The Quick Read: It depends on how much of your current loan you want to keep and how much cash you need in one piece. A cash-out refinance replaces your first mortgage with a bigger one and pays you the difference. A HELOC leaves the first mortgage alone and adds a second lien you can draw on. Either can fund a down payment, and the next lender will count the new payments and ask for paper on where the money came from.
The Honest Answer First
A cash-out refinance fits the homeowner who wants one fixed lump sum, one mortgage payment on the current home, and a clean paper trail. A HELOC fits the homeowner who wants to keep a first mortgage in place, needs a smaller amount, or wants to draw only what the closing requires.
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.
Neither is free money. Both put your current home up as collateral. Both add debt that the lender on the next home must count. And neither works well if you plan to hide the borrowing from that lender, so don’t try.
Fannie Mae’s Selling Guide accepts borrowed funds secured by an asset, real estate included, as a source for the down payment, closing costs and reserves. The lender must count the payment on that borrowing as debt. If the loan requires no payment, the lender calculates an equivalent amount and counts it anyway. So an “undrawn” line is not invisible.
Side-by-Side
| Factor | Cash-Out Refinance | HELOC |
|---|---|---|
| What it is | New first mortgage replacing the old one | Second lien behind the first mortgage |
| How funds arrive | One lump sum at closing | Draws during a draw period |
| Your current first loan | Paid off and replaced | Stays in place |
| Leverage cap (conventional) | 80% on a one-unit primary residence; 75% on 2-4 units, second homes, investment property | Set by the HELOC lender; depends on appraised value less the first mortgage |
| Credit floor (wholesale conventional) | 620 decision score; 680 on the no-MI lane | Set by the HELOC lender |
| Mortgage insurance | Applies above 80% leverage; the no-MI lane carries none | None on the line itself |
| Occupancy | Primary, second home or investment property; occupancy sets the leverage | Typically the home you live in |
| Seasoning | First mortgage 12 months old; borrower on title 6 months | Varies by HELOC lender |
| Documentation | Full income, asset, appraisal, title | Application, appraisal or valuation, terms of the line |
| Right to cancel | Three business days on a primary residence | Three days on a primary dwelling |
| Counted by next lender | New first-mortgage payment | Payment on the line, or an equivalent amount |
All program figures are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
How a Cash-Out Refinance Works for This Purpose
The new loan pays off your existing first mortgage. Whatever is left after the payoff and closing costs comes to you. You can use it for anything, including a down payment. Freddie Mac’s Guide defines it as a mortgage with no restriction on the use of proceeds, and it treats a new loan on a free-and-clear home as a cash-out too.
Across the conventional programs Lendmire’s brokerage works with, the leverage ceiling is 80% on a one-unit primary residence. Two- to four-unit homes, second homes and investment property top out at 75%. Lendmire’s cash-out refinance programs page lays out the occupancy options. One wholesale lane reaches 89.99% on a thirty-year fixed, primary residence, conforming balance, with no mortgage insurance. It needs a 680 score, a 50% ratio and its own six months of seasoning. Texas homestead cash-outs are capped at 80% of the home’s value by the state constitution, and that lane isn’t written there.
Seasoning is where files trip. The loan you’re paying off must be at least 12 months old, counted note date to note date. The borrower must have been on title six months. Delayed financing, inheritance and legal-award exceptions exist. Freddie Mac’s Guide sets its own six-month title rule, with exceptions.
Then there’s the cancel window. A refinance on your primary residence carries a three-business-day right of rescission. Saturdays count. Sundays and legal holidays don’t. Funds generally aren’t released until that window closes, so a purchase contract with a hard deadline has to account for it. Rescinding leaves your original loan in place.
How a HELOC Works for This Purpose
A HELOC is an open-end line of credit. The CFPB explains that you borrow against your equity during a draw period, then move into a repayment period. If you fall behind, you could lose your home.
If you already have a mortgage, the line is a second mortgage paid on top of the first. HELOCs usually carry adjustable rates, so the payment moves with the balance and the rate. That’s the trade. You keep your first loan untouched, and you accept a payment that can change.
Lenders usually want you to keep a cushion of equity. The credit limit generally comes from a percentage of appraised value minus what you owe on the first mortgage. The exact percentage is the HELOC lender’s call.
Two details matter for a down payment. First, the new purchase lender will want the line’s terms, proof the HELOC lender isn’t a party to the sale, and proof the funds moved to you. Second, when a lender runs combined loan-to-value on the current home, Fannie Mae uses the full credit line, not just the drawn balance. That matters if you later refinance the current home.
When the Cash-Out Refinance Is the Better Fit
The cash-out route wins in a few specific situations:
- You need a large, defined amount. One lump sum at closing matches a down payment that’s known in advance.
- You want one payment on the current home. The old first mortgage goes away. You don’t carry a second lien with a moving payment.
- Your budget needs predictability. A fixed first mortgage doesn’t change after the purchase closes.
- Your equity is deep and your score is solid. At 80% leverage on a one-unit primary residence, the refinance reaches a lot of equity. The wholesale no-MI lane goes further for a qualifying 680-score borrower.
- You have time before the purchase deadline. The rescission window and full underwriting need room, and the outcome follows a full review of property, leverage, and credit under the lender’s guidelines.
The cost is real, though. You replace the entire first loan, so you reset its terms, pay refinance closing costs, and on conventional loans Fannie Mae and Freddie Mac add loan-level price adjustments to cash-out transactions. A standard conventional cash-out on a one-unit primary residence is capped at 80% leverage, so most of those files sit at or below the point where mortgage insurance starts. Mortgage insurance is required above 80% except on the wholesale no-MI cash-out lane, which reaches 89.99% without it for a borrower who fits. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
If your current first mortgage terms are strong, replacing the whole balance just to pull out a slice is a hard sell. Run that comparison honestly before choosing the refinance.
When the HELOC Is the Better Fit
The HELOC wins when the refinance would cost you more than it gives:
- Your current first mortgage is worth keeping. A HELOC leaves it alone.
- You need a smaller amount. You borrow only what the down payment needs and leave the rest of the line untouched.
- Your timeline is flexible on amount but tight on mechanics. Drawing from an open line is simpler than a full refinance, though the purchase lender still wants documentation.
- You plan to pay it down soon. A line you expect to repay from savings or a sale doesn’t need a new first mortgage.
The risks run the other way. The payment can rise. There may be application, appraisal, title and annual fees. A lender can freeze or reduce a line before your purchase closes, which is a nasty surprise late in the process. And if you sell the home, the line generally must be paid in full. Renting your home out may be prohibited under the line’s terms, so a plan to keep the current house as a rental needs a read of the agreement first.
How the Next Lender Sees Either One
The purchase lender doesn’t care which door you used. It cares about three things: the new debt, the documented source of funds, and the number of financed properties.
On debt, the cash-out adds a new first-mortgage payment. The HELOC adds a second payment. In both cases the household carries the old home plus the new one. Wholesale conventional programs generally work from the automated finding, with a total ratio ceiling of 50%. Fannie Mae’s Eligibility Matrix also flags minimum reserves on cash-out refinances where DU shows a ratio above 45%.
On source of funds, the paper trail is the whole game. A HELOC opened in the weeks before closing and left off the application is a serious problem. An undisclosed borrowed down payment can be treated as potential fraud. Disclose it. Document it.
On property count, Fannie Mae’s multiple-financed-properties policy caps financed properties at 10 under DU when the new home is a second home or investment property. The count is by property, not by mortgage, and your financed principal residence counts. Second homes and investment property also carry added reserve requirements. If the new home is a second home, the leverage on that purchase tops out at 90% under the standard programs. If it’s a primary residence, it can run to 95%, or 97% for a first-time buyer on a one-unit fixed-rate loan. Occupancy of the new home sets the leverage there.
Where Files Go Sideways
- Sequencing. Closing the refinance after the purchase contract is signed, with a fixed deadline, leaves no room for the cancel window.
- A frozen line. A HELOC lender cutting the limit before closing strands the down payment.
- Seasoning misses. A first mortgage under 12 months old, or a borrower not yet six months on title, kills a cash-out before it starts unless an exception applies.
- Forgotten debts. The borrower counts the cash-out payment but forgets the old home’s taxes and insurance still run alongside the new home’s.
- Missing transfer proof. The funds landed in an account, but nothing links them to the line or the refinance.
A practical tip: put the borrowing, its terms and the deposit trail in one packet before the purchase lender asks. A second lien the lender discovers on its own invites questions, so disclose it up front.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off the old one and gives you the leftover equity as cash.
HELOC: A revolving line of credit secured by your home, usually a second lien behind the first mortgage.
HCLTV: Home equity combined loan-to-value, which counts the first mortgage plus the full HELOC credit line against the home’s value.
Right of rescission: A short window after closing when you can cancel certain loans secured by your primary home.
Seasoning: The minimum time you must hold a loan or title before a cash-out refinance is allowed.
Financed properties: The count of homes with mortgages or HELOCs in your name, which affects second-home and investment-property purchases.
A Balanced Verdict
Pick the cash-out refinance when you need a large fixed sum, want one payment on the current home, and your existing first mortgage isn’t a prize worth protecting. Pick the HELOC when you want to keep that first mortgage, need a modest amount, and can live with a payment that moves.
It’s close to a toss-up for many households, and the deciding factors are equity, timing and how much payment variability the budget absorbs. Count three housing payments before choosing either one.
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
Can a HELOC really be used as a down payment?
Yes. Fannie Mae accepts borrowed funds secured by an asset, including real estate, for a down payment, closing costs and reserves. The lender must count the payment as debt, and you must document the terms and the transfer of funds.
Does an unused HELOC count against me?
Yes, it can. When a secured loan requires no payment, the lender calculates an equivalent amount and counts it as recurring debt. For combined loan-to-value on the home, the full credit line is used, not just the drawn balance.
Does a cash-out refinance on my current home have to be a primary residence?
No. Conventional cash-out is written on primary residences, second homes and investment property, and occupancy sets the leverage. It’s 80% on a one-unit primary residence and 75% on the others, subject to lender guidelines.
Can I get the cash-out proceeds on closing day?
Generally not on a primary residence. The three-business-day right of rescission applies, and funds typically aren’t released until it ends. The clock starts only after the note is signed and you’ve received the Truth-in-Lending disclosure and two copies of the rescission notice.
What if my current first mortgage is less than a year old?
Standard cash-out seasoning requires the loan being paid off to be at least 12 months old, note date to note date, with a borrower on title for six months. Delayed financing, inheritance and legal-award exceptions exist for specific situations.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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 B3-4.3-15, Borrowed Funds Secured by an Asset
3. CFPB Ask: Right of rescission
4. CFPB: What Is a Home Equity Line of Credit HELOC
5. Fannie Mae Selling Guide B2-1.2-03, HCLTV Ratios
6. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
7. Fannie Mae Eligibility Matrix
8. Fannie Mae Selling Guide B2-2-03, Multiple Financed Properties
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Conventional Cash-Out Refinance vs HELOC for Buying Out Siblings · Conventional Cash-Out Refinance vs HELOC When Cash Timing Matters · Conventional Cash-Out Refinance vs HELOC After a Home Value Jump
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.