files back.
1. Equity test. The lender divides the proposed loan by the appraised value and compares it to the cap. Closing costs, prepaids and payoff of other liens can be included in the new loan, per the Fannie Mae Selling Guide.
2. Ownership and seasoning. The first mortgage you are paying off must be at least 12 months old, measured note date to note date. A borrower must also have been on title for 6 months. Exceptions exist for delayed financing after a cash purchase, for inherited homes and for legal awards.
3. Occupancy. For a primary-residence cash-out, the borrowers must live in the home. A lender will ask you to confirm it.
4. Appraisal. A new appraisal is part of the file. Value drives LTV, and LTV drives how much you can borrow.
5. Credit. The wholesale conventional programs start at a 620 decision score. The automated underwriting finding governs most files.
6. Income and DTI. The lender adds up your monthly debts, including the new mortgage payment, and divides by stable income. The ceiling is 50% on files that clear automated underwriting. Manually underwritten loans run at 36%, or 45% with the reserve and score factors in the Eligibility Matrix. The Selling Guide’s debt-to-income section notes that the maximum on automated cash-out files can be lower than the general figure.
7. Pricing adjustments. Fannie Mae and Freddie Mac apply loan-level price adjustments to many cash-out loans, driven by credit score and LTV. They are built into the pricing, not shown as a separate line on your paperwork. You compare the combined rate and fee picture on your Loan Estimate.
8. Closing and the cancel window. More on that below.
Credit history matters too. The agencies set waiting periods after credit events: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
A Plain-English Worked Example
Say a home appraises at a round, hypothetical figure and you owe roughly half of it. The cap is 80%. The lender sets the new loan at 80% of value at most. Subtract the payoff, then subtract closing costs that are financed. What remains is the cash.
Run it with a low appraisal and the cash shrinks fast. Value comes in 5% lower than you expected, and the 80% cap shrinks with it. The loan size drops, the payoff stays the same, and the gap is your cash. This is the part first-timers don’t see coming.
If the appraisal is low, you generally have three options: accept a smaller cash amount, ask the lender to review the value with better comparable sales, or wait and refinance later. Smaller cash is the usual outcome.
What Does “Conventional” Change Compared With FHA and VA?
Conventional loans follow the agency guidelines for Fannie Mae and Freddie Mac. FHA and VA are government-backed and have their own rules. A first-timer weighing the three should know the rough shape.
| Factor | Conventional | FHA / VA |
|---|---|---|
| Who sets rules | Fannie Mae / Freddie Mac | HUD / Department of Veterans Affairs |
| Cash-out cap | 80% on one-unit primary | Set by each program |
| Mortgage insurance | Above 80% LTV, cancels at 80% and ends at 78% | FHA premium; VA funding fee |
| Credit floor (wholesale) | 620 | Varies by program |
Lendmire arranges conventional, FHA, VA and jumbo loans as a broker through wholesale lenders, and can compare them on a given file. Exact terms depend on the lender and the full review.
Where the General Rule Breaks
The rules above cover most files. These cases are different.
Free-and-clear homes. A new mortgage on a home with no lien still counts as cash-out, per the Selling Guide. Owning without a mortgage doesn’t make the loan a purchase.
Recently bought for cash. Delayed financing is an exception to the seasoning rule. The original purchase must be arm’s-length and the source of funds documented.
Inherited homes. Freddie Mac notes exceptions to seasoning for inherited property.
Student-loan cash-out. Fannie Mae waives the cash-out price adjustment when the loan meets its student-loan cash-out requirements.
Transactions that don’t count as cash-out. Fannie Mae lists certain structures, like a loan with a temporary buydown, as ineligible for cash-out treatment.
Manufactured homes. Do not plan a standard cash-out around a manufactured home. The Fannie Mae manufactured housing matrix treats cash-out on these properties far more restrictively than on site-built homes, and some manufactured-home types are not available for cash-out at all. A broker has to confirm the property type and current treatment before you count on any cash from it.
Energy-retrofit (PACE) liens. If cash-out proceeds are used to pay off a PACE obligation, Freddie Mac requires the PACE obligation to be paid in full, per its guidance on refinancing and energy-retrofit programs.
Texas. Cash-out on a Texas homestead follows a separate state constitutional rule, and a broker confirms it case by case. The 89.99% wholesale lane is not written there.
Loans above the conforming limit. Loans larger than the county limit can’t be sold to the agencies. The FHFA sets the limits each year, and they differ by county. Above the limit, jumbo programs take over, with a 660 decision score and leverage to 90% on those lanes.
Cash-Out vs. Limited Cash-Out vs. a Second Loan
| Option | What happens to your first mortgage | Cash to you |
|---|---|---|
| Cash-out refinance | Replaced by a larger loan | Substantial |
| Limited cash-out (rate-and-term) | Replaced; costs rolled in | Small, incidental |
| Home equity loan or HELOC | Stays in place | Added as second lien |
Limited cash-out leverage is higher: 95% on a one-unit primary residence, with 97% possible where the existing loan is agency-owned and the first-time-buyer program applies. Mortgage insurance applies above 80%. A cash-out refinance replaces the original mortgage, while home equity loans and HELOCs leave the first lien in place, as the CFPB’s research blog on cash-out refinance borrowers describes.
When the Cash Arrives
Not at the closing table. On a refinance of your primary home, you have until midnight of the third business day to cancel, according to the CFPB’s right-of-rescission explainer. A purchase has no such right. Business days count Saturdays, not Sundays or legal holidays. Cancellation must be in writing. A phone call doesn’t count.
Funds are disbursed after that window ends. Plan around it if you have a contractor deposit or a debt payoff due.
Is It the Right Move? A Decision Framework
Start with the purpose of the cash, then check the trade-offs.
Renovation. Often the cleanest fit, since the work can add value. Check that the cost of borrowing makes sense against the project.
Paying off high-cost debt. The math can work, but there is a catch. You turn unsecured debt into debt secured by your home. The CFPB says that paying off other debt with home equity makes sense only if the cost of extracting the cash is lower than the cost of the debt being paid off. Defaulting on a credit card is unlikely to cost you the house. Defaulting on a mortgage can.
A big one-time expense. Weigh it against a smaller second-lien option that leaves your current loan alone.
Everyday spending. Skip it.
Then weigh the loan you’d give up. If your current first mortgage has terms you like, replacing it with a new one means losing them. A cash-out refinance also resets the loan term, which can raise the payment and stretch the payoff timeline. Ask what the total cost looks like over the new term, not just the monthly figure.
Closing costs are charged on the whole new balance, not just the cash portion. Net cash is lower than the gap between the new and old balance. Compare the offers on the Loan Estimate line by line.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
A First-Timer’s Preparation Checklist
- Pull your credit and confirm you’re above the 620 floor, ideally well above.
- Add up monthly debts and divide by income to estimate your DTI.
- Find the date on your current mortgage note and confirm it is at least 12 months old.
- Confirm how long you’ve been on title.
- Gather pay stubs, traditional personal-income documentation, bank statements, and your current mortgage statement.
- Decide what the cash is for before you pick a loan size.
- Keep a cushion. Borrowing the maximum leaves less equity for later.
Frequently Asked Questions
How long do I have to own my home before a cash-out refinance?
At least one borrower must typically have been on title for six months. The first mortgage being paid off must also be at least 12 months old, note date to note date. Delayed financing, inheritance and legal-award exceptions can change this.
Is a cash-out refinance the same as a home equity loan?
No. A cash-out refinance replaces your first mortgage with one new loan. A home equity loan or HELOC adds a second lien behind your existing mortgage, leaving the first loan untouched.
Will my payment go up?
Usually, yes. You are borrowing a larger balance, and a reset term can stretch the payoff timeline. A new rate, whether higher or lower, also changes the payment. Look at the full cost over the new term, not just the monthly figure.
What if the appraisal comes in low?
The cash amount shrinks, because the 80% cap applies to the lower value. You can accept the smaller amount, ask for a value review with stronger comparable sales, or hold off.
Can I use a cash-out refinance on a second home or rental?
Occupancy decides the leverage. Second homes and investment property are capped at 75% LTV for cash-out, below the 80% available on a one-unit primary residence. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
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.
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
2. Fannie Mae Eligibility Matrix
3. Fannie Mae Selling Guide B2-1.3-03
4. Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios
5. Fannie Mae manufactured housing matrix
6. Freddie Mac refinancing and energy-retrofit programs
7. FHFA 2026 conforming loan limits release
8. CFPB Office of Research blog on cash-out refinances
9. CFPB: How long do I have to rescind?
10. CFPB: Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How a Lender Disburses Cash on a Conventional Cash-Out Refinance · Conventional Cash-Out Refinance for First-Time Cash-Out Borrowers · How Much Cash You Net on a Conventional Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.