The Quick Read: On a conventional cash-out refinance, closing costs are the fees and prepaid items needed to create the new loan. You can pay them out of pocket or finance them into the new balance. Financing them lowers the cash you receive, dollar for dollar, and the new loan still has to fit under the maximum loan-to-value limit. That limit is 80% on a one-unit principal residence.
What Are You Actually Paying For?
Closing costs on a cash-out refinance fall into three buckets: charges for making the loan, charges from third parties who verify the property, and prepaid items that fund your escrow account. Each bucket behaves differently when you decide how to pay.
Loan charges. These cover originating the loan, which is the work of taking your application and building the file. Some lenders set these as one fee and others split them into several. The total matters more than the labels.
Third-party charges. An appraiser sets the home’s value. A title company confirms who owns the property and whether any liens sit on it. Recording fees go to the local government. You pay these whichever lender you choose, though the amounts differ by property and location.
Prepaids and escrow. These are not fees for service. They are your own money, set aside early: interest from closing day to the end of the month, plus the first deposits for property taxes and homeowners insurance. Many borrowers are surprised by how much these add to the cash needed at the table.
Rules for how these costs may be paid are not Lendmire’s invention. Fannie Mae’s Selling Guide lists financing closing costs, points and prepaid items as an acceptable use of cash-out proceeds. Paying off the old first mortgage and any second lien are on the same list.
How Is a Conventional Cash-Out Loan Underwritten?
The deal works through six steps, and closing costs touch most of them. Across the wholesale programs Lendmire places files with, the sequence looks the same from lender to lender, though individual lenders can add their own requirements.
1. Eligibility screen. The first mortgage you are paying off must be at least 12 months old, counted note date to note date. A borrower must have been on title for 6 months. Exceptions exist for delayed financing, inheritance and legal awards. A home you own free and clear still counts as cash-out.
2. Value and leverage. The appraisal sets the value. The maximum is 80% LTV on a one-unit principal residence and 75% on two- to four-unit principal residences, second homes and investment property. The new loan includes any costs you finance.
3. Payoff list. The existing first mortgage goes away. So does any home equity line or second lien, and paying off a second lien counts as cash-out regardless of its age.
4. Credit and ratios. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total debt-to-income ceiling of 50%. A higher ratio can bring reserve requirements, which means savings you must show after closing.
5. Costs are decided. You choose which costs to pay in cash and which to roll in.
6. Disclosure and closing. You get a Loan Estimate and later a Closing Disclosure showing the final numbers.
If you want to compare programs before you start, Lendmire’s cash-out refinance programs page lays out the conventional options and the equity each one reaches.
How Do Financed Costs Change Your Cash and Leverage?
Every dollar of cost you finance comes out of the cash you receive and raises your loan balance. It also eats into your equity room, the gap between what you owe and the 80% ceiling.
Picture a home with 70% LTV on the current mortgage. A cash-out loan to 80% leaves about ten percentage points of the home’s value to work with. That ten points must cover your cash goal, the costs you finance and the prepaid items you choose to roll in. Whatever costs take, you keep less. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
The sequence is simple:
- Start with the maximum new loan, which is the value times the LTV limit.
- Subtract the payoff of your existing first mortgage and any second lien.
- Subtract the costs you are financing.
- What remains is the cash in your hand.
Pay the costs from savings instead, and the cash-out proceeds stay larger, but you spend your own money at closing. Neither choice is wrong. The right one depends on whether you need the cash more than you need a smaller balance.
Lendmire has a separate piece How Rolling Closing Costs Into a Cash-Out Refinance Changes Your Cash if you want that tradeoff in more depth.
Why Does Your Pricing Look Different From a Rate-and-Term Quote?
Cash-out refinances are priced higher than rate-and-term refinances, and the gap grows as LTV rises and credit scores fall. The reason is risk. Lenders see more risk when a borrower pulls equity out.
Part of that pricing comes from loan-level price adjustments, which are charges the secondary market sets, not the lender. Fannie Mae’s LLPA Matrix builds them on credit score, loan purpose, occupancy, units and product type. Most of the time they show up in the terms of your loan rather than as a separate line item, so you see them on the Loan Estimate as the cost of the loan itself.
A rate-and-term refinance, which the agencies call limited cash-out, is a different product. It reaches 95% LTV on a one-unit principal residence, but it allows only incidental cash back. Take more cash than that allows, and the loan is classified as cash-out and priced as cash-out. That surprises people who ask for “a little extra” at closing. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
| Factor | Cash-out | Rate-and-term |
|---|---|---|
| Max LTV, one-unit home | 80% | 95% |
| Cash back | Any purpose | Only incidental |
| Pricing | Generally higher | Generally lower |
| Mortgage insurance | Above 80% only | Above 80% |
Does Mortgage Insurance Come Into It?
Mortgage insurance is usually not a factor on a standard cash-out loan, because the 80% LTV cap keeps you at or below the point where it starts. Above 80% LTV, it is required. You can ask to cancel it at 80% of the original value with good payment history, and the servicer must end it automatically at 78%.
One wholesale lane goes up to 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence, a conforming balance and its own six months of seasoning. Subject to lender guidelines and full file review, it is worth asking about if you want more equity than the standard cap allows. In Texas, a cash-out on the homestead is capped by the state constitution at the agency figure, so that lane is not written there.
What Are the Edge Cases?
The general rules break in a few named places.
Delayed financing. If you bought a home with cash, you can often refinance right away instead of waiting six months. The agencies require an arm’s-length purchase and full documentation of where the purchase funds came from.
Student loan payoffs. When proceeds pay off eligible student loans, Fannie Mae’s pricing matrix charges the limited cash-out adjustments instead of the cash-out ones.
Delinquent taxes. Property taxes can be rolled into the new loan. Taxes more than 60 days delinquent can be included too, but an escrow account must then be set up.
Energy-retrofit liens. If proceeds pay off a PACE obligation, the new loan must meet the cash-out rules, and the PACE debt must be paid in full.
Manufactured homes. A manufactured home as a principal residence has a lower cash-out cap. Fannie Mae’s Eligibility Matrix is the place to check the current figure.
Other homes. Occupancy decides the leverage. A second home or rental property falls under the 75% cash-out cap. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Lender overlays. Some lenders add rules on top of the agency guides, so qualifying is not identical everywhere.
What Should You Read on the Loan Estimate?
Look at the total, not the rate alone. A Loan Estimate splits costs into origination charges, services you cannot shop for, services you can shop for, and other costs such as taxes and recording. The CFPB found that the largest closing costs are origination fees, followed by title fees. It also noted that consumers pay more when prices are split across many separate fees.
Two lines trip people up. “Total Closing Costs” and “Cash to Close” are different numbers. And a line labeled “Closing Costs Financed” shows the portion you are paying out of the loan amount.
Be careful with marketing terms. A “no closing cost” refinance is not free. The costs are built into a higher rate, a lender credit or a larger balance. A lender credit usually comes with a higher interest rate than you would otherwise pay. Compare Loan Estimates side by side, and make sure each one uses the same loan amount and the same loan structure.
What Does the Decision Look Like in Practice?
Say you want cash for a home renovation and your equity sits well under the 80% ceiling. You have two clean choices. Pay costs from savings and keep every dollar of proceeds. Or roll them in, take a bit less cash, and keep your savings.
Rolling in makes more sense when savings are thin or earmarked. Paying in cash makes more sense when your equity room is tight, because financed costs use up the room you need for the cash itself.
Cost per dollar of cash accessed is the better yardstick than the old break-even test. A cash-out loan often raises your balance and payment, so “months to recoup costs through savings” is the wrong question. Ask what you pay to reach the cash, and whether another route reaches it for less. Compare any home equity option on the same terms.
One more timing point. On a primary-residence refinance, a right-of-rescission window applies. Under CFPB guidance, it runs three business days from the last of signing, receiving the disclosures and receiving the notice, with Saturdays counting as business days. Funds are generally released after it ends, so your cash does not arrive at the table.
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 first mortgage that pays off your old one and gives you the extra equity as cash.
LTV (loan-to-value): Your loan balance divided by the home’s appraised value, shown as a percentage.
Seasoning: The waiting period before you can refinance, such as 12 months on the existing loan and 6 months on title.
LLPA (loan-level price adjustment): A pricing add-on set by the secondary market based on credit score, loan purpose, occupancy and similar features.
Prepaids: Money you pay early toward interest, taxes and insurance, usually to start your escrow account.
Right of rescission: A short window after closing on a primary-residence refinance when you can cancel the loan.
Frequently Asked Questions
Can I roll closing costs into a cash-out refinance?
Yes. Fannie Mae lists financing closing costs, points and prepaid items as an acceptable use of proceeds. The catch is that the larger balance must still fit under the maximum LTV, so every financed dollar reduces your cash. Program figures are subject to lender guidelines and full file review.
Do closing costs reduce the cash I receive?
Yes, if you finance them. The new loan amount minus your payoffs minus financed costs equals your cash. If you pay the costs from savings, the proceeds stay larger. Check the “Cash to Close” line on your Closing Disclosure for the final number.
Why does my cash-out quote cost more than a rate-and-term quote?
Cash-out loans carry more risk for the investor who buys them, so pricing adjustments are generally higher. They rise as LTV climbs and credit score drops. Taking more than incidental cash back on a rate-and-term loan can also reclassify it as cash-out.
Can I cash out right after buying a home?
Usually not. Most files need 6 months on title and a first mortgage at least 12 months old. Delayed financing is the main exception for cash purchases, and inheritance and legal awards have their own exceptions.
Do I have to pay mortgage insurance on a cash-out loan?
Not on a standard one at 80% LTV or below. Above 80%, it is required, can be cancelled at 80% of original value, and ends automatically at 78%. One wholesale lane reaches 89.99% LTV without mortgage insurance for qualified borrowers.
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. This is general information, not a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
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.
For the program’s current guidelines, see conventional loan programs.
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References
1. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. Fannie Mae Eligibility Matrix
4. CFPB closing costs request for information
5. CFPB Ask: right of rescission
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 You Cash Out Refinance a Vacation Home Under Conventional Rules? · Bank vs Wholesale Lender for a Conventional Cash-Out Refinance · How to Apply for a Conventional Cash-Out Refinance Step by Step
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.