The Quick Read: No, a cash-out refinance has no down payment. It runs on equity, because there is no purchase and no cash goes in at closing. The new loan pays off your current mortgage and hands you the difference, up to a loan-to-value cap set against a new appraisal. Equity is necessary but not sufficient: seasoning, occupancy, credit, and debt-to-income all still apply, subject to lender guidelines and full file review.
Why There Is No Down Payment
A down payment exists on a purchase because the lender needs the buyer to have money in the property. On a refinance, you already have that stake. It’s your equity.
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.
So the question flips. Instead of “how much do I bring?” the lender asks “how much of the value can I lend against?” That limit is the loan-to-value ratio (LTV), and the slice of value you leave untouched is your cushion.
Here’s the catch. The cushion has to survive the cash-out. A home with 20% equity going in can’t hand you 20% back, because the cap leaves a minimum share of value in place.
Down Payment vs. Equity Test
| Factor | Purchase | Cash-out refinance |
|---|---|---|
| What protects the lender | Buyer’s down payment | Existing equity |
| Key test | Minimum down % | Maximum LTV |
| Cash needed at closing | Down payment plus costs | None required |
| Value measured by | Price or appraisal | New appraisal |
The Fannie Mae Selling Guide defines the transaction this way: a new first mortgage pays off existing liens on the same property, or goes on a property with no lien at all. That second case matters. A paid-off home is still treated as cash-out.
How Much Equity Do You Actually Need?
On a conventional loan, the cap for a one-unit principal residence is 80% LTV. For two- to four-unit principal residences, second homes, and investment property, it’s 75%. The Fannie Mae Eligibility Matrix lists the principal-residence caps. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Across the wholesale programs Lendmire places files with, there’s also a lane that reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed, a primary residence, a conforming balance, and its own six months of seasoning. In Texas, a cash-out on the homestead is capped by the state constitution, and that wholesale lane isn’t written there. Treat it as the exception, subject to lender guidelines.
Think of it as a ceiling. Take the appraised value, multiply by the cap, subtract what you owe. What’s left is the most cash the loan could produce before closing costs. Closing costs come out of that, or get rolled into the loan if the cap leaves room.
Two things shrink the number:
- Other liens. A second mortgage or HELOC counts against the cap, and so does anything else secured by the home.
- A low appraisal. The cap applies to the appraised value, not what you hoped it was worth. A lower value means less cash, or none.
The Equity Test Is Only One of Several
Equity alone doesn’t qualify you. A lender looks at several things, and each can stop a file.
Seasoning
Time matters. A first mortgage being paid off must be at least 12 months old, measured note date to note date. At least one borrower must also have been on title for six months.
Many older articles still say six months is enough. That’s only the title test. If you’re paying off a mortgage, the 12-month test applies too.
Exceptions exist. Delayed financing covers recent cash buyers, and inheritance and legal-award situations are treated separately. Paying off a subordinate lien, or buying out a co-owner under a legal agreement, can also change the clock.
Occupancy
For a primary-residence cash-out, every borrower must occupy the home. Second homes and investment properties have their own rows in the matrix and the lower 75% cap.
Credit and ratios
The wholesale conventional programs generally start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45%, along with reserve and score factors from the matrix. Fannie Mae also requires six months of reserves when an automated casefile shows a DTI above 45%.
Waiting periods after credit events are agency rules. They run four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu, shorter with documented extenuating circumstances.
Appraisal
The appraisal sets the ceiling for everything above.
Worked Example in Percentages
Picture a homeowner whose appraisal comes in at full expected value, with a primary residence and a one-unit property. At the 80% cap, the new loan can reach 80% of that value. If the current mortgage balance is 50% of value, the gap is 30% of value, before closing costs.
Now add a HELOC sitting at 10% of value. The payoff grows, and the gap shrinks to 20% of value. Pay closing costs out of pocket and the full 20% reaches you. Roll them in, and the loan uses some of that gap, so the cash you receive is smaller.
Same house. Same equity. Very different check.
When You Might Still Need Cash
A cash-out has no down payment, but a few situations can still call for money.
- Closing costs paid in cash. You can usually fund them from proceeds or roll them in, subject to the cap. Paying them separately is a choice, not a rule.
- Appraisal shortfall. If the value lands low and the payoff leaves no room, the loan may not work as structured.
- Reserves. High-ratio files can trigger reserve requirements, as noted above.
- A cash-in refinance. Some borrowers deliberately bring a lump sum to get under a cap or past a mortgage-insurance threshold. That’s a different transaction, and it’s optional.
Does the Program Change the Answer?
Yes. The conventional answer above is the baseline. Government programs behave differently.
VA. The VA states there is no down-payment concept on its cash-out loan. Borrowers can generally borrow up to the conforming loan limit in most areas, and more in some high-cost counties. You need a Certificate of Eligibility and must live in the home. Every VA cash-out also needs at least one net tangible benefit. Lender-set caps vary, but the VA’s leverage is generally higher than conventional.
FHA. FHA’s Streamline is not a cash-out product. HUD limits cash back through it to $500, and no appraisal is required, so equity is irrelevant there. A true FHA cash-out is a separate, fully underwritten loan with its own cap and an owner-occupancy history. Its exact leverage depends on current HUD guidelines and the lender.
USDA. No cash-out option.
Don’t confuse any of this with a limited cash-out refinance, which is the agency name for a rate-and-term refinance. That loan pays off the first mortgage, closing costs, and a purchase-money second lien, with only incidental cash back. It is not a small cash-out loan. Every figure here varies by lender and program, and guidelines, property type, leverage, and credit profile all apply.
Can Cash-Out Proceeds Be a Down Payment on Another Home?
Often, yes. The real question is whether you can carry the larger payment on both properties, and whether the cash-out loan still fits your budget. Lendmire’s piece How Much Equity a Cash-Out Refinance Leaves for a Rental Down Payment walks through the leftover-equity side of that decision.
Use caution. According to CFPB research on cash-out refinances, cash-out refinancing draws down current wealth that could be used later. The same research warns that converting non-mortgage debt into mortgage debt can put the home at risk of foreclosure if payments become unsustainable.
Key Terms Defined
Loan-to-value (LTV): The new loan amount divided by the appraised value.
Equity: The appraised value minus everything secured against the home.
Seasoning: The time on title and the age of the loan being paid off.
Limited cash-out refinance: The agency term for a rate-and-term refinance, with only incidental cash back.
Cash-in refinance: A refinance where the borrower brings money to lower the balance.
Right of rescission: A three-business-day window to cancel a refinance on a primary residence.
Myths vs. Reality
“I need 20% down.” There’s no down payment. The cap simply limits how much of the value you can borrow. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
“I can borrow all my equity.” No. The cap leaves a cushion in place.
“A paid-off home skips cash-out rules.” It doesn’t. It’s treated as cash-out.
“I can cancel only before closing.” On a primary-residence refinance, the CFPB explains you have until midnight of the third business day to cancel, so cash generally isn’t released until that window closes.
Where Do You Stand?
- Plenty of equity, past 12 months on the loan: the cash-out path is open, subject to credit and ratios.
- Near the cap: the appraisal decides everything, and a small shortfall can erase the cash.
- Under the cap, or inside the seasoning window: waiting, a smaller draw, or a cash-in structure may fit better.
- Already have an FHA or VA loan: a streamline may lower the payment but won’t deliver cash.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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. See Lendmire’s cash-out refinance programs, or call 828-256-2183. Nothing here is a commitment to lend.
Frequently Asked Questions
Do I need a down payment for a cash-out refinance?
No. There’s no purchase, so there’s no down payment. The loan is limited by a loan-to-value cap against a new appraisal, and your equity plays the role a down payment would on a purchase. Closing costs still exist, but they can usually come from proceeds or be rolled in, subject to the cap.
How much equity do I need?
On a conventional one-unit primary residence, the cap is 80% LTV, so you must leave at least 20% of the value in place. Two- to four-unit homes, second homes, and investment property use 75%. You need enough equity above the cap to leave something to withdraw, and all of it is subject to lender guidelines.
How long must I own the home first?
At least one borrower must have been on title for six months, and any first mortgage being paid off must be at least 12 months old. A recent buyer with a purchase mortgage usually waits on the longer 12-month loan-age test. Delayed financing is a named exception for recent cash buyers.
What if my appraisal comes in low?
The cap applies to the appraised value, so a lower value reduces the loan you can take. If the payoff already uses most of the cap, the cash may shrink to little or nothing. Ask your loan officer how far the value can fall before the structure stops working.
Does a second mortgage or HELOC count against my equity?
Yes. Liens secured by the home reduce your available equity, because the new loan has to pay them off or fit under the cap alongside them. A HELOC can also be an exception to the first-lien seasoning test when it’s the lien being refinanced. Your title commitment or credit report shows what must be paid.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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. Fannie Mae Eligibility Matrix
5. CFPB: Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
6. CFPB: How Long Do I Have to Rescind
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Do a Cash-Out Refinance After Making Only One Payment? · Do You Need to Bring Money to a Cash-Out Refinance Closing? · Cash-Out Refinance for Owners Who Want More Than a Lower Payment
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.