The Quick Read: Yes, a conventional loan allows a cash-out refinance, and you can spend the cash on anything. A new, larger first mortgage pays off your old one, and you keep the difference. The limit applies to the whole new loan measured against your home’s appraised value, not to a share of your equity. On a one-unit primary residence, that cap is 80%, subject to lender guidelines and full file review.
What Does “Conventional Cash-Out” Actually Mean?
A conventional cash-out refinance replaces your current first mortgage with a bigger one, and you receive the extra as cash. “Conventional” means the loan follows Fannie Mae or Freddie Mac rules rather than FHA or VA insurance. Across the wholesale programs Lendmire works with, those agency rules set the frame.
Freddie Mac defines a cash-out refinance as a mortgage with no restrictions on how the proceeds are used. Pay off cards, fix the roof, cover tuition. The lender does not police the spending.
Do not confuse this with a rate-and-term refinance. Borrowers use that name for what Fannie Mae calls a limited cash-out refinance. It pays off the first mortgage, the closing costs and a purchase-money second lien, and returns only incidental cash. It has its own rules, including 95% leverage on a one-unit primary residence. A true cash-out is a separate loan purpose with separate gates. Lendmire arranges both through its cash-out refinance programs, and the label on your loan decides which rules apply. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
One more case: a home owned free and clear also counts as cash-out. Fannie Mae allows a new first mortgage on a property with no existing lien.
How Much Cash Can You Actually Take?
You can take the loan cap minus what you must pay off, minus any liens cleared, minus financed costs. The cap applies to the new loan against appraised value. That is the number most people get wrong.
Here is the cap by property and occupancy on conventional cash-out:
| Property | Max LTV (cash-out) |
|---|---|
| One-unit primary residence | 80% |
| Two- to four-unit primary residence | 75% |
| Second home | 75% |
| Investment property | 75% |
LTV means loan-to-value: the new loan divided by the appraised value. Occupancy decides the leverage. A rental or second home gets a lower cap than the home you live in.
Now the misconception. People say “I can borrow 80% of my equity.” No. The 80% applies to the home’s value. Picture a home with an existing loan at 50% of its value. On a one-unit primary residence, the new loan can reach 80% of value. The cash you receive is the gap between 80% and 50%, less any other liens and the costs you finance. Equity is your starting point, not the thing being measured.
Your approved amount can also land below the cap. Credit score, debt-to-income ratio (DTI, your monthly debts divided by your gross monthly income) and conforming loan limits can all trim it. A loan above the county’s conforming limit is a jumbo loan, a different product. And the conforming limit is a maximum loan amount, not a maximum home price. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
A low appraisal shrinks the cash directly. Because the cap multiplies against appraised value, a lower value lowers the ceiling dollar for dollar. Everything else on the file stays the same.
There is also a wholesale 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. Not every lender offers it, and it is not written in Texas. Subject to lender guidelines and full file review.
How the Process Works, Step by Step
1. Pick the loan purpose. Cash-out and limited cash-out are different purposes, listed as separate topics in Fannie Mae’s guide.
2. Apply and document. Expect to supply mortgage statements, proof of the deed, income and asset records. The exact list depends on the lender and your file.
3. Appraisal. The appraised value sets the ceiling.
4. Underwriting. The lender checks credit, ratios and reserves. Most files run through automated underwriting, and the automated finding governs.
5. Closing. You sign the new loan. Costs are either paid at closing or financed within the cap.
6. Right to cancel. On a primary residence refinance, you generally have three business days to cancel in writing. Funds move after that window closes.
Two Clocks: Loan Age and Time on Title
Two separate waiting periods apply, and they measure different things. The first mortgage being paid off must be at least 12 months old, counted from the old note date to the new note date. At least one borrower must also have been on title for 6 months.
Fannie Mae announced the 12-month rule through its capital markets update. The 12-month test does not apply to subordinate liens being paid off, or to a documented buyout of a co-owner.
Why separate them? A recent buyer with a mortgage usually runs into the 12-month loan-age test. A cash buyer runs into the 6-month title test. Different lenders may add their own overlays, so quoted waits vary.
Exceptions exist:
- Delayed financing. A cash buyer can do a cash-out inside the six-month title period if the purchase was arm’s-length and the borrower meets eligibility rules. The archived guide lays out the requirements. Verify them against the current guide. It is still a cash-out loan, so cash-out caps and pricing apply.
- Inheritance or legal award. No six-month title wait applies if the lender documents the inheritance or a divorce-related award.
- Listed homes. A property listed for sale must come off the market on or before the disbursement date.
Occupancy matters too. On a primary residence cash-out, Freddie Mac requires all borrowers to occupy the home.
Who Qualifies?
The wholesale conventional programs start at a 620 decision score, and the automated finding governs most files. Total ratio ceiling is 50% on an automated approval. Manually underwritten loans run to 36% or 45%, with the reserve and score factors of the Eligibility Matrix.
Reserves matter on higher-ratio files. On Desktop Underwriter loans, a DTI above 45% requires six months of reserves. Reserves are money left in the bank after closing.
Credit events carry agency waiting periods: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
Mortgage insurance is required above 80% LTV. You can ask to cancel it at 80% of original value with a good payment history, no subordinate liens and no drop in value. The servicer must end it automatically at 78%. Published typical annual premiums run 0.58% to 1.86% of the balance. That is a range, not a quote. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
A practitioner note: on files we see, the cash tends to shrink at the appraisal and the ratio check, not at the headline cap. Run your debts and your value estimate honestly before you plan the cash.
What Costs Reduce Your Net Cash?
Closing costs either come out of your pocket or get rolled into the loan, which shrinks your cash. Fannie Mae applies loan-level price adjustments to cash-out loans. These are pricing add-ons set by the agency for loan characteristics. Cash-out loans carry them, and a student-loan feature can waive that cash-out adjustment when proceeds pay off eligible student debt. Standard caps still apply to that feature. A cash-back limit has appeared in older guide versions, so confirm the current figure.
No lender can promise a “no-cost” refinance. When you see that phrase, the costs are built into the rate or the balance. Compare the full terms on your Loan Estimate.
Conventional vs. Other Ways to Pull Equity
| Option | How it works | Best fit |
|---|---|---|
| Conventional cash-out | Replaces the first mortgage with one larger loan | Strong credit, enough equity |
| Home equity loan | Second loan on top of your first | Keeping your existing first loan |
| HELOC | Revolving line on top of your first | Borrowing in stages |
| FHA or VA cash-out | Government-backed replacement loan | Different credit or service profile |
The key difference: a HELOC or home equity loan sits on top of your first mortgage, while a cash-out replaces it. That matters if your current first loan has terms worth keeping. Whether the swap pays off depends on your situation. This is a genuine toss-up for many borrowers.
When It Does Not Make Sense
Skip it if your current first mortgage is better than what the new loan would be. You swap the whole balance, not just the extra cash. Skip it if the cash plugs a hole that will reopen.
The CFPB warns that turning non-mortgage debt into mortgage debt can put your home at risk if payments become unsustainable. Defaulting on a card is unlikely to cost you your house. Defaulting on a mortgage can. A cash-out also draws down wealth you might want later.
Paying off debt is a common use. The CFPB found it was the most common reason borrowers gave, chosen by over 50% of respondents in each year from 2014 to 2019. A follow-up found average credit card balances fell by more than $4,500 after the refinance. That only helps if the balances stay down.
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, larger first mortgage that pays off the old one and gives you the difference.
Limited cash-out (rate-and-term) refinance: A refinance that pays off the first mortgage and costs, returning only incidental cash.
LTV: Loan-to-value, the new loan divided by the home’s appraised value.
Seasoning: The waiting period tied to loan age or time on title.
DTI: Debt-to-income ratio, your monthly debts compared with gross monthly income.
Note date: The date you sign the loan’s promissory note.
Frequently Asked Questions
Can I do a cash-out refinance right after buying my home?
Usually not on a financed purchase. The loan you would pay off must be at least 12 months old, and a borrower must have been on title for 6 months. Exceptions include delayed financing for cash buyers, inheritance and legal awards.
Is a rate-and-term refinance the same as a cash-out?
No. A rate-and-term refinance pays off the first mortgage and costs and returns only incidental cash. It can reach 95% LTV on a one-unit primary residence, while a cash-out is capped lower. Because the loan purpose sets the cap, waiting period and pricing, the label matters. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Does the cap apply to my equity or my home’s value?
Your home’s value. The 80% on a one-unit primary residence applies to the whole new loan against appraised value. Your cash is what remains after the payoff, any other liens and financed costs.
Can I take cash out of a second home or rental?
Yes, but at lower leverage. Conventional cash-out on a second home, an investment property, or a two- to four-unit primary residence is capped at 75% LTV. Occupancy decides the leverage. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Can I use the money for anything?
Yes. Freddie Mac describes cash-out proceeds as carrying no use restrictions. Because the loan is secured by your home, consider whether the spending is worth that risk.
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.
For the program’s current guidelines, see conventional loan programs.
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References
1. Freddie Mac Seller/Servicer Guide §4301.5
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
4. CFPB: Can I waive my right to rescind?
5. Fannie Mae capital markets update on cash-out eligibility
6. Fannie Mae Selling Guide B2-1.3-03 (archived 02/01/2023)
7. HELOC or home equity loan sits on top
8. CFPB: CFPB Cash Out Refinances and Paydown Behavior of Non Mortgage Debt Balances
9. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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 Fees When You Roll Them Into the Loan · Can You Cash-Out Refinance an Existing Conventional Loan? · Cash-Out Refinance Closing Costs on a Conventional Loan
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.