The Quick Read: Cash-out is held to a stricter standard than rate-and-term, though not always through a different headline score. Across the wholesale conventional programs Lendmire places files with, both start at a 620 decision score. Cash-out then layers on lower leverage, seasoning rules and risk-based pricing, so a borrower with fair credit can often clear rate-and-term and still struggle on cash-out. Every figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
Key Takeaways
- No single credit score applies to every refinance. The floor depends on the program, the transaction type, the leverage and how the file is underwritten.
- Cash-out caps leverage at 80% on a one-unit primary residence. Rate-and-term reaches 95%.
- Government streamlines (FHA Streamline, VA IRRRL) largely sidestep credit scoring. Cash-out does not.
- Lender overlays often sit above the agency rules, so the score a lender asks for may be higher than the one the agency requires.
What Is the Difference Between the Two Refinances?
A refinance replaces your current loan to change the interest rate, the term, or both. Fannie Mae calls it a limited cash-out refinance. The new loan pays off the existing first mortgage, the closing costs and any purchase-money second lien. You get only incidental cash back. Fannie Mae sets that at the lesser of 2% of the new loan amount or $2,000. Freddie Mac uses the greater of 1% of the new loan amount or $2,000.
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: 7.24% as of October 29, 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.
A cash-out refinance pays off the existing loan and hands you the equity as cash. The cash can go to any purpose. The loan gets bigger, and so does the risk the lender is taking.
One classification trap catches people. If you own the home free and clear, a new mortgage on it is cash-out, according to both Fannie Mae’s Selling Guide and the Freddie Mac Guide. Taking cash above the incidental limit flips a rate-and-term file into cash-out too.
How Is Each Loan Underwritten, Step by Step?
Here is the sequence on a conventional file.
1. Classification. The loan purpose and cash-back amount decide which lane you are in.
2. Credit pull. The lender gets scores from all three bureaus and derives one representative score for the file.
3. Automated underwriting. Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Product Advisor reviews the full file. Across the wholesale conventional programs, the automated finding governs most files, with a total ratio ceiling of 50%.
4. Leverage test. The appraisal sets value, which sets loan-to-value. This is where the two refinances part ways most sharply.
5. Seasoning checks. Cash-out has timing rules that rate-and-term mostly does not.
6. Pricing. Cash-out carries a risk-based pricing add-on that grows with weaker credit and higher leverage. Freddie Mac names this as a cash-out credit fee tied to score and LTV.
Does Cash-Out Need a Higher Credit Score?
Often, yes in practice, even where the headline number looks the same. Fannie Mae removed the fixed 620 minimum for new Desktop Underwriter casefiles in late 2025, as Orrick’s summary reports. Per Fannie Mae’s credit score guidance, the automated system now weighs risk factors instead. Manual underwriting is unchanged.
In practice, lenders still set their own floors. The wholesale conventional programs we place files with start at a 620 decision score, and 640 on an adjustable rate under manual underwriting. Manually underwritten loans run on 36% or 45% ratios with the reserve and score factors of the Fannie Mae Eligibility Matrix. That matrix lists limited cash-out and cash-out in separate score-and-leverage grids. Higher leverage and manual underwriting carry higher score minimums.
Why does cash-out get stricter treatment? Lenders see a larger balance, less equity left in the home and weaker performance history. CFPB research found cash-out borrowers had lower credit scores on average than non-cash-out borrowers. It also found serious delinquencies were rare among higher-score borrowers either way. The stricter rules aim at the weaker-credit, high-leverage corner.
Side-by-Side: Where the Two Differ
| Factor | Rate-and-Term | Cash-Out |
|---|---|---|
| Starting decision score | 620 | 620 |
| Max LTV, one-unit primary | 95% | 80% |
| Cash back | Incidental only | Any use |
| Seasoning | Mostly none | 12 months on the loan; 6 on title |
| Pricing | Standard | Cash-out add-on |
| Mortgage insurance | Above 80% LTV | Typically not needed at 80% |
The leverage gap matters more than the score gap. A borrower with a 680 score and thin equity can qualify for rate-and-term and be locked out of cash-out simply because the equity is not there.
Where Do the Government Programs Fit?
The FHA Streamline and VA IRRRL are the sharpest contrast with cash-out.
On an existing FHA loan, HUD describes the streamline as limited credit documentation and underwriting. It comes in credit-qualifying and non-credit-qualifying versions. The loan must be current, and there must be a net tangible benefit. “Streamline” refers to paperwork, not to a lack of costs. Closing costs cannot be rolled into the new mortgage amount.
On an existing VA loan, the IRRRL carries a 0.5% funding fee unless exempt, no VA appraisal, a net tangible benefit, and seasoning of the later of 210 days and 6 payments. VA’s refinancing chapter says an IRRRL generally needs no appraisal or credit underwriting, while every VA cash-out gets full credit underwriting. VA sets no minimum score of its own. Any floor you meet is a lender overlay.
Above the conforming limit, the jumbo lanes take over, with a 660 decision score, leverage to 90%, loans to $5,000,000 and a 50% ratio ceiling on the fixed lanes.
Beyond the Score: Equity, Seasoning and Occupancy
Equity. A cash-out on a one-unit primary residence stops at 80% LTV. Two- to four-unit primary residences, second homes and investment property stop at 75%. Occupancy sets the leverage, and a cash-out can be written on any of those property types.
Seasoning. Per Fannie Mae’s seasoning announcement, the first mortgage being paid off must be at least 12 months old, note date to note date. At least one borrower must have been on title for 6 months. Exceptions exist for delayed financing, inheritance and legal awards.
Reserves. On automated cash-out files with a high debt ratio, the matrix calls for cash reserves. Having them can offset a thinner score.
Texas. A cash-out on a Texas homestead, a Section 50(a)(6) loan, is capped at 80% of the home’s value by the state constitution. The no-mortgage-insurance lane below is not written there.
The No-Mortgage-Insurance Cash-Out Lane
Mortgage insurance is required above 80% LTV on the agency path, with one exception: a wholesale cash-out lane that reaches 89.99% LTV with no mortgage insurance. It asks for a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence and a conforming balance. It carries its own six months of seasoning. Here the score requirement is higher than the 620 starting point, and that is the clearest case of cash-out raising the bar. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
On rate-and-term loans above 80% LTV, mortgage insurance applies. Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance. You can request cancellation at 80% of original value with good payment history and no subordinate liens. The servicer must end it automatically at 78%. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Two Borrower Profiles
Profile one: strong equity, fair score. A homeowner has about 40% equity and a score near the 620 starting point. Rate-and-term is within reach. Cash-out is possible at 80% LTV, though the pricing add-on will weigh more heavily at that score. Improving the score before applying could move this borrower into a better tier. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Profile two: strong score, thin equity. A homeowner with a 740 score has about 12% equity. Rate-and-term can run to 95% LTV, so it works. Cash-out cannot, because 80% LTV leaves nothing to pull. Score is not the obstacle here. Equity is.
Which Refinance Fits Your Situation?
| Your situation | Likely fit |
|---|---|
| Score near the floor, goal is a lower payment | Rate-and-term |
| Existing FHA or VA loan, goal is lower rate | Streamline or IRRRL |
| Strong score, 20%+ equity, need funds | Cash-out |
| Under 10% equity, need funds | Not cash-out; look at other tools |
| 680 score, 10%+ equity left after cash-out, primary residence | The no-MI cash-out lane |
Cash-out can also be the wrong call even when you qualify. The CFPB’s home equity guide notes it turns equity into debt you must repay and may stretch out your repayment. If you only need a lower payment, rate-and-term avoids that.
What if Your Score Is Fair or Weak?
A fair score does not close every door, but it narrows them. Options include rate-and-term in place of cash-out, a government streamline if you already hold an FHA or VA loan, and a manual underwriting path where reserves and ratios carry more weight.
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. They run shorter with documented extenuating circumstances.
A gap-closing plan helps. Pay revolving balances down before the credit pull. Avoid new accounts. Check all three reports for errors. Then ask what overlay the lender applies on top of the agency rule.
Which Score Does the Lender Use?
Lenders pull all three bureaus. Fannie Mae requires scores from all three repositories, and a representative score is derived for the file. With more than one borrower, the lender sets the score for the loan using the agency method, so a weaker co-borrower can drag the file down. Ask which score your lender uses before you apply.
Does Cash-Out Hurt Your Credit Score?
A new loan means a credit inquiry and a new account, and your balance rises. Those effects can bring a short-term dip. If you use the cash to pay off revolving debt, your utilization may fall, which can help.
Key Terms Defined
Rate-and-term refinance: A new loan that changes your rate or term without taking out meaningful cash.
Limited cash-out: The agency name for a rate-and-term refinance, which allows only incidental cash back.
LTV (loan-to-value): Your loan balance divided by the home’s appraised value.
Overlay: A lender rule that sits above the agency minimum.
Seasoning: The required time you have held the loan or the title before refinancing.
Net tangible benefit: A measurable gain for the borrower that a streamline refinance must show.
Frequently Asked Questions
What is the minimum credit score for a cash-out refinance?
It depends on the program and lender. The wholesale conventional programs start at a 620 decision score, and the no-mortgage-insurance cash-out lane asks for 680. Lenders may set higher floors. Everything is subject to lender guidelines and full file review.
Is a cash-out refinance harder to get than a rate-and-term?
Usually, yes. Cash-out has lower leverage limits, seasoning rules and a pricing add-on. A borrower with the same score may qualify for one and not the other, mostly because of equity.
Do FHA Streamline and VA IRRRL loans check credit?
Little or none in most cases. The FHA Streamline has a non-credit-qualifying version, and the VA IRRRL generally needs no credit underwriting. A lender overlay or a late payment on the existing loan can change that.
Can I take a little cash out and still call it rate-and-term?
Yes, up to the incidental limit. Fannie Mae allows the lesser of 2% of the new loan amount or $2,000. Freddie Mac allows the greater of 1% of the new loan amount or $2,000. Above the limit, the file becomes cash-out.
Does a higher score lower my cost?
Pricing is risk-based, so a stronger score generally helps, especially on cash-out where the add-on scales with score and leverage. Your loan estimate shows the actual terms.
Next Steps
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. Lendmire is a mortgage broker, not a lender, and you can start with its cash-out refinance programs page.
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.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
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
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. Freddie Mac Guide Section 4301.5
4. Freddie Mac Cash-out Refinance product page
6. Fannie Mae Selling Guide B3-5.1-01, General Requirements for Credit Scores
7. Fannie Mae Eligibility Matrix
9. HUD FHA Streamline Refinance
10. Fannie Mae’s seasoning announcement
11. CFPB “Using home equity to meet financial needs”
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Best Cash-Out Refinance Program on One Income · Cash-Out Refinance Options to Shorten the Mortgage Term · Best Cash-Out Refinance Program With a New 30-Year Fixed Mortgage Term
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
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.