The Quick Read: A conventional cash-out refinance replaces your current first mortgage with a larger one and pays you the difference in cash. On a one-unit primary residence, the wholesale programs generally cap the new loan at 80% of the appraised value. Two clocks can block it before leverage even matters: the loan being paid off must be at least 12 months old, and a borrower must have been on title for six months. It makes the most sense when you need meaningful cash and would not do better keeping your current loan or borrowing against the equity another way. Everything here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Key Takeaways
- Conventional cash-out is one loan purpose inside one loan category. “Conventional” describes who backs the loan. “Cash-out” describes what the new loan does.
- Leverage on a primary residence tops out at 80% for one unit and 75% for two to four units. Limited cash-out refinances go much higher, which is why the two are not interchangeable.
- The new loan replaces your whole first mortgage. The terms apply to the entire balance, not only the new money.
- The decision usually turns on four things: the loan you hold now, your equity, how you plan to use the cash, and how you document income.
What Is a Conventional Cash-Out Refinance?
It is a new first mortgage that pays off your existing one and sends the leftover equity to you. Fannie Mae’s Selling Guide defines it as a loan that either pays off existing mortgages with a new first lien on the same property, or places a new mortgage on a home with no lien at all.
That second case surprises people. If you own your home free and clear and take out a new first mortgage, the agencies still count it as cash-out. There is no “paid-off home” shortcut.
Two ideas get blurred in most online guides, so keep them apart:
- Loan category. Conventional means the loan is not backed by FHA, VA or USDA. It follows Fannie Mae or Freddie Mac rules.
- Refinance structure. Cash-out takes equity out. Rate-and-term, also called limited cash-out, changes the loan without taking meaningful equity out.
A conventional loan can be either structure. A cash-out refinance can also be FHA or VA. Picking a loan type means answering both questions.
How Is a Conventional Cash-Out Refinance Underwritten?
The lender works through the same sequence on nearly every file. The order matters, because an early failure ends the file.
1. Eligibility screen. The lender confirms the home is your primary residence, how long you have held title, and how old the loan being paid off is. Freddie Mac’s Guide Section 4301.5 requires every borrower to occupy a primary-residence cash-out property.
2. Seasoning check. Two separate clocks run here, covered in the next section.
3. Appraisal. A new appraisal sets the value. Freddie Mac’s cash-out product page calls for a new appraisal and inspection report. The appraised value times the leverage cap sets the ceiling on the new loan.
4. Credit and ratios. Across the wholesale programs, conventional files generally start at a 620 decision score. The automated underwriting finding governs most files, with a total debt ratio ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45%, with reserve and score factors from the Eligibility Matrix. The Fannie Mae Eligibility Matrix also attaches minimum reserves to cash-out files where the automated finding shows a debt ratio above 45%.
5. Pricing. Loan-level price adjustments apply to cash-out files based on leverage and credit score. They are built into pricing, not shown as a separate line, and they rise as leverage goes up and the score goes down.
6. What the new loan can cover. The loan pays off the old first mortgage, closing costs, points and prepaid items. It can also cover real estate taxes, including taxes more than 60 days delinquent. Whatever remains is your cash.
7. Closing. Because it is a consumer mortgage on your home, you receive a Loan Estimate and Closing Disclosure. A refinance of a primary residence also carries a three-business-day right to cancel, covered below.
The math that decides the outcome is simple: appraised value times the leverage cap, minus the payoff, minus costs. What is left is the cash.
The Two Seasoning Clocks
Cash-out has two separate waiting periods, and files get kicked back when borrowers treat them as one.
- Clock one: the loan being paid off. The existing first mortgage must be at least 12 months old, measured from the note date of the old loan to the note date of the new one. Freddie Mac’s Section 4301.5 has a parallel 12-month test.
- Clock two: time on title. At least one borrower must have been on title for six months before the note date.
Here is the catch. You can have owned the home for years and still fail clock one if you refinanced it recently. A rate-and-term refinance last spring resets the first clock for the loan that replaced it. Check the note date on your current mortgage, not the date you bought the house.
The exceptions to the six-month title rule are narrow and need documents:
- Delayed financing. A cash buyer can take cash back out without waiting. The settlement statement has to show no mortgage financing was used. Any balance left on the original financing counts in the debt ratio, and gift funds used for the purchase cannot be reimbursed from the new loan. This rule is detailed in an archived version of the Fannie Mae guide, so confirm the current version before relying on it.
- Inheritance and legal awards. Both are exceptions on the wholesale programs. Freddie Mac’s product page also states no seasoning applies to inherited property.
- Trusts. Time held in a revocable living trust can count toward the six months when the borrower is the primary beneficiary.
What Leverage Does It Reach?
One-unit primary residences reach 80% on the wholesale conventional cash-out programs. Two- to four-unit principal residences, second homes and investment property reach 75%. These match the agency limits in the Eligibility Matrix.
The contrast with limited cash-out is large. Rate-and-term refinances on a one-unit primary residence reach 95%, and 97% where the existing loan is agency-owned and the first-time-buyer program allows it. That gap is why “it’s just a refinance with a check” is a misconception. The agencies treat the two as different loan purposes with different pricing.
One wholesale lane stretches further. It reaches 89.99% LTV with no mortgage insurance, but only at a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence and a conforming loan balance. It carries its own six months of seasoning. It is not written in Texas, where the state constitution caps a homestead cash-out at the agency figure. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Mortgage insurance applies above 80% LTV. At 80%, a standard cash-out does not carry it. The lane above that removes it at higher leverage under the conditions listed. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Loan size has its own ceiling. The conforming limit is a cap on the loan amount, not on the home price. FHFA publishes the baseline limit and allows high-cost counties to go up to 150% of it. Check the county table for your property. Above the limit, the jumbo lanes take over, with a 660 decision score, leverage up to 90% on some files, loans up to $5,000,000 and a 50% ratio ceiling on the fixed lanes. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Where Does the Rule Break?
These are the cases that change the answer.
Manufactured housing. Single-width manufactured homes are not eligible for cash-out refinance under Fannie Mae’s matrix. That page is dated, so treat it as a flag to confirm, not a final answer.
Occupancy. Second homes and investment property get the lower 75% cap. If the home is not where you live, occupancy decides the leverage, and the primary-residence numbers do not apply.
Non-occupant co-borrowers. Freddie Mac requires all borrowers to occupy a primary-residence cash-out property. A parent co-signing from another address can sink the file on that program. Confirm the treatment before assuming it works.
Temporary buydowns. Loans with temporary interest-rate buydowns are ineligible as the loan being paid off or as structured. The archived Fannie text lists this.
PACE loans. Under the archived text, a property with certain PACE obligations can be ineligible for cash-out if you have equity to pay the PACE loan off and choose not to.
Delinquent taxes without escrow. Financing taxes more than 60 days late is allowed with conditions. Financing them without escrow is generally ineligible, with a legal exception.
Student loan cash-out. Fannie Mae waives the cash-out price adjustment on loans that meet its student-loan program requirements. The lender letter says the cash-out adjustments do not apply to those transactions. The money has to go to the debt.
Special-purpose cash-out. Buying out a co-owner, such as after a divorce, falls under a separate Freddie Mac section. The 12-month seasoning does not apply to it. That path is documented differently, so ask before assuming the standard rules apply.
Government-backed loans. FHA, VA and USDA cash-out follow their own rules. Do not blend them with the conventional numbers here.
How Do You Choose? A Decision Sequence
Work these in order. Each one can end the conversation.
1. What is the cash for? Debt payoff and home repairs are the most common reasons borrowers give. The cash-out only makes sense if the use is worth putting the home behind it. Moving credit card or other non-mortgage debt into a loan secured by your house can put the home at risk if payments become unsustainable. The CFPB’s research on cash-out refinancing raises this directly.
2. What loan do you hold now? This is the step most guides skip. A new loan replaces the whole balance. If your current first mortgage has terms you like, paying it off to reach new cash means giving those terms up on every dollar, not just the new money.
3. How much equity can you reach? Multiply your appraised value by the cap that fits your occupancy and unit count, subtract your payoff and costs. If the number is small, the refinance may not be worth it.
4. Do the clocks clear? Check the age of your current loan’s note date and your time on title.
5. Does your income documentation fit? Self-employed and non-standard borrowers should read Lendmire’s piece Conventional Cash-Out Refinance Documentation for Every Income Type before assuming the file works.
6. Compare the alternatives. A home equity loan or HELOC leaves your first mortgage in place. The CFPB’s guide to using home equity lays out the trade-off.
| Your situation | Often a fit | Often not |
|---|---|---|
| Need significant cash, current loan terms are weak | Conventional cash-out | Leaving things alone |
| Need a smaller amount, current loan terms are strong | HELOC or home equity loan | Cash-out on the full balance |
| Only want to change the loan, no cash needed | Rate-and-term, higher leverage | Cash-out |
| Existing FHA or VA loan, want to stay in it | The matching streamline | Conventional cash-out |
| Recent refinance or recent purchase | Wait for the clocks | Starting an application now |
For government-backed loans, the streamlines are separate lanes. An FHA Streamline needs an existing FHA loan, offers no appraisal and limited credit review, and has to show a net tangible benefit. A VA IRRRL needs an existing VA loan, carries a 0.5% funding fee unless you are exempt, requires no VA appraisal and a net tangible benefit, and has seasoning of the later of 210 days and six payments. Neither one pays out cash the way a conventional cash-out does.
What Does It Do to Your Budget?
The new loan has new terms on the whole balance. Compare the old loan’s terms against the new ones before paying off a low-cost first lien. Closing costs include the appraisal, title and prepaid items, and some can be financed into the loan. That raises the balance you carry.
The CFPB found that credit scores initially improved after a cash-out refinance, then gradually worsened while staying above the pre-refinance level. Cash-out also draws down wealth you might want later.
Once you sign, you have three business days to cancel a refinance of your primary residence. The CFPB explains that cancellation must be in writing, and rescinding does not erase your duty to repay your other loans. 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 the old one and gives you the leftover equity as cash.
Limited cash-out (rate-and-term): A refinance that changes the loan without taking meaningful cash out, so it can reach higher leverage.
LTV (loan-to-value): The loan amount divided by the appraised value of the home.
Seasoning: The minimum time a loan or ownership must exist before a refinance is allowed.
Loan-level price adjustment: A pricing add-on tied to leverage, credit score and loan features, built into the pricing.
Delayed financing: An exception that lets a cash buyer take cash out without waiting for the six-month title clock.
Conforming loan limit: The maximum loan amount the agencies will buy, set annually by FHFA. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Common Mistakes
- Counting years of ownership but not the note date of the current loan.
- Assuming a free-and-clear home skips the cash-out rules.
- Planning around 95% leverage, which belongs to limited cash-out, not cash-out.
- Treating the conforming limit as a limit on the purchase price.
- Adding a co-borrower who does not live in the home.
- Paying off a strong first mortgage to reach a small amount of cash. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Frequently Asked Questions
How much of my home’s value can I take out?
On a one-unit primary residence, the new loan generally tops out at 80% of the appraised value, minus your payoff and costs. Two- to four-unit principal residences, second homes and investment property are capped at 75%. One wholesale lane reaches 89.99% with no mortgage insurance, but only at a 680 score, a 50% ratio and a thirty-year fixed rate on a primary residence, subject to lender guidelines.
Can I do a cash-out refinance right after buying my home?
Usually not. At least one borrower generally needs six months on title, and the loan being paid off must be 12 months old. A cash buyer can use the delayed financing exception, which requires a settlement statement showing no mortgage was used. Inheritance and legal awards are also exceptions.
Does a cash-out refinance always need mortgage insurance?
No. Mortgage insurance applies above 80% LTV, and a standard conventional cash-out stops at 80% on one unit. When insurance does apply, you can request cancellation at 80% of the original value with good payment history, and the servicer must end it at 78%. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Is a cash-out refinance better than a HELOC?
It depends on your current loan. Cash-out replaces the whole first mortgage, so it favors owners whose current terms are weak. A HELOC or home equity loan leaves the first mortgage alone, which favors owners with strong existing terms who need a smaller amount.
Can I switch from FHA or VA to conventional with cash-out?
Yes, if the file clears the clocks, leverage cap and credit requirements. The trade-off is giving up the existing loan’s features. If you only want to change the loan without cash, the FHA Streamline and VA IRRRL are separate lanes. Compare both paths before deciding.
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. Explore Lendmire’s cash-out refinance programs to see how a file lines up. Before you start, read Lendmire’s note on the maximum LTV for a conventional cash-out refinance to see how the 80% cap plays out.
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.
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References
1. Fannie Mae Selling Guide B2-1.3-03
2. Freddie Mac Guide Section 4301.5
3. Freddie Mac Cash-out Refinance product page
4. Fannie Mae Eligibility Matrix
5. Fannie Mae announced this change
6. Fannie Mae B2-1.3-03, archived version
7. FHFA conforming loan limits
8. Fannie Mae Lender Letter LL-2022-05
9. CFPB’s research on cash-out refinancing
10. CFPB’s guide to using home equity
11. CFPB newsroom: cash-out borrowers’ 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 Electronic Verification Rules · Conventional Cash-Out Refinance Documentation for Each Borrower Type · 6 Myths About the Cost of a Conventional Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.