The Quick Read: A conventional cash-out refinance swaps your current mortgage for a new, larger one and hands you the difference as cash. Your old loan is paid off, and the new loan starts fresh with its own rate, term and costs. On a one-unit home you live in, the new loan generally tops out at 80% of the appraised value, subject to lender guidelines and full file review.
Key Takeaways
- It is one new loan, not a second loan stacked on top of the first.
- The cap is a percentage of appraised value. That cap, not your whole equity, sets the ceiling.
- Your first mortgage must be at least 12 months old, and you generally need 6 months on title.
- The cash is not free money. The balance goes up, the payoff clock restarts, and the home secures every dollar.
- A home equity loan or HELOC may fit better if you want to keep your current first mortgage.
What Is a Conventional Cash-Out Refinance?
“Conventional” just means the loan is not insured by the government. FHA and VA loans are government-backed. Conventional loans follow agency guidelines and are sold through private lenders.
The cash comes from equity. Equity is what your home is worth minus what you owe. If the home appraises well above your balance, you have room to borrow.
You do not get all of it, though. Lenders cap how much of the home’s value the new loan can cover. We’ll get to that cap in a moment.
You can spend the cash on anything. Repairs, debt payoff, a big expense. The lender cares about whether you qualify, not what you buy.
What Does It Mean for Your Mortgage?
It means your mortgage gets replaced, not added to. Picture your current loan as a bucket with a hole in it, draining a little each month. A cash-out refinance swaps it for a bigger bucket and puts the difference in your hands.
Here is what changes the day the new loan starts:
- Balance. It goes up by the cash you take, plus any costs rolled in.
- Rate and terms. Both reset, because it is a brand-new loan.
- Payoff clock. A new term starts. If you were ten years into a thirty-year loan, you are back at the beginning.
- Payment. It may rise, and it may take longer to pay off.
That restart is the part owners miss. A new loan can feel cheaper month to month while costing more over its whole life. Stretching a payoff always trades time for cash flow.
Compare it with a home equity loan or HELOC. Those leave your first mortgage alone and add a second loan. A cash-out refinance folds everything into one. If you love your current first mortgage terms, giving them up is a real cost. Think it through before you trade them.
Lendmire’s cash-out refinance programs are built on this one-loan structure. A broker like Lendmire arranges them through wholesale lenders. It does not lend the money itself.
How Is It Underwritten, Step by Step?
Underwriting is the lender’s review of you, the home and the loan. Across the wholesale programs Lendmire places files with, the sequence runs the same way on most conventional cash-out files.
Step 1: The equity test. The lender starts with the maximum loan-to-value ratio, or LTV. That is the new loan divided by the appraised value. For cash-out, the cap is 80% on a one-unit primary residence. It is 75% on two- to four-unit primary residences. Cash-out caps run lower than the caps on a plain rate-and-term refinance. The Fannie Mae Eligibility Matrix lists the agency figures.
Step 2: The ownership gates. The loan you are paying off must be at least 12 months old, counted note date to note date. At least one borrower must have been on title for 6 months. Fannie Mae’s Selling Guide spells out the 12-month rule for the existing mortgage. It also confirms that cash-out can cover closing costs and prepaid items.
Step 3: Occupancy. The home must be your primary residence for this lane. A second home or a rental gets its own, lower leverage cap. Occupancy decides the leverage. That is all you need to know here.
Step 4: The appraisal. A new appraisal sets the value. That number is the denominator in the LTV, so it drives your ceiling.
Step 5: Credit and ratios. Wholesale conventional programs start at a 620 decision score. Most files run through automated underwriting, with a total debt-to-income ceiling of 50%. A manually underwritten file runs tighter, at 36% or 45%, depending on score and reserves. Higher-ratio cash-out files can require additional reserves, which are savings left after closing.
Step 6: Pricing and disclosures. Cash-out loans carry pricing adjustments built into the terms a lender offers, based on LTV and credit score. They are not a separate bill. You see all of it on your Loan Estimate and, later, your Closing Disclosure.
How Much Cash Can You Actually Get?
Less than your equity, and often less than the LTV cap suggests. The cap is a ceiling. It does not tell you what lands in your account.
The math is simple. Multiply appraised value by the cap, which is 80% on a one-unit primary home. Then subtract your current payoff, any other liens, closing costs and prepaid items. What remains is your cash.
Run it on percentages. Say you owe 60% of the home’s value and your costs equal a small slice of the new loan. At the 80% cap you have roughly 20 points of value to work with, minus those costs. The cash is less than 20% of the value.
That is why “I have X in equity, so I can take X” is a myth. The CFPB’s guide to using home equity says plainly that none of the equity options lets you turn 100% of your equity into cash.
A low appraisal changes everything. If the home appraises under what you expected, the ceiling drops with it. Your options then are taking less cash, paying down the balance to hit the cap, or waiting. Some owners walk away and keep the loan they have. That can be the smart call.
Any second lien also counts. A HELOC or second mortgage that stays open is added to the loan when the lender tests the combined ratio. It shrinks the cash available. Paying one off with the new loan clears that room.
What Structures and Variations Exist?
Several look similar on paper but work differently.
Cash-out vs. rate-and-term. A rate-and-term refinance replaces your loan to change the rate or term. It allows only small, incidental cash back. Leverage can reach 95% on a one-unit primary home. Cash-out caps sit lower because you are pulling equity out, and lenders treat that as higher risk. If you want cash, use cash-out. If you want a different term, a rate-and-term loan may fit better.
Mortgage insurance. Conventional loans above 80% LTV carry mortgage insurance. You can request cancellation at 80% of the original value with good payment history and no second liens. The servicer must end it automatically at 78%. Standard cash-out loans stop at 80%, so this seldom comes up. A wholesale lane reaches 89.99% LTV without mortgage insurance at a 680 score, a 50% ratio and a thirty-year fixed rate. It covers primary residences with conforming balances. It carries its own six-month seasoning rule. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Above the conforming loan limit, you move to jumbo programs with different rules. Limits vary by county, so check yours.
Second homes and rentals. A cash-out on either is capped at 75%. Same loan type, different occupancy, lower ceiling.
Where the Rule Bends
Rules have exceptions. These are the ones owners run into most.
- Delayed financing. Say you bought a home with cash. Agency guidelines can waive the six-month title wait so you can pull cash back out soon after. The loan still counts as cash-out. The LTV caps and pricing stay. Only the wait goes away. The original purchase has to qualify, too.
- Inherited homes and legal awards. Both can be exceptions to the six-month title rule.
- No mortgage at all. Own free and clear? A new loan on it is still a cash-out refinance. Same caps apply.
- Student loan payoff. Fannie Mae waives its cash-out pricing adjustment when the proceeds pay off student loans and the payoff requirements are met. Most owners never hear about it.
- Delinquent property taxes. Agency guidelines let you roll them into the loan, and an escrow account is generally required. A qualified local tax professional can explain how your situation applies.
- Ineligible transactions. Some loans cannot be paid off this way. A loan carrying a temporary interest buydown is one. Certain property-assessed clean energy (PACE) situations are another.
- Title in an LLC or partnership. Time held in the entity can count toward the six months if title moves into your name on or before the note date.
- Texas homesteads. Texas limits cash-out on a homestead under its constitution, to the agency figure. The wholesale lane that reaches 89.99% is not written there. Lendmire’s piece Can a Texas Homestead Get a Conventional Cash-Out Refinance Early? covers the timing questions. Some other states have extra rules of their own.
Cash-Out Refinance vs. a HELOC vs. Staying Put
The right choice depends on your purpose. Here is how they compare.
| Factor | Cash-out refinance | HELOC / home equity loan | Keep your loan |
|---|---|---|---|
| Structure | One new first mortgage | Second lien on top | No change |
| Your first mortgage | Replaced | Left alone | Left alone |
| Best for | Big lump sum, reset the loan | Staged or smaller spending | No cash needed |
| Payoff clock | Restarts | First loan keeps running | Keeps running |
| Main risk | Longer payoff, higher balance | Two payments, second lien | Missed opportunity |
If your first mortgage no longer suits you anyway, one new loan can be cleaner. This one’s a genuine toss-up for many owners, and the answer turns on how you plan to use the cash.
Want to know how high the ceiling goes on your home type? Lendmire’s explainer What Is The Maximum LTV For A Conventional Cash Out Refinance? breaks it down.
What Do Owners Actually Use the Cash For?
Paying off other debts is the most common use. The CFPB’s report on cash-out borrowers found that, and it found home repairs and new construction next. The same release warns that paying non-mortgage debt with mortgage debt can raise foreclosure risk. Credit scores jumped after the refinance and then slowly slipped, though they stayed above where they started.
Read that carefully. You swap unsecured debt, like cards, for debt secured by your home. A missed card payment hurts your credit. A missed mortgage payment can cost you the house.
Who Should Do This, and Who Should Pause?
A good fit looks like this:
- You have a specific, one-time need for a large sum.
- Your current loan terms no longer work for you.
- You can afford a possibly higher payment for the full new term.
- You have solid equity left after the LTV cap and costs.
Think twice if:
- You hold a first mortgage on terms you value.
- You need only a small amount, or need it in stages.
- The cash would pay for everyday spending, with no plan to change the habit.
- Your equity is thin once the cap, costs and any second lien are subtracted.
Honestly, the break-even question matters more than most owners realize. Costs plus a longer payoff must be justified by what the cash does for you. Paying off high-cost debt or funding a repair that adds value can clear that bar. A vacation usually cannot. Do the comparison before you apply, using the actual Loan Estimate figures.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What Happens at Closing?
You sign. Then you generally get a short right to cancel on a primary-residence refinance, called the right of rescission. The CFPB’s guidance on rescission explains it. If you cancel, you do not get out of your old loan. You still owe it. Funds typically arrive after that window ends.
A Loan Estimate is not an approval. It lays out the terms the lender would offer if your file clears review.
Key Terms Defined
LTV (loan-to-value): The new loan amount divided by the home’s appraised value, shown as a percentage.
Seasoning: The waiting period a lender requires, such as how long the existing loan has run or how long you have held title.
Lien: A legal claim on your home that secures a debt. Your mortgage is a lien.
Equity: The home’s value minus what you owe against it.
Reserves: Savings left over after closing, counted as months of housing payments.
Frequently Asked Questions
Can I borrow all of my equity?
No. On a one-unit primary home, the new loan generally tops out at 80% of appraised value. Costs and any payoff come out of that first. Many owners are surprised by how much smaller the check is than their equity.
How long do I have to own the home first?
At least one borrower generally needs 6 months on title, and the first mortgage being paid off must be at least 12 months old. Delayed financing, inheritance and legal awards are the main exceptions. Each is subject to lender guidelines and full file review.
Does a cash-out refinance replace my current mortgage?
Yes. The new loan pays off your first mortgage and any liens you choose to clear. A home equity loan or HELOC, by contrast, sits on top of your existing first mortgage as a second lien.
What credit score do I need?
The lane that reaches 89.99% LTV asks for 680. Your own score, ratios and reserves all play into the lender’s decision. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Can I cash out on a second home or a rental?
Yes, but at a lower cap. Occupancy sets the leverage, and those properties generally sit at 75% instead of the 80% allowed on a one-unit primary home.
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. Qualification is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. 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. Fannie Mae Eligibility Matrix
2. Fannie Mae Selling Guide, Cash-Out Refinance Transactions
3. CFPB, Using Home Equity guide
4. 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 Documentation for Each Borrower Type · Can a Condo Owner Get a Conventional Cash-Out Refinance? · Conventional Cash-Out Refinance Requirements for a Condo Building
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.