The Quick Read: Yes, you can use cash-out refinance proceeds as a down payment on a second property, as long as the loan is a true cash-out loan and not a limited cash-out. No special “down-payment refinance” product exists. It is an ordinary cash-out refinance on the home you own, and the cash is yours to use. Which lender fits depends on your equity, credit, and the property you want to buy next. Everything below is subject to lender guidelines and full file review.
Key Takeaways
- A cash-out refinance replaces your current first mortgage with a larger one and hands you the difference.
- A rate-and-term (limited cash-out) refinance cannot fund a down payment. Only incidental cash comes back.
- The second property is a separate loan with its own approval.
- The new, larger payment counts against you when the next lender reviews your debt.
- FHA Streamline and VA IRRRL loans do not give you cash.
Why “Which Banks?” Is the Wrong First Question
The product is not tied to a brand. Fannie Mae and Freddie Mac set the underwriting rules for most conventional cash-outs. They buy loans from lenders, and they do not lend to the public. Each lender then adds its own overlays, which are extra rules on top of the agency rules.
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.
So the useful question is not which bank has a secret product. It is which lenders write the loan that matches your situation. That depends on your property type, credit profile, how much leverage you need, and how you document income. Large banks, credit unions, and non-bank lenders all offer cash-outs, and their overlays differ.
Lendmire is a mortgage broker, not a lender. It shops your scenario across wholesale lenders and matches it to a program. Lendmire’s cash-out refinance programs page lays out the options. A broker can compare several lenders’ overlays at once. A single bank can only show you its own.
What Is a Cash-Out Refinance, Exactly?
A cash-out refinance pays off your existing first mortgage with a new, bigger one. The difference, after closing costs, comes to you as cash. Freddie Mac’s Guide describes it as a mortgage with no specific restrictions on how you use the proceeds, per a mirror of the Guide text. A down payment is a permitted use.
The line that matters is between cash-out and limited cash-out. A limited cash-out loan pays off the existing mortgage and costs, with only a small amount of cash back. Fannie Mae’s Selling Guide treats it as a rate-and-term style loan. Across the wholesale programs Lendmire places files with, the incidental cash cap is the lesser of 2% of the new loan or $2,000 at Fannie Mae, and the greater of 1% of the new loan or $2,000 at Freddie Mac. Neither is a down payment.
A home with no mortgage on it is a related case. A new loan on a debt-free property still counts as a cash-out refinance, because no first lien is being paid off.
How the Loan Is Underwritten, Step by Step
1. The equity test. The new first mortgage has to stay under the cash-out leverage ceiling. On a conventional one-unit principal residence, that ceiling is 80% LTV. LTV, or loan-to-value, is the new loan divided by the home’s appraised value. A cash-out can also be written on a two- to four-unit principal residence, a second home, or an investment property, and occupancy sets the leverage: on each of those, the ceiling is 75%. The Fannie Mae Eligibility Matrix carries the agency version, and it changes periodically, so check the current one. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Your cash is roughly the home’s value times the allowed LTV, minus your payoff, minus costs. The ceiling applies to the new loan as a share of value. It is not a share of your equity, and the two are easy to confuse.
2. The eligibility screens. The lender checks several things:
- Seasoning of the loan being paid off. It must generally be at least 12 months old, counted from note date to note date, per Fannie Mae’s seasoning update.
- Time on title. At least one borrower has typically owned the home for 6 months, with exceptions for delayed financing, inheritance, and legal awards.
- Credit. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files.
- Debt-to-income (DTI). The total ratio ceiling is 50% on the automated path. DTI is your monthly debts divided by your monthly gross income.
- Reserves. Per Fannie Mae’s eligibility matrix, reserves apply to automated cash-out files with DTI above 45%. Reserves are savings left over after closing.
3. The appraisal. Cash-out needs a value opinion to set the LTV. Streamline products skip it. Cash-out does not.
4. The new payment. The larger first-mortgage payment goes straight into your DTI. A payoff of an old, smaller loan does not lower your payment obligation. Even if your rate falls, a bigger balance can mean a bigger payment.
5. Closing. The old lender is paid and closing costs come out of the proceeds or get financed. You receive what is left. Costs you finance shrink the cash you receive and raise your balance. Your Loan Estimate and Closing Disclosure show these as “Closing Costs Financed” and “Cash to Close.”
Using the Cash as the Next Down Payment
Will the second-property lender accept this money? Generally yes. Fannie Mae treats borrowed funds secured by an asset as an acceptable source for down payment, closing costs, and reserves. The reasoning is that the money is a return of your own equity.
Three practical points follow:
- The payment counts. The purchase lender counts the monthly payment on a secured loan as a debt. If no payment is required, the lender calculates an equivalent.
- Reserves can shrink. If you borrow against an asset and also use that asset for reserves, the lender reduces its value by the amount borrowed.
- Paper trail matters. In practice, lenders trace the deposit and want it documented as a bona fide source. Undisclosed borrowing is a different story. Fannie Mae’s Selling Guide gives undisclosed borrowing from a friend as grounds for a repurchase demand.
As for timing, no rule dictates the order, but a common approach is to close the refinance first, let the funds sit in your account, then apply for the second-property loan. Doing both at once invites questions you do not want to answer mid-file.
What the Second Property Changes
The new purchase has its own rules, and occupancy sets the leverage. On a purchase through Fannie Mae or Freddie Mac, a second home allows lower leverage than a principal residence, and an investment property allows less still. A lower LTV means a bigger down payment, which means you need more cash from the refinance. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
A second home is also expected to be your own residence for part of the year. Treat it as a personal-use property, not a rental you can count on for income. Confirm the details with your lender.
Structures and Variations
Not every refinance gives you cash. This is where borrowers get burned.
| Loan type | Can it fund a down payment? |
|---|---|
| Conventional cash-out | Yes, within the LTV ceiling |
| Conventional limited cash-out | No, only incidental cash |
| FHA Streamline | No, no meaningful cash out |
| VA IRRRL | No, VA-to-VA with no cash out |
| VA cash-out | Yes, for eligible veterans |
| FHA cash-out | Yes, on an owner-occupied home, with its own rules |
VA’s pamphlet explains that a VA cash-out can pay off liens of any type and provide cash. FHA cash-out comes with its own seasoning, occupancy, and leverage limits. Check the current HUD terms with your lender before counting on it.
Jumbo loans take over above the conforming limit. They use their own overlays.
The standard conventional cash-out ceiling on a one-unit principal residence is lower than the leverage some programs allow, and mortgage insurance rules apply to higher-leverage loans except in one wholesale lane. That lane allows leverage up to 89.99% with no mortgage insurance on a primary-residence cash-out. It requires a 680 score and a 50% ratio on a 30-year fixed, conforming balance, with its own six months of seasoning. It is the one exception to the usual mortgage-insurance rule, and it is not written in Texas. More leverage means more cash, but it also means a bigger payment. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution. That is a state rule, not an agency one.
Where the General Rule Breaks
- Free-and-clear homes. Still cash-out, still allowed.
- HELOC in first position. A HELOC, a home equity line of credit, in first-lien position can be refinanced without the 12-month seasoning.
- Co-owner buyout. Buying out a co-owner under a written agreement is a limited cash-out at both agencies. It is not a down-payment tool.
- Manufactured homes. Single-wide cash-out is not allowed, and multi-wide cash-out carries a lower ceiling.
- Title exceptions. Inherited homes, divorce awards, and certain trusts can get around the six-month title rule.
- Cash-out on the second property itself. That is a different transaction under different rules.
What a Broker Does Differently
Ask any lender the same set of questions:
1. What is your overlay on credit score for a cash-out?
2. What reserves do you require after both loans?
3. Does the 12-month seasoning clock use the note date?
4. How do you treat a purchase that follows a refinance?
5. Do you write the second-property loan too?
One lender doing both loans sounds convenient. It can help with documentation. It also locks you into one lender’s overlays on both files. A broker lets you compare. Lendmire matches the scenario to the wholesale lender whose guidelines fit best, which is why the best program for your situation changes from file to file.
The Risks and When Not To
The CFPB’s research on cash-out refinances makes three points worth hearing. Closing costs are a frequent use of proceeds. Converting other debt into mortgage debt secured by your home can put the home at risk if payments become unsustainable. And a cash-out draws down wealth you could use later.
Run this test. After the refinance and the second purchase, you carry two properties on your income. If your job disappears, both depend on you. Your primary residence now carries more debt. If the second purchase falls through, you are left holding a larger loan with nothing to show for the cash except the cash.
Skip it if your current first mortgage is far cheaper than a new one would be and you only need a small amount. Alternatives include a home equity loan, a HELOC, savings, or a sale. A second-lien product leaves your first mortgage untouched.
Key Terms Defined
- Cash-out refinance: a new first mortgage larger than your payoff, with the difference paid to you.
- Limited cash-out refinance: a refinance that pays off the loan and costs with only incidental cash back.
- Seasoning: the waiting period a lender requires, such as how long the existing loan has been in place.
- LTV (loan-to-value): the loan amount as a percentage of the home’s value.
- DTI (debt-to-income): your monthly debt payments as a share of your monthly gross income.
- Reserves: savings you still hold after closing.
- Overlay: a lender rule stricter than the agency’s.
A Planning Picture
Say you own and live in a one-unit home with a healthy amount of equity and want to buy a vacation place. You confirm your current mortgage is at least 12 months old and you have been on title more than six months. Your broker checks that a cash-out refinance, kept at or below the 80% conventional ceiling for a one-unit principal residence, leaves enough cash after payoff and costs. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
You close, move the money into your account, and leave it there. Then you apply for the second-home loan. The purchase lender counts your new payment, adds the second payment, and checks your DTI and reserves. If the numbers hold, the purchase proceeds. If they do not, you have learned it before signing a contract. Run the full picture before you pull the cash.
Frequently Asked Questions
Can I use cash-out refinance money as a down payment on a second home?
Yes. The proceeds of a true cash-out refinance can be used for any purpose, including a down payment. The purchase lender will count your new payment and expect the funds to be documented. Both loans must qualify separately, subject to lender guidelines.
Can a limited cash-out refinance fund a down payment?
No. A limited cash-out loan pays off your current mortgage and costs, with only a small amount of cash back. If the plan is to buy another property, you need a true cash-out refinance.
How long must I own my home before a cash-out refinance?
Typically a borrower has been on title for at least 6 months, and the mortgage being paid off is at least 12 months old, measured note date to note date. Exceptions exist for inheritance, legal awards, and delayed financing. Confirm the current terms with your lender.
Can I get cash out with an FHA Streamline or a VA IRRRL?
No. Both are streamlines for existing government loans and do not provide meaningful cash. A VA cash-out refinance or an FHA cash-out refinance can, but each has its own eligibility rules and an appraisal.
Will the cash count toward my reserves on the second loan?
Not once you spend it on the down payment. If you borrow against an asset and also count that asset for reserves, the lender reduces its value by the amount borrowed. Plan to have savings left after both closings.
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. Reach the team at 828-256-2183.
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 brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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. homebuyer.com: Cash Out Refinance Mortgages
3. Fannie Mae Eligibility Matrix (PDF)
4. Fannie Mae Capital Markets: Cash-Out Seasoning Update
5. Fannie Mae eligibility matrix (singlefamily)
6. Fannie Mae Selling Guide: Borrowed Funds Secured by an Asset
9. CFPB: Cash-Out Refinances and Paydown Behavior
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 to Pay Out an Ex Without Selling Using a Cash-Out Refinance · Banks That Offer a Cash-Out Refinance to Pay for Home Repairs · Cash-Out Refinance vs Selling a Second Home for an Owner Needing Cash
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.