The Quick Read: On a second home, closing costs are not a separate bill paid on the side. They can be financed inside the new loan, so they come out of the same equity room as your cash. Second-home cash-out is capped at 75% loan-to-value, so every financed cost reduces the check you receive. The second-home and cash-out pricing adjustments are built into the pricing itself and may not appear as a line item.
Key Takeaways
- Closing costs, points and prepaid items can be rolled into a conventional cash-out loan, but they count against the leverage cap.
- A second home caps cash-out at 75% LTV, against 80% on a one-unit primary residence.
- Cash-out proceeds from the subject property cannot be counted as your reserves.
- A second home is not covered by the three-day right of rescission. The Closing Disclosure timing rule still applies.
- Pricing adjustments for occupancy and cash-out hide inside the pricing, so compare full Loan Estimates, not just fee lines.
What Counts as a Closing Cost Item (and What Doesn’t)?
A closing cost item is any charge to originate the loan and transfer the security interest. Prepaids and escrow deposits are different. They fund future bills such as taxes and insurance, and they are not fees earned by anyone at closing.
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.
The distinction matters because borrowers often add everything together and conclude the loan is far more expensive than it is. Across the wholesale programs placed with lenders every week, the same confusion shows up. A borrower sees a large “total due” and assumes it is all fees. Part of it is usually prepaid interest plus tax and insurance deposits, which cover real obligations on the home. For the programs behind this loan type, see Lendmire’s cash-out refinance programs.
Fannie Mae’s Selling Guide on cash-out refinance transactions lists the allowed uses of proceeds. They include paying off the existing first mortgage, financing closing costs, points and prepaid items, paying off subordinate liens, and taking equity out for any purpose. Real estate taxes can also be included in the new loan amount.
Here is how the items group:
| Category | Typical items | Who picks the provider |
|---|---|---|
| Lender and broker charges | Origination, underwriting, processing | Lender or broker |
| Third-party reports | Appraisal, credit report, flood certification | Usually assigned |
| Title and settlement | Title search, lender’s title policy, closing agent | Often shoppable |
| Government | Recording charges, any transfer-type charges | Set by locality |
| Prepaids | Interest to the first payment date, insurance, taxes | Your insurer, your county |
| Escrow deposits | Starting tax and insurance reserve | Based on bills due |
Fees and prices vary by lender, state and loan size, so none are quoted here. The Loan Estimate itemizes them for your file.
How Does the 75% Cap Change the Math?
Because costs are financed inside the loan, the cap is a single budget. The new loan equals the appraised value times the cap. From that, subtract the payoff of your current first mortgage, any liens being paid, and the financed costs, points and prepaids. What remains is your cash.
Fannie Mae’s Eligibility Matrix shows 75% for a one-unit second-home cash-out. Purchase and limited cash-out on a second home reach 90%. A one-unit primary residence cash-out reaches 80%. Freddie Mac’s limits for a second home follow the same pattern. Individual lenders can set tighter overlays, so treat 75% as an upper limit and confirm your exact figure. Exact terms depend on lender and investor guidelines, credit profile, reserves, and property review.
Run a plain-words scenario. Say a home is worth a certain amount and the existing loan is already near 60% of that value. The cap leaves about 15% of value to split between closing costs and your cash. Each financed cost shrinks the check by the same amount. Finance nothing and the full 15% reaches you. Finance everything and the check is smaller, and the loan balance is larger.
That is the core tradeoff. Paying costs out of pocket keeps more equity available as cash. Financing them keeps your savings in the bank but raises the balance you carry. Neither is wrong. The right choice depends on whether you need the cash proceeds or the liquidity more.
Why Does a Second Home Change the Cost Picture?
Second-home status affects the loan’s pricing more than its fee list. Occupancy and cash-out are each separate pricing attributes at the agencies, and Fannie Mae publishes them in its loan-level price adjustment matrix. They are built into pricing and may not show as a standalone line on your estimate.
So how do you spot them? Compare lenders on the full Loan Estimate: the same loan amount, the same points, the same credit assumptions. A lower fee total can come with higher embedded pricing. A higher fee total can come with a better structure. Looking at fee lines alone will mislead you.
Other second-home details tend to shift the closing sheet:
- Association items. If the home is in a community with dues, expect documentation and status-letter charges and possibly a project review.
- Insurance. Coverage for a seasonal or vacation property may look different from a primary home’s, and the first-year premium is a prepaid.
- Taxes and escrow. If the home is in another county or state, the tax bills and escrow deposits follow that location, not where you live.
- Appraisal. Value drives the cap, so the appraisal matters more here. A resort or seasonal market can be harder to compare.
- Title and recording. Customs vary by state, including whether an attorney handles closing.
None of these has a fixed national number, and none should be treated as one.
What Does Occupancy Have to Do With It?
Occupancy decides which rules apply. Fannie Mae’s occupancy guidance says a second home must be occupied by the borrower for some portion of the year. It must be one unit, suitable for year-round use, under the borrower’s exclusive control, and not a rental or timeshare. Rental income can exist, but it cannot be used to qualify.
A two- to four-unit property doesn’t fit that definition, so it falls into different treatment. Leverage for a second home sits at 90% on a purchase and 75% on a cash-out, per the program limits. Occupancy is the deciding variable. Declare it honestly, because the whole cost and cap structure follows from it.
Seasoning: When Can You Do This?
Time on title gates the loan. At least one borrower must have been on title for six months before the new loan disburses. If an existing first mortgage is being paid off, it must be at least 12 months old, measured note date to note date. Freddie Mac’s Guide section 4301.5 uses the same six-month and 12-month tests.
Three exceptions are worth knowing:
- Delayed financing. A buyer who paid cash for the home within the past six months may refinance with cash back limited to the greater of 1% of the new loan or $2,000. It is still priced and capped as a cash-out, so the 75% limit applies.
- Inheritance. No waiting period applies to property acquired by inheritance.
- Legal awards. The same holds for property awarded in a divorce, separation or dissolution of a domestic partnership.
The “limited cash-out” label deserves one more word. It carries a 90% cap on a second home, but it restricts cash back and the liens that can be paid. A loan that pays off a non-purchase-money second lien or returns more cash than allowed is treated as a cash-out, with the 75% cap. Ask your loan officer to check which side your plan falls on.
Where Reserves Trip People Up
Reserves are assets left after closing, and the cash-out check from the subject property doesn’t count toward them. Fannie Mae’s reserve rules say the automated underwriting finding sets the requirement, and cash-out proceeds from the subject property are not an acceptable source. Higher debt-to-income can add a reserve hurdle. Owners with several financed second homes face extra reserve requirements as well. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Reserves are not closing costs. Closing costs get paid at the table or financed. Reserves stay in your accounts as a cushion. Confusing the two is one of the most common mistakes on a second-home file, so plan for assets beyond the cash-out itself.
Credit and ratio rules follow the file. Across the wholesale conventional programs, the floor starts at a 620 decision score, and the automated finding governs most files with a total ratio ceiling of 50%. A higher score and lower ratios generally widen your options and can improve pricing. Specific second-home overlays differ by lender, subject to lender guidelines and full file review.
Does the Three-Day Cancellation Window Apply?
No. The right of rescission covers a consumer’s principal dwelling. The CFPB’s Regulation Z rescission rule says a transaction secured by a second home not currently used as the principal dwelling is not rescindable, even if you intend to live there later. That means no cooling-off period after signing, so be sure before you sign.
A separate rule still applies. The CFPB says you must receive the Closing Disclosure at least three business days before closing. That waiting period exists so you can compare the final numbers to your Loan Estimate. A corrected disclosure restarts it only for three changes: the APR becoming inaccurate, a change in loan product, or the addition of a prepayment penalty.
Use that window. Line up the Closing Disclosure against the Loan Estimate section by section: lender charges, third-party services, title, government fees, prepaids, escrow. Ask about anything that moved. Your lender or broker should be able to explain every line.
Second Home vs. Primary Home: What Shifts
| Factor | Primary residence | Second home |
|---|---|---|
| Cash-out cap (one unit) | 80% | 75% |
| Limited cash-out cap | 95% | 90% |
| Right of rescission | Applies | Not covered |
| Occupancy test | Borrower lives there | Some part of the year |
| Rental income to qualify | Rules differ | Cannot be used |
The pattern is consistent. Less leverage is available, so more equity stays in the home, and your financed costs have less room to fit.
Paying Out of Pocket or Financing the Costs?
Pay out of pocket if you want the largest check or the smallest balance. Finance them if you want to hold your cash. That’s the whole decision, and the 75% cap is the constraint that makes it real.
Some factors that tip the choice:
- Your reserves. If paying costs would drain your cushion, financing may be the safer call, since proceeds can’t be counted as reserves.
- How much cash you need. If your project needs every dollar of equity the cap allows, pay costs separately where you can.
- How long you’ll hold the loan. A financed cost is repaid with interest over the life of the loan. A shorter holding period makes that matter less.
- Points. Points are optional. They exchange upfront cost for pricing and fit best if you’ll keep the loan a long time.
Be wary of marketing that promises a “no-closing-cost” refinance. The costs don’t disappear. They get built into the pricing or the balance.
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 returns some equity as cash.
- LTV (loan-to-value): the loan amount divided by the home’s appraised value.
- Prepaids: upfront payments for interest, insurance and taxes that cover future costs rather than lender fees.
- Escrow deposit: money held by the servicer to pay your tax and insurance bills when they come due.
- Seasoning: how long you’ve owned the home or held the existing loan before a refinance is allowed.
- Loan-level price adjustment: a pricing add-on tied to risk traits, such as occupancy or cash-out, built into pricing.
- Rescission: a short right to cancel certain loans secured by a principal dwelling, which does not cover a second home.
Frequently Asked Questions
Can I roll closing costs into a second-home cash-out refinance?
Yes. Fannie Mae’s Selling Guide allows cash-out proceeds to finance closing costs, points and prepaid items. The costs sit inside the new loan, so they count against the 75% cap and reduce your cash. Lender overlays may be tighter, so confirm the figure for your file.
Are prepaid taxes and insurance really costs?
They are real cash needs, but not fees earned by the lender. Prepaids and escrow deposits fund bills you would owe anyway, such as insurance and taxes. Old escrow balances held by your current servicer are typically refunded after payoff, which offsets part of the new deposit.
Does a second home cost more than a primary home?
Often the pricing is higher, because occupancy and cash-out are each pricing attributes. The difference usually shows up in the embedded pricing, not as a fee line. Compare complete Loan Estimates from more than one source to see the real difference.
Can I use my cash-out proceeds to meet the reserve requirement?
No. Fannie Mae treats cash-out proceeds from the subject property as unacceptable for reserves. You need other assets, such as savings or retirement accounts, subject to lender guidelines.
Do I get a three-day right to cancel?
Not on a second home. Rescission applies to a principal dwelling. The three-business-day wait for the Closing Disclosure still applies, so use that time to review the final costs.
If you are weighing a cash-out refinance on your second home against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Every figure here 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 brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see conventional loan programs.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
2. Fannie Mae Eligibility Matrix
4. Fannie Mae Selling Guide B2-1.1-01, Occupancy Types
5. Freddie Mac Guide 4301.5, Cash-out refinance Mortgages
6. CFPB Regulation Z, Right of Rescission
7. CFPB, When do I get a Closing Disclosure?
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Conventional Cash-Out Refinance Documents for a Primary Home · Conventional Cash-Out Refinance Requirements for a Second Home · Should You Take a Conventional Cash-Out Refinance on Your Home?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.