The Quick Read: A cash-out refinance gets the fullest review of the three. The lender replaces your whole first mortgage, so it checks your credit, income, debts, appraised value and how long you have owned the home. A HELOC (home equity line of credit) adds a second lien and leaves your first mortgage alone. Selling investments requires no loan underwriting of its own, but it carries its own costs, such as taxes and lost market exposure, and it can thin the reserves other loans may require.
Key Takeaways
- A cash-out refinance is a new first mortgage that pays off the old one and hands you the difference in cash.
- Conventional cash-out on a one-unit principal residence typically tops out at 80% LTV (loan-to-value, the loan as a share of the home’s appraised value), subject to lender guidelines.
- Two clocks apply: the loan being paid off must be at least 12 months old, and a borrower must have been on title for 6 months.
- A HELOC keeps your current first mortgage. A cash-out replaces it.
- Selling investments avoids new debt and a new lien, but may trigger a taxable event.
What Is a Cash-Out Refinance, Exactly?
A cash-out refinance replaces your current mortgage with a larger one and pays you the difference. The Fannie Mae Selling Guide defines it as a transaction that pays off the existing first mortgage. Pricing is also adjusted for cash-out loans, based on LTV and credit score.
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.
One quirk: a new loan on a home with no mortgage still counts as cash-out. No lien to pay off does not mean no cash-out. It just means the whole loan is new money.
A cash-out loan differs from a refinance of the limited cash-out kind. That loan pays off the old mortgage and closing costs, with only a small allowance of cash back. Go past that allowance and the file is reclassified as cash-out. Leverage, pricing and seasoning all change.
How Is a Cash-Out Refinance Underwritten, Step by Step?
Underwriting a cash-out runs in a set order, and each step can stop the file. Here is how it plays out on a typical conventional file.
1. Classification. The underwriter asks whether the loan pays off a first lien and puts cash in your hands beyond the limited allowance. If yes, it is a cash-out.
2. Seasoning checks. The mortgage being paid off must be at least 12 months old, measured note date to note date, per Fannie Mae’s cash-out eligibility update. Separately, at least one borrower must have been on title for 6 months, per Fannie Mae’s seasoning bulletin. Both clocks are documented through the credit report or title commitment.
3. Appraisal. The appraised value is the bottom of the LTV fraction. It caps the new loan. A lower value means less cash, sometimes none.
4. Credit, income, debts and reserves. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total debt-to-income ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45%, with reserve and score factors. Reserves are savings left after closing. They matter more on higher-debt files.
5. Pricing and disclosure. Cash-out pricing adjustments apply. You receive a Loan Estimate early and a Closing Disclosure before closing.
6. Closing. The old lien is paid off, a new one is recorded, and you receive the difference.
What decides the outcome? Appraised value against total liens, occupancy, how long you have held the loan and the title, credit score, debt load, and the program (conventional, FHA, VA or jumbo).
What Leverage Can a Cash-Out Reach?
The answer depends on the property. Conventional cash-out tops out at 80% LTV on a one-unit principal residence. It drops to 75% on two- to four-unit principal residences, second homes and rental properties. Occupancy sets the leverage. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution, which matches the one-unit limit above. The wholesale lane described next is not written there.
Then there is the exception. One wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence and a conforming loan balance. It has its own six months of seasoning. Not every file fits, but it is worth asking about. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
On the mortgage insurance rule: coverage is generally required above 80% LTV on the agency path, and that wholesale no-MI cash-out lane is the one exception. Where coverage applies, you can cancel on request at 80% of the original value with good payment history, and the servicer must end it automatically at 78%.
Lendmire’s cash-out refinance programs page lays out how these leverage tiers map to occupancy. As a broker, Lendmire shops multiple wholesale lenders and matches the scenario to the program. Which lender fits depends on your property, credit profile, leverage need and documentation.
What Changes With a HELOC?
A HELOC is underwritten as a second lien, tested on combined LTV. Combined LTV (CLTV) adds your first mortgage balance and the new line together, then divides by the home’s value. Your first mortgage stays exactly as it is.
The review still looks at credit, income, debts and a valuation. The differences show up elsewhere:
- Rate shape. The CFPB’s HELOC brochure notes HELOCs are generally variable rate, so payments can change.
- Draw period. You borrow during an open window, then repay. The budget has to survive the repayment phase.
- Risk. Falling behind can put your home at risk. That is true of a cash-out too, but a HELOC adds a second payment on top of the first.
- Cost. The same CFPB source says either option may cost more or less than the other, depending on terms. “A HELOC is always cheaper” is a myth.
If you want to refinance the first mortgage and keep a HELOC, the HELOC lender may have to agree to stay in second position. Ask early.
What Happens When You Sell Investments Instead?
Nothing gets underwritten. There is no lien, no appraisal and no new payment. That is the appeal.
The cost shows up differently. Selling may trigger a taxable event, and you give up the growth or income those assets would have produced. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Two practical points. First, lenders count savings and investments as reserves. Liquidating them can thin your cushion, which matters on files where reserves are required. Second, borrowing keeps the portfolio intact but adds a debt payment to your ratios.
How Do the Three Routes Compare?
| Factor | Cash-out refinance | HELOC | Selling investments |
|---|---|---|---|
| What it touches | Replaces first mortgage | Adds second lien | No lien |
| Valuation | Appraisal | Valuation, CLTV | None |
| Leverage test | LTV on new loan | Combined LTV | None |
| Seasoning | 12-month loan, 6-month title | Varies by lender | None |
| Payment shape | One payment | Second payment, often variable | None |
| Main downside | New terms on whole balance | Variable rate, repayment shock | Taxes, lost exposure |
Where Does the General Rule Break?
Several edge cases change the answer.
- Delayed financing. A buyer who paid cash may do a cash-out refinance within six months of purchase if the source of funds is documented.
- Title exceptions. Fannie Mae allows documented exceptions to the six-month title clock, such as property held in a revocable trust. Seasoning exceptions also exist for inheritance and legal awards. An LLC does not satisfy the ownership requirement.
- Listed for sale. A home listed for sale at disbursement is generally not eligible for delivery to Fannie Mae. Confirm against the current Guide.
- PACE loans. Older Fannie Mae text makes a cash-out ineligible when a borrower has enough equity to pay off a PACE assessment but chooses not to. Confirm this against current rules.
- Student-loan cash-out. Fannie Mae waives the cash-out pricing adjustment when its student-loan requirements are met.
- Manufactured housing. Leverage steps down for cash-out on manufactured homes, and single-width homes are limited to purchase and limited cash-out.
- VA loans. VA works differently. The IRRRL (Interest Rate Reduction Refinance Loan) is VA-to-VA only and cannot pay out cash. A VA cash-out is either Type I or Type II, depending on whether the new loan exceeds the payoff. Both must pass a net tangible benefit test, and Type I carries a minimum rate-reduction requirement. See VA Circular 26-19-05. Only a VA cash-out can move a conventional or FHA borrower into a VA loan. Programs and seasoning vary; see Lendmire’s piece on VA cash-out credit score requirements.
How Should You Choose?
Think in scenarios, not slogans.
You hold a low-rate first mortgage and need a modest sum. A HELOC leaves that first mortgage untouched. A cash-out would reprice the whole balance. This is a common reason people lean toward a HELOC.
You need a large one-time amount and want one predictable payment. A cash-out gives one payment on one lien. Costs scale with the whole new loan, which is a real tradeoff, so weigh it against the size of the cash you need.
You hold investments and a long horizon. Selling avoids debt but can create taxes and give up growth. Borrowing keeps the portfolio working but adds a payment and a lien on your home.
Your equity is thin. Leverage caps decide it. At 80% LTV, you must keep at least 20% equity after the new loan. A HELOC’s combined test may leave less room than you expect. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
The risk sequence matters if values fall. A HELOC lender can freeze or reduce a line. A refinance locks you into the new loan terms. A forced sale is the last resort. The cushion you keep is your protection in all three.
A caution on marketing terms: “no closing costs” or “no-cost” refinance offers do not erase the costs. They are built into the rate or the balance.
Key Terms Defined
- LTV (loan-to-value): the new loan as a percentage of the home’s appraised value.
- CLTV (combined loan-to-value): all liens on the home added together, divided by its value.
- Seasoning: the waiting period a loan or ownership must meet before a refinance qualifies.
- Limited cash-out: a refinance that pays off the old loan and costs, with only a small cash-back allowance.
- Draw period: the window when a HELOC lets you borrow.
- Net tangible benefit: VA’s test that a refinance must help the borrower in a measurable way.
What Should You Gather Before Applying?
- Recent pay documentation and your debt list.
- Your current mortgage statement and note date.
- Your closing or purchase date, so seasoning can be confirmed.
- Statements for savings and investments, in case reserves apply.
- Any HELOC or second-lien details.
Frequently Asked Questions
Is a HELOC underwritten like a cash-out refinance?
Not exactly, but both get a real review. A HELOC is tested on combined LTV and sits behind your first mortgage. A cash-out tests the replacement first mortgage. Credit, income and debts matter for both.
How long must I own my home before a cash-out refinance?
The mortgage being paid off must be at least 12 months old, and one borrower must have been on title for 6 months. Exceptions exist, including delayed financing for cash buyers, inheritance and legal awards. Programs differ, so confirm against current guidelines.
Can I keep my first mortgage and still pull cash?
Yes. A HELOC or home equity loan adds a second lien while the first mortgage stays in place. A cash-out replaces the first mortgage entirely, so the new terms apply to the whole balance.
Does selling investments hurt my chances of qualifying?
It can, if it drains reserves your file needs. Reserves matter more on files with higher debt ratios. Selling may also create a taxable event, so speak with a qualified tax professional.
Can a HELOC and a cash-out refinance be combined?
Sometimes. If you refinance the first mortgage while keeping a HELOC, the HELOC lender may need to agree to subordinate. Raise it with your broker before you apply.
Where to Go From Here
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. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend. The route that fits is the one your equity, your first mortgage and your timeline can carry.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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 Selling Guide B2-1.3-03 Cash-Out Refinance Transactions
2. Fannie Mae cash-out refinance eligibility update
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 Lenders Underwrite a Cash-Out Refinance With an Added Co-Borrower or Guarantor · How Lenders Underwrite a Cash-Out Refinance to Consolidate Debts and Lower Payments · How Lenders Underwrite a Cash-Out Refinance With Typical Closing Costs on a Family 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
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.