The Quick Read: It depends on how old your current first mortgage is and whether you want to keep its terms. A conventional cash-out refinance replaces your first mortgage, and the loan being paid off must be at least 12 months old. A home equity loan adds a second lien and leaves the first mortgage alone, so that 12-month test does not apply to it. The cash-out refinance fits a homeowner who is past the clock and wants one loan. The home equity loan fits someone who is inside the clock or who wants to keep the existing first mortgage.
Neither product is better in the abstract. The file decides.
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.
Side-by-Side
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| What happens to the first mortgage | Paid off and replaced | Stays in place |
| Number of liens after closing | One | Two |
| Seasoning test | First mortgage 12 months old; 6 months on title | Set by the lender, not the agencies |
| Leverage limit (one-unit primary home) | 80% LTV | Lender sets a combined limit |
| Credit floor (wholesale conventional) | 620 decision score | Set by the lender |
| Mortgage insurance | Above 80% LTV, with one exception (below) | Not an agency feature |
| Occupancy | Primary, second home or investment; occupancy sets leverage | Lender-specific |
| Documentation | Full new-loan file and appraisal | Lender-specific file |
Two notes on that table. The 80% figure is for a one-unit principal residence. Two- to four-unit homes, second homes and investment property cap at 75% on a cash-out. And a cash-out does not require you to live in the home. Occupancy sets the leverage, not eligibility.
What the 12-Month Rule Actually Measures
Two separate clocks run on a conventional cash-out refinance, and each one is measured differently.
The first is the age of the loan being paid off. Under the Fannie Mae Selling Guide’s cash-out refinance section, an existing first mortgage that is being paid off must be at least 12 months old, counted from its note date to the note date of the new loan. Freddie Mac applies a comparable 12-month rule. Check the Freddie Guide itself for its exact wording and exceptions.
The second is time on title. At least one borrower must have been on title for six months before the new loan. The Freddie Mac Seller/Servicer Guide states the same six-month title requirement and lists exceptions in a table.
You can pass one clock and fail the other. Picture a homeowner who bought two years ago, refinanced into a new first mortgage eight months ago, and wants cash today. Title time is fine. The loan being replaced is only eight months old. That file fails the loan-age test even though the home has been owned for years.
The two clocks start from different dates. Borrowers tend to count from the purchase date, while the lender counts the loan from the note date of the mortgage being paid off.
Exceptions exist. Agencies carve out delayed financing for a recent all-cash buyer, buying out a co-owner under a legal agreement, inheritance, and legal awards. Fannie Mae also counts time held by a revocable trust toward the title clock when the borrower is its primary beneficiary. Each exception has documentation rules. Don’t assume one applies until the lender confirms it.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance fits when these things line up:
- The first mortgage is at least 12 months old and you have six months on title.
- You have enough equity left after the new loan. On a one-unit primary home, the new loan tops out at 80% of the appraised value.
- You want one payment, not two.
- You are fine replacing your current first-mortgage terms.
- Your credit and ratios clear the program. The wholesale conventional programs start at a 620 decision score, with a total ratio ceiling of 50% on most automated findings, subject to lender guidelines.
It also fits when the first mortgage itself is a problem you want to fix. If you want to change the loan structure while pulling cash, a replacement loan is the only way to do both at once.
Reserves matter too. On Fannie Mae files run through its automated underwriting with a debt-to-income ratio above 45%, six months of reserves is required. Borrowers with a high ratio should plan for that.
On the agency path, mortgage insurance is required above 80% LTV, except in the wholesale no-mortgage-insurance lane described next. A conventional cash-out on a one-unit primary home tops out at 80%, so a standard agency cash-out stays at the point where that insurance begins. That wholesale lane reaches 89.99% LTV. It needs a 680 score, a 50% ratio ceiling, a 30-year fixed, a primary residence, a conforming balance, and its own six months of seasoning. It is not written in Texas. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
For the program details, see Lendmire’s cash-out refinance programs page. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
One Texas note: a cash-out on a homestead, a Section 50(a)(6) loan, is capped at 80% of the home’s value by the state constitution. State-specific rules can apply elsewhere too.
When a Home Equity Loan Is the Better Fit
A home equity loan fits in a different set of situations:
- Your first mortgage is too new. If it’s under 12 months old, a cash-out that pays it off is off the table. A second lien doesn’t replace the first, so the loan-age test isn’t triggered.
- You want to keep the first mortgage as it is. If your existing loan has terms you like, a second lien leaves them untouched.
- You need a fixed lump sum. The CFPB describes a home equity loan as money borrowed up front and repaid in regular monthly payments.
- You want a smaller, targeted draw. You borrow against equity without rebuilding the whole mortgage.
The trade-offs are real. You carry two payments. The second lien’s seasoning, combined-leverage limits and credit floor are set by the lender or investor, not by an agency rule I can point you to. Ask each lender for its own limits.
A second lien also affects any later refinance. Fannie Mae’s subordinate financing rules require the second lien to be recorded and clearly subordinate to the first. The lender must calculate loan-to-value, combined loan-to-value and home equity combined loan-to-value, and any subordinate lien secured by the property counts. If you later refinance the first mortgage, the second has to be dealt with, either paid off or resubordinated.
Paying off a second lien in a refinance can also change how the file is classified. Whether it counts as limited or full cash-out depends on the lien and on the current Fannie Mae limited cash-out section. Have the lender confirm the treatment before you plan around it.
Which Situation Are You In?
| Your situation | Likely route |
|---|---|
| First mortgage 12+ months old, 6+ months on title, want one loan | Cash-out refinance |
| First mortgage under 12 months old, need cash now | Home equity loan, or wait |
| Happy with first-mortgage terms, need a lump sum | Home equity loan |
| Want to change loan structure and take cash | Cash-out refinance |
| Need only small cash back with a refinance | Rate-and-term (limited cash-out) |
On that last row: a rate-and-term refinance on a one-unit primary home reaches 95% LTV, and the agencies allow only incidental cash back. Fannie Mae’s figure is the lesser of 2% of the new loan amount or $2,000. Freddie Mac’s is the greater of 1% of the new loan amount or $2,000. Limited cash-out is a different category from full cash-out, and it doesn’t carry the 12-month cash-out test in the same way. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Cost, Risk and the Three-Day Window
Both products convert equity into debt secured by your home. Using the money to consolidate other debt doesn’t erase the obligation. It moves it onto the house. That’s the main risk with either option.
A cash-out refinance replaces your first mortgage, so pulling cash this way means giving up that loan’s current terms. A home equity loan leaves those terms intact, at the price of a second payment. Loan Estimates from each route show the actual numbers for your file.
Both loans carry the same federal cancellation right. Per the CFPB’s explanation of the right of rescission, refinances and home equity loans are non-purchase-money mortgages, and you generally have three business days to cancel. Saturdays count. Sundays and legal public holidays don’t. The right can extend up to three years if required disclosures are missing or materially wrong. If you cancel a refinance, you still owe the original loan.
Key Terms Defined
Note date: The date on the signed promissory note. Agencies count loan age from one note date to the next.
Seasoning: The minimum time a loan or ownership must exist before the next transaction is allowed.
CLTV: Combined loan-to-value. All liens on the home added together, divided by its value.
Limited cash-out refinance: A refinance that pays off the first mortgage and closing costs with only a small amount of cash back.
Subordinate lien: A second loan that ranks behind the first mortgage if the home is sold or foreclosed.
Mistakes That Derail These Files
- Counting from the purchase date. The test is the note date of the loan being replaced.
- Treating six months as the whole rule. It’s the title clock. The loan-age clock is separate.
- Assuming a home equity loan won’t touch later eligibility. It counts in combined leverage.
- Assuming a refinance is always the cleaner path. If your first-mortgage terms are good, replacing them is a real cost.
- Skipping the documentation. The lender verifies loan age from the credit report or title commitment, and title time from the deed history. Have those ready.
The Balanced Verdict
Past both clocks with enough equity, and wanting one loan: the cash-out refinance is usually the cleaner structure. Inside the 12-month window, or attached to a first mortgage you’d rather keep: a home equity loan is the route that stays open. Waiting can also be the right answer. Once the first mortgage hits its first anniversary, the cash-out door opens, and you can compare both on actual Loan Estimates.
Lendmire’s own piece Can You Get Approved for a Cash-Out Refinance With Conventional 12-Month Seasoning? walks through the seasoning test in more detail.
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.
Frequently Asked Questions
Does the 12-month rule apply to a home equity loan?
No. The rule applies to the first mortgage being paid off in a cash-out refinance. A home equity loan leaves the first mortgage in place, so nothing is being replaced. Seasoning on a second lien is set by the lender, not by an agency rule.
What’s the difference between the title clock and the loan-age clock?
The title clock requires at least one borrower to have been on title for six months. The loan-age clock requires the mortgage being paid off to be at least 12 months old, note date to note date. A borrower can pass one and fail the other, as happens after a recent refinance.
Are there exceptions to the waiting periods?
Yes. Delayed financing for a recent all-cash buyer, buying out a co-owner under a legal agreement, inheritance, and legal awards are the common ones. Fannie Mae also counts trust ownership toward title time in certain cases. Each exception carries its own documentation, and the lender decides whether it fits.
How much equity do I need to keep?
On a conventional cash-out for a one-unit primary home, the new loan tops out at 80% LTV. For two- to four-unit homes, second homes and investment property, the cap is 75%. A home equity loan’s combined limit is set by the lender. All figures are subject to lender guidelines.
Can I cancel after closing?
Generally yes, for three business days, on either a cash-out refinance or a home equity loan. The window starts only after certain events occur. It can extend up to three years if required disclosures are missing or materially wrong.
For your own numbers, request a scenario review with Lendmire.
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.
For current guidelines, see conventional loan programs.
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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
2. Freddie Mac Seller/Servicer Guide §4301.5
3. CFPB: Loans similar to a HELOC
4. CFPB: Right of rescission for a second mortgage or 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: Can You Use a Conventional Cash-Out Refinance Right After a Rehab? · Best Cash-Out Refinance Program With the Six-Month Seasoning Rule on Conventional Loans · Best Cash-Out Refinance Program When Moving Into a Conventional Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.