The Quick Read: The best program depends on the loan you already carry and how long you have owned the home or lot. A conventional cash-out refinance is the usual route when you want real cash from your current home. On a primary residence it typically reaches 80% LTV (loan-to-value, the loan as a share of the home’s appraised value), subject to lender guidelines. FHA and VA streamlines cannot raise a down payment at all, and a “limited” cash-out gives you almost nothing.
What Does “Down Payment on a Construction Loan” Actually Mean?
Two different situations hide behind this title, and the answer changes between them.
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: 7.18% as of November 5, 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.
Situation one: you refinance the home you live in, take cash out, and use that cash as equity in a new build. This is a standard cash-out refinance. A new first mortgage pays off the old one, covers closing costs, and sends the rest to you.
Situation two: you already own the lot. The lot itself may supply the equity, and the construction-to-permanent loan structure does the rest. The cash-out question there is narrower and depends on the lender’s rules.
Situation one is the more common reading of this title, and it is where the “which program” question matters most. Lendmire’s cash-out refinance programs page lays out the options for homeowners in the 16 states where Lendmire is licensed for consumer lending.
Key Takeaways
- Only a true cash-out refinance raises meaningful cash. Streamlines and limited cash-out do not.
- Conventional cash-out on a one-unit primary residence is generally written to 80% LTV, and one wholesale lane reaches 89.99% LTV with no mortgage insurance when its own conditions are met.
- Your existing loan type (conventional, FHA, VA) shapes your options.
- You may carry two housing costs during construction, so budget for both.
- The construction lender will want to see where the cash came from.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off your current one and hands you the difference in cash.
Limited cash-out (rate-and-term) refinance: A refinance that pays off the old loan and costs, with only incidental cash back.
Seasoning: The waiting period tied to how long you have owned the property or held the loan being paid off.
Construction-to-permanent loan: One loan, or a pair of loans, that funds the build and then becomes your long-term mortgage.
Mortgage insurance: Coverage the borrower pays when leverage is above 80% LTV, except in one wholesale no-MI cash-out lane described below. It cancels at 80% on request and ends automatically at 78%. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Net proceeds: The cash you actually receive after the payoff and closing costs come out of the new loan.
Which Cash-Out Program Fits Which Borrower?
Start with the loan you hold today. That one fact eliminates half the menu.
| Your situation | Program that fits | Watch out for |
|---|---|---|
| Conventional loan, primary home | Conventional cash-out | 80% LTV cap, 12-month seasoning |
| Existing FHA loan | FHA cash-out (appraisal) | Streamline gives no real cash |
| Existing VA loan | VA cash-out | VA streamline is rate-reduction only |
| Strong equity, high score | Wholesale no-MI lane | Narrow eligibility |
| Second home or rental | Conventional cash-out | 75% LTV cap |
On a conventional cash-out, the first mortgage you are paying off must be at least 12 months old, counted note date to note date. A borrower must also have been on title for 6 months. Exceptions exist for delayed financing, inheritance, and legal awards. Fannie Mae’s cash-out guidance describes the delayed-financing exception for a recent purchase, and cash-out pricing applies.
One wholesale lane reaches 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence, a conforming balance, and its own six months of seasoning. In Texas, the state constitution caps a homestead cash-out at 80% of the home’s value, and that lane is not written there. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Occupancy decides leverage. A second home or rental property drops to 75% LTV on cash-out. That is all this article will say about rentals. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Why Streamlines and Limited Cash-Out Do Not Work Here
This is the biggest misconception in the space. People hear “streamline” and assume cash.
An FHA Streamline needs an existing FHA loan, a net tangible benefit, and limited credit review. HUD’s streamline page caps cash back at $500 and does not allow closing costs to be rolled into the new loan amount. It will not fund a down payment.
The VA IRRRL is the same story. It refinances an existing VA loan, with a 0.5% funding fee unless exempt, no VA appraisal, and seasoning of the later of 210 days and 6 payments. VA’s lender pamphlet treats it as a rate-reduction tool, with a net tangible benefit test. A VA borrower who needs equity uses a VA cash-out instead, which the same pamphlet covers separately.
Conventional limited cash-out works the same way. It reaches 95% LTV on a one-unit primary residence. It pays off the first mortgage, closing costs, and a purchase-money second lien. Cash back is incidental. Freddie Mac’s limit is the greater of 1% of the new loan amount or $2,000, while Fannie Mae’s is the lesser of 2% of the new loan amount or $2,000. Paying off a non-purchase-money second turns the loan into a full cash-out. These loans suit a borrower who wants a lower payment, but they cannot supply a down payment. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
How a Construction Lender Counts Your Equity
Construction lenders want skin in the game before the first draw. Equity can arrive three ways: cash, land, or a mix.
Cash from a refinance counts once it is in your account and documented. The lender will ask for the closing statement from the refinance. They want to see the proceeds, not just a promise of them. Land counts at its value, less any lien on it.
If you own the lot and plan a single-closing loan, Fannie Mae treats the loan as a purchase or a limited cash-out refinance. Fannie Mae’s guide says you must hold title before the first advance. It also says cash-out refinances are not eligible for single-closing construction-to-permanent loans.
Two-closing loans work differently. Fannie Mae’s construction-to-permanent FAQ says six months of lot title is needed for a cash-out on the permanent loan. Freddie Mac moved the other way. Its Bulletin 2026-1 treats all two-time-close construction loans as refinances and removed the six-month title requirement when land was inherited or legally awarded.
That gap between agencies is exactly why shopping the file matters. A broker can match the structure to the lender that fits it.
How the Cash-Out Underwriting Works, Step by Step
1. Pick your path. Refinancing the current home is one file. Building on owned land is another.
2. Check seasoning. The 12-month loan age and 6-month title rules come first. A file that fails them cannot move forward, however strong the credit.
3. Confirm occupancy. On a primary residence, borrowers occupy the home.
4. Appraisal and LTV. The new loan must fit under the cap for your property type and purpose. A low appraisal shrinks your cash dollar for dollar.
5. Payoff waterfall. Proceeds pay off the old mortgage and closing costs first. You get what remains.
6. Credit and ratios. Wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a 50% total ratio ceiling. Jumbo lanes start at 660 and reach 90% leverage.
7. Loan Estimate and Closing Disclosure. Compare them line by line. Cash-out carries risk-based pricing, and closing costs can be substantial.
Worked Example: From Gross Loan to Net Down Payment
Take a hypothetical home you own, with a conventional first mortgage well past 12 months old. Use a modeled 80% LTV cap on a one-unit primary residence. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Say your current balance sits at 50% of the home’s value. The new loan can reach 80%. That leaves a gap of 30% of value, but it is not all yours. Closing costs come out of it. So does any second lien you pay off.
Net proceeds are the number that matters. A common mistake is sizing the construction down payment from the gross figure. Size it from the net, and leave room for a low appraisal.
Then add the construction side. If your builder’s lender asks for 20% of the build cost in equity, your net cash plus any lot equity has to clear that bar. Run both loans as one calculation before you apply for either.
Cash-Out, HELOC, or Something Else?
A cash-out replaces your first mortgage. A home equity line adds a second lien. The right choice turns on the loan and term you hold today and how much cash you need.
| Option | Structure | Best when |
|---|---|---|
| Cash-out refinance | Replaces first mortgage | Your current loan is not worth keeping |
| HELOC | Second lien, draws | Your first mortgage is one you want to keep |
| Home equity loan | Second lien, lump sum | You need a fixed amount once |
| Lot equity | Land counts toward equity | You own the land outright |
A cash-out refinance can lengthen your term and raise the payment. Lenders typically want you to keep a meaningful share of your home’s value as equity. Also, a cash-out gives up your old rate and term entirely. If you love what you have, a second lien may serve better.
Where the General Rule Breaks
Some edge cases change the answer.
- Overruns. Fannie Mae allows a two-closing limited cash-out to pay off the construction loan and documented overruns. They must go directly to the builder.
- Lot lien payoff. Limited cash-out proceeds can pay off an existing lot lien on a single-closing loan.
- Manufactured homes. Freddie Mac allows cash-out only on multi-wide manufactured homes. Its construction page also limits cash-out to site-built homes.
- Inherited land. Freddie Mac’s rule change helps here. Fannie Mae’s does not.
- Recent purchase. Delayed financing can open a cash-out within six months for a cash buyer.
Risks and Common Mistakes
Honestly, the biggest risk is paying twice. You keep the old home, now with a bigger loan, and add a build budget on top. The household may carry two housing costs for the whole construction period.
Other traps:
- Sizing the down payment from gross proceeds, not net.
- Assuming the bigger payment on the old home will not count against you. The construction lender counts it.
- Skipping the appraisal risk. A low value shrinks your cash.
- Refinancing too soon, before seasoning clears.
- Assuming a streamline can fund anything.
Qualifying for one loan and failing the other is the nastiest outcome. Check both sets of ratios before you commit to either.
Frequently Asked Questions
Can I use a cash-out refinance for a construction down payment?
Yes, on a conventional or government-backed cash-out, subject to lender guidelines. Proceeds have no use restriction under Freddie Mac’s definition. The construction lender will still want the funds documented.
Will the bigger payment hurt my construction approval?
Wholesale conventional programs generally cap the total ratio at 50% on an automated finding, with lower ceilings on manual underwriting.
Should I use a cash-out or a HELOC?
It depends on your existing loan. If your current mortgage is worth keeping, a second lien preserves it. If not, a cash-out can replace it and raise cash in one move.
What if my appraisal comes in low?
Your maximum loan shrinks with the value, so your cash does too. Build a cushion into the plan, and have a backup source of equity such as lot value.
Can I use land equity instead?
Sometimes. If you own the lot, a construction-to-permanent structure may count it toward your equity. Agency rules differ on single-closing and two-closing loans, so the structure matters.
Next Step
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. Program figures are 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.
For current guidelines and terms, see Lendmire’s refinance programs page.
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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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
4. Fannie Mae Selling Guide B5-3.1-02, Single-Closing Transactions
5. Fannie Mae FAQs: Construction-to-Permanent
6. Freddie Mac Guide Bulletin 2026-1
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Cash-Out Refinance vs Home Equity Loan Without a Property Release · How to Get a Cash-Out Refinance at the Minimum Equity · How to Stay Under the Cash-Out Refinance Line With a Lower Payment
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.