The Quick Read: A refinance has no down payment, so lenders count your equity as the cushion that does the same job. They measure it from the appraised value, not what you paid. On a conventional cash-out refinance, the new loan is capped at 80% of that value on a one-unit primary residence, subject to lender guidelines and full file review. Whatever percentage the cap leaves over is the equity you must keep.
Does a Refinance Even Have a Down Payment?
No. A down payment is cash you put in when you buy. On a refinance, you already own the home, so there is nothing to put down.
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: 7.32% as of October 22, 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.
Equity fills that role. Equity is the part of your home’s value you own outright. It is the gap between what the home is worth and what you owe. The lender wants that gap to stay big enough after the new loan closes, so it protects them if values drop.
Here is the picture. Say a home appraises at 100 units of value. A lender with an 80% cap will lend up to 80 units in total. You keep at least 20 units of equity. Same cushion a 20% down payment would give a buyer. Different route. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
This is why the phrase “use equity as a down payment” trips people up. You do not hand equity to the lender. The lender simply refuses to lend against all of it.
How Lenders Measure Equity: Value, Loan-to-Value, and the Cap
Everything runs on loan-to-value, or LTV. LTV is the new loan amount divided by the home’s appraised value. A lower LTV means more equity left.
Three things decide your number:
- The appraised value. An appraiser sets it, not you and not an online estimate.
- The program’s LTV ceiling. Each program caps how much of that value it will lend against.
- Debt that stays on the home. Any lien that remains counts against the cap too.
Across the wholesale programs I place files with, the conventional cash-out ceiling is 80% LTV on a one-unit primary residence. It drops to 75% on two- to four-unit primary residences, second homes, and investment property. So occupancy and unit count change how much equity you must keep. Lenders set their own overlays on top, and all of this is subject to lender guidelines.
The government programs work differently. VA’s own circulars say VA will not guarantee a refinance above 100% of the appraiser’s reasonable value, and any financed funding fee counts toward that limit. So VA can reach a point where no cushion is required. Many lenders still set a lower ceiling than VA does, and FHA’s cash-out ceiling sits below its purchase ceiling.
From Equity to Cash: The Step-by-Step Math
The structure is simple. Maximum loan equals value times the maximum LTV. Then subtract what you owe and the closing costs. What is left is your cash. Here is the full underwriting sequence, in order.
1. Classify the loan. A limited cash-out, also called rate-and-term, pays off your first mortgage and costs with only incidental cash back. A true cash-out gives you more than that, or pays off non-purchase liens. The label sets your LTV ceiling, pricing, and seasoning tests.
2. Check the clocks. Lenders look at how long you have owned the home and how old your current loan is. More on this below.
3. Order the appraisal. Value is the denominator in every calculation. For VA, the “reasonable value” on the Notice of Value does this job.
4. Compute LTV. Total new debt divided by value. Liens that stay in place count toward the combined number.
5. Back out the payoff and costs. Your existing mortgage balance and the closing costs come off the top. The remainder is net cash.
6. Underwrite you. Credit, income, and debt-to-income ratio, which is your monthly debts divided by your monthly income, still apply. Reserves, meaning savings left after closing, may be required too.
7. Document the file. Expect payoff statements, proof of ownership, payment history, and occupancy evidence.
Each step can shrink the number. That matters most at step three.
Why the Appraisal Is the Whole Ballgame
The appraisal sets your cash. If it comes in low, the maximum loan falls with it. The payoff and costs stay the same. So the cash you net can shrink fast, or vanish.
You can feel like you have lots of equity and still get a small check. Feelings do not appear in the underwriting file, only the appraised value does.
A wry truth from the broker side: the homeowner’s estimate and the appraiser’s number rarely match on the first try. Plan your budget around the lower of the two.
The Clocks: Seasoning Rules That Can Block You
Equity is not enough. You also have to wait long enough. Waiting periods are called seasoning, meaning the time you have held the home or the loan before a lender will treat it as a cash-out candidate.
Under the Fannie Mae Selling Guide, a conventional cash-out has two main tests:
- The first mortgage being paid off must be at least 12 months old, measured from its note date to the new note date.
- At least one borrower must have been on title for six months before the new loan funds.
Time held by an LLC can also count toward those six months, as long as title moves into the borrower’s name by the note date. Freddie Mac’s Guide says the same. These are investor rules set by the two agencies, not a federal law.
The same Fannie guide also says a home listed for sale must come off the market on or before the new loan funds. And on loans run through Fannie’s automated system, a total debt ratio above 45% calls for six months of reserves.
One of the wholesale lanes I work with reaches 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio, a 30-year fixed rate, a primary residence, and a conforming balance. It also carries its own six months of seasoning. Not every borrower fits it, and in Texas the wholesale lane is not written on a homestead cash-out because the state constitution caps those loans at the agency figure. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Where the General Rule Breaks: Named Edge Cases
The rules above are the default. Several situations bend them.
Delayed financing. If you bought a home with cash and want that money back, the six-month title clock can be waived. You must document that the purchase was at arm’s length and show where the funds came from. It is still treated as a cash-out, so cash-out leverage and pricing apply. Confirm the other details, including how the loan is capped, against the current guide with your loan officer.
Inherited or court-awarded homes. Inheritance, a divorce or separation award, and certain trusts are named exceptions to the ownership requirement. Fannie lists them in its limited cash-out section.
LLC-held title. Time held by the LLC may count, but title has to move into your personal name.
Free-and-clear homes. A home with no mortgage still qualifies as a cash-out. No existing loan is being replaced, so the whole new loan is cash-out money.
Second liens. A second mortgage used to buy the home can be rolled into a limited cash-out. A later HELOC or other non-purchase second makes the deal a full cash-out. Liens that stay behind also use up room under the LTV cap.
Co-owner buyouts. Fannie exempts a buyout under a legal agreement from the 12-month first-mortgage rule. Freddie has a separate special-purpose cash-out for it.
Manufactured homes. Fannie’s manufactured housing matrix says single-width homes are not eligible for cash-out.
Two- to four-unit homes and second homes. Occupancy and unit count lower the ceiling, as the 75% figure above shows. If you are refinancing a second home or a rental, occupancy decides the leverage, so expect a smaller cash amount than on a primary residence.
“Limited Cash-Out” Still Lets Some Cash Through
Many people think a rate-and-term refinance means zero cash. It does not. Fannie allows incidental cash back on a limited cash-out. Announcement SEL-2025-08 set that cap at the greater of 1% of the new loan’s unpaid principal balance or $2,000. You may still see the older “lesser of 2% or $2,000” wording online. It is outdated.
The leverage on this lane is higher, because you are not extracting equity. The wholesale refinance on a one-unit primary residence reaches 95% LTV, and 97% where the existing loan is agency-owned and the first-time-buyer program allows it. Mortgage insurance applies above 80%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Streamlines: When Equity Does Not Count at All
If you already have an FHA or VA loan, you may not need an equity test at all. A streamline is a simplified refinance of an existing government loan.
FHA Streamline. HUD says the loan must already be FHA-insured and current, and the refinance must produce a net tangible benefit. That means the change has to help you in a measurable way. HUD does not let lenders add closing costs to the new loan amount on a streamline. There is no cash out.
VA IRRRL. The VA says an IRRRL needs no appraisal or credit underwriting package. In the programs I place, there is a 0.5% funding fee unless you are exempt, plus a net tangible benefit and a seasoning test of the later of 210 days and six payments.
Streamlines trade cash for simplicity. Lenders can still add their own checks, so “no review” is a myth.
Cash-Out Refinance vs. a HELOC: Same Equity, Different Tools
Both use equity. They count it differently.
| Factor | Cash-Out Refinance | HELOC or Home Equity Loan |
|---|---|---|
| First mortgage | Replaced | Stays in place |
| Lien structure | One new loan | Second lien added |
| Equity test | New loan vs. value | Combined debt vs. value |
| Seasoning | Applies | Varies by lender |
A cash-out replaces your first mortgage. A home equity loan or HELOC leaves it where it is. If your current loan is one you want to keep, a second lien may fit better. If your current loan is the problem, a cash-out may fit better. It is a genuine toss-up for many homeowners, and the answer depends on what each loan does to your total monthly obligation.
What a Cash-Out Does to Your Budget
You are borrowing more against your home. That raises the loan balance and usually the monthly principal-and-interest payment. It also pushes up your debt-to-income ratio and restarts the amortization clock, which means early payments again go mostly toward interest.
That affects whether you qualify. A bigger payment can push your ratio past the program ceiling. On the conventional wholesale programs, the total ratio ceiling is 50% on files that get an automated approval, and 36% or 45% on manually underwritten files.
Mortgage insurance matters too. It is required above 80% LTV. Because the conventional cash-out ceiling is 80% on a one-unit primary residence, the loan usually stays at or below the point where insurance would apply, though lender guidelines govern.
Using equity to pay off other debts deserves a hard look. Moving non-mortgage debt into mortgage debt can put the home at risk if payments become unsustainable. Unsecured debt rarely costs you the house. A mortgage can.
Mistakes That Cost Borrowers Cash
Here is what I see go wrong most often:
- Borrowing against your own estimate. Only the appraisal counts.
- Forgetting the liens that stay. A HELOC you keep eats into your room.
- Ignoring the clocks. Buying a home and trying to cash out within months runs into the title and loan-age tests.
- Assuming VA means 100% every time. It is VA’s ceiling, and lenders often set lower caps. Financed fees count toward it.
- Mixing up streamline and cash-out. A streamline gives you no cash and no equity test.
- Skipping the payoff in the math. Your current balance comes off before you see a dollar.
What to Bring to the Conversation
Run this checklist before you talk to a loan officer:
1. The payoff statement for every mortgage or lien on the home.
2. Your deed or other title evidence, plus the date you took ownership.
3. Your mortgage’s note date, so the age of the loan can be checked.
4. Proof of payment history on the current loan.
5. Occupancy and unit count: primary residence, second home, or multi-unit.
6. Income, debt, and reserve documents for the ratio and reserve checks.
7. If you bought with cash recently, the purchase settlement statement and bank statements showing where the money came from.
Then decide what you actually need. Compare the cash-out refinance programs against keeping your current loan and adding a second lien. A cash-out costs you in ways a second lien may not, and the reverse is also true. Lendmire’s piece on using a cash-out refinance as a down payment on another house covers the next step if the cash is headed toward a purchase.
For homeowners comparing options, the details on Lendmire’s cash-out refinance programs show how leverage and seasoning differ by occupancy.
Key Terms Defined
Equity: The part of your home’s value you own, equal to value minus what you owe.
Loan-to-value (LTV): The loan amount divided by the home’s appraised value, shown as a percentage.
Seasoning: The time you must hold a home or loan before a lender treats it as eligible for a cash-out.
Net tangible benefit: A measurable improvement to your loan that a government streamline must show.
Combined LTV (CLTV): Total debt on the home, including any second liens, divided by its value.
Delayed financing: A cash-out exception for recent all-cash buyers that waives the six-month title wait.
Frequently Asked Questions
Can I use a cash-out refinance as a down payment on another home?
Yes, the cash can be used that way once the loan closes, but the new lender will want to see where the funds came from. That means documenting the refinance proceeds. The refinance also adds debt to your current home, which counts toward your debt-to-income ratio on the next purchase. All of this is subject to lender guidelines.
How much equity do I have to leave in my home?
On a conventional cash-out refinance of a one-unit primary residence, 20%, because the cap is 80% LTV. On two- to four-unit primary residences, second homes, and investment property, it is 25%, because the cap is 75%. Government programs and special wholesale lanes differ. VA can reach 100% of reasonable value, though many lenders set a lower cap.
Why did my cash-out come in smaller than expected?
Usually the appraisal came in lower than you hoped, or liens that stay on the home used up room. Your payoff balance and closing costs also come off the maximum loan before you get any cash. Review the appraisal first, then the payoff figures.
Do I have to wait before I can do a cash-out refinance?
Usually, yes. Conventional rules call for a borrower on title for six months and a first mortgage at least 12 months old. Exceptions exist for delayed financing, inheritance, and legal awards.
Does a streamline refinance count my equity?
No. FHA Streamline and VA IRRRL loans work off your existing government loan, with no equity test and no cash out. Each still needs a net tangible benefit, and lenders may add their own checks.
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. 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.
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References
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
5. Fannie Mae Announcement SEL-2025-08
6. HUD FHA Streamline Refinance
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Qualify for a Cash-Out Refinance When Equity Is Tight · How to Get the Maximum Cash From a Cash-Out Refinance · Cash-Out Refinance Documentation for Pulling Equity From a Primary 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
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.