The Quick Read: It depends on the role your relative plays. Family can give you a gift, co-sign, or lend you money. But a relative’s cash does not fund the refinance itself. A new first mortgage on your home does. Gifts and co-borrowers can help in some programs, while a family loan counts as debt, and every route is subject to lender guidelines.
No single rule covers “borrowing from family” as one topic.
Which Kind of Family Help Are You Asking About?
Start by naming the role. The role decides how a lender classifies the loan and what it checks.
| Family role | Does it work? | What the lender looks at |
|---|---|---|
| Gift donor | Yes, with paperwork | Gift letter, donor funds, transfer trail |
| Co-borrower or co-signer | Depends on the program | Combined income, debts, occupancy |
| Private lender (loan) | Possible, but it counts | Payment in your debt ratio, any lien |
| Source of past purchase money | Sometimes, via delayed financing | Proof of how you bought the home |
Notice what is missing: a relative handing you cash that the lender ignores. That does not exist. Every dollar and every obligation has to be explained on paper.
How a Cash-Out Refinance Actually Works
A cash-out refinance replaces your current mortgage with a bigger one. You keep the difference in cash. The new loan is funded by a lender and secured by your home. Family money is not part of that funding.
Across the wholesale programs Lendmire works with as a mortgage broker, the conventional version has a few fixed guardrails:
- Leverage: 80% loan-to-value on a one-unit principal residence. It drops to 75% on two- to four-unit principal residences, second homes, and investment property.
- Seasoning on the old loan: The mortgage you are paying off must be at least 12 months old, counted note date to note date.
- Seasoning on title: A borrower must have been on title for 6 months.
Loan-to-value (LTV) is the new loan divided by the home’s appraised value. Seasoning is the waiting period a lender wants between two events. Exceptions exist for inheritance, legal awards such as a divorce decree, and delayed financing, covered below. Everything here is subject to lender guidelines and full file review.
If you are comparing the basic products first, Lendmire’s cash-out refinance programs page lays out how each one works.
Notice also that the cap sits below the 95% available on a refinance. A cash-out loan keeps more of your equity untouched.
Can a Relative Gift You Money for the Refinance?
Yes, in the right place. A gift is money with no repayment expected. It can help with closing costs or reserves, depending on the program. It does not raise your cash-out amount, because the cash-out comes from your equity.
The agencies are specific about who can give. Under Fannie Mae’s personal gift rules, acceptable donors include relatives by blood, marriage, adoption, or guardianship. Some family-like relationships qualify too, such as domestic partners and fiancés. The donor cannot be an interested party to the transaction. The lender must also verify that the donor had the funds, or that the funds moved to you.
Gift funds are meant for principal residences and second homes, not investment properties.
Here is where files go wrong. If your relative expects to be paid back, even “someday,” it is a loan, not a gift. Lenders ask for a signed gift letter stating no repayment is expected. Then they trace the money. A gift that gets quietly reversed after closing is a misrepresentation on the file. Don’t do it.
What about a gift of equity?
A gift of equity is a family seller discounting a home’s price below its value. It is a purchase-side tool. It does not apply to a home you already own, so it is not a way to fund a refinance.
What Happens If a Relative Lends You the Money?
A family loan can be done. It counts against you. The lender treats it as debt, and the way you document it changes how the refinance is classified.
The unsecured family loan
Say a parent lends you money on a handshake and a signed note. There is no lien on your home. Lenders still count that payment in your monthly debt, as they would any personal loan with many payments left. Hiding it is not an option, because borrowed funds are weighed on a refinance file. That payment raises your debt-to-income ratio (DTI), which is your monthly debts divided by your monthly income.
Many wholesale conventional files are decided by an automated underwriting finding, with a total ratio ceiling of 50%. Higher ratios also bring tighter reserve requirements. A family loan payment eats into that room. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The secured family loan
Now say the relative holds a recorded second lien on your home. A second lien is a loan that sits behind your first mortgage and gets paid after it if the home is sold. Under Fannie Mae’s subordinate financing rules, such a loan needs a promissory note and a recorded security instrument. If it stays in place, it needs a recorded resubordination agreement. That is a document in which the second lienholder agrees to stay behind your new first mortgage.
Two consequences follow. First, the combined loan-to-value (the first mortgage plus the second, against the home’s value) is tested against the program limit. Second, paying off a non-purchase-money second lien makes the refinance a cash-out refinance, even if you take no extra cash. So a family second lien can push a “simple” refinance into the cash-out category, with the 80% cap that comes with it.
An informal, unrecorded loan is not a lien. It is still a debt, and it still counts.
Can You Use Cash-Out Proceeds to Repay a Relative?
Often yes, because cash-out proceeds can be used for any purpose. Paying back a family loan is a common one. The mechanics depend on whether the loan is secured.
Picture a homeowner who borrowed from a sibling to fix a roof two years ago. The sibling holds a note and a recorded lien. At closing, the new first mortgage pays off the old first mortgage, then the sibling’s lien, with the remainder going to the borrower. The sibling signs a release. The new loan must fit under the 80% cap on a one-unit home. Closing costs come out of the same pie.
A sibling’s recorded lien does carry foreclosure rights against the home, and those rights remain in place until the lien is paid off and released at closing. Rolling the debt into the new mortgage replaces that family claim with a conventional first-lien structure. That is a real tradeoff, not a footnote.
Can a Relative Co-Sign or Co-Borrow on a Cash-Out Refinance?
Sometimes. This is where the programs split, and the same family setup can pass with one lender and fail with another.
A co-borrower signs the note and is jointly liable. A non-occupant co-borrower does not live in the home. Their income and debts go into one combined DTI for automated underwriting. A parent with strong income can help. A parent with heavy debts can hurt.
The rules differ by investor:
- Fannie Mae allows guarantors, co-signers, and non-occupant borrowers on cash-out refinances as well as purchases. Guidelines change, so check the current Selling Guide text before relying on this.
- Freddie Mac says a mortgage with a non-occupying borrower must be a purchase or a no-cash-out refinance, per Section 5103.1. That rules out a non-occupant co-borrower on a cash-out.
- Government-backed programs are stricter still. The FHA and VA streamlines carry no cash-out feature at all.
Occupant co-borrowers are a different story. A spouse or adult child who lives in the home and goes on title is simply a borrower. That changes title, but it also brings their credit and debts into the file.
(A co-signer who isn’t on title and doesn’t live there is the version most people picture, and it is the version with the most program-by-program variation.)
What If a Relative Helped You Buy the Home?
Delayed financing is the exception for this. Normally a cash-out refinance needs 6 months on title. Delayed financing lets you take cash out soon after buying, when you paid cash. The idea is to reimburse a buyer who did not use a mortgage.
Fannie Mae’s cash-out refinance rules require the original purchase to be arm’s length. The sources of purchase funds must be documented. Personal loan documents count as a documented source. If the purchase used an unsecured loan or a loan secured by another asset, extra settlement-statement requirements apply.
Freddie Mac handles borrowed purchase money differently. Where funds were borrowed to buy the home, the cash-out proceeds must first pay off those borrowed funds. Further cash-out comes only after everything borrowed is repaid. Any balance still owed counts in your DTI.
So a family loan that bought the house can be repaid through a later refinance. The paper trail has to be complete.
What about a home that came from family?
Title transfers are program-dependent. Inheritance and legal-award transfers, such as a divorce decree, are named exceptions to the title-seasoning rule. A quitclaim or a gifted deed is less clear-cut, and lenders may read it differently. Also, moving title can trigger the due-on-sale clause in an existing mortgage. Ask before you sign a deed.
Does Occupancy Change the Answer?
Yes, and mostly through leverage. The 80% cap applies to a one-unit principal residence. Second homes, investment property, and two- to four-unit principal residences sit at 75%. Gift funds are not meant for investment properties. This article is about the home you live in, so that is all the attention the other occupancies get.
Can an FHA or VA Streamline Help?
No cash-out, so no family angle. An FHA Streamline refinances an existing FHA loan with no appraisal and limited credit review. A VA IRRRL does the same for an existing VA loan. The VA’s own page states you may not receive cash from the loan proceeds. It also says no loan other than the existing VA loan may be paid from them. A family second lien is therefore a problem, because the second lienholder must agree to subordinate.
If you hold a VA loan and want cash, that is a different product.
Five Mistakes That Sink Family-Money Files
1. Calling a loan a gift. If repayment is expected, the lender needs to know.
2. Skipping the paperwork. An informal loan with no note is hard to defend and still counts as debt.
3. Forgetting the second lien. A recorded family lien that stays behind needs a resubordination agreement.
4. Assuming a co-signer works everywhere. The rule differs by investor and by occupancy.
5. Moving money late. Large, unexplained deposits get questions. Donor funds are traced.
Documentation Checklist
Before you apply, gather:
- A signed gift letter, if any money is a gift.
- The donor’s bank statement or proof of the transfer.
- A promissory note, if any money is a loan.
- The recorded security instrument, if the loan is a lien.
- Payoff and release documents for a family lien you plan to clear.
- Purchase records, if you are using delayed financing.
A real estate attorney can draft a family note and lien. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What About the Relationship?
Money between relatives has a way of becoming awkward. Write down whether it is a gift or a loan. Agree on what happens if you miss payments or the relative needs the money back early. A family lien gives the relative real rights against your home. Decide whether everyone is comfortable with that. Estate and inheritance issues can also complicate a lien held by an older relative.
Alternatives If Family Isn’t the Right Fit
You may not need family at all. A home equity line of credit or a home equity loan sits behind your first mortgage instead of replacing it. That can make sense if your current loan is one you want to keep. A cash-out refinance replaces the whole loan, so the payment may rise and the term may lengthen, and closing costs come with it. The Loan Estimate shows them.
A rate-and-term refinance is the lower-cash option. It reaches higher leverage on a one-unit principal residence, up to 95%, with mortgage insurance above 80% LTV. The limited cash-out version allows only incidental cash back. Fannie Mae’s announcement on limited cash-out describes that cap in more detail. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Key Terms Defined
Gift funds: Money from a relative or approved donor with no expectation of repayment.
Seasoning: The waiting period a lender requires between two events, such as buying a home and refinancing it.
Second lien: A loan secured by your home that sits behind your first mortgage.
Resubordination: A recorded agreement in which a second lienholder agrees to stay behind your new first mortgage.
Non-occupant co-borrower: A person who signs the loan and shares liability but does not live in the home.
Delayed financing: An exception that lets a recent cash buyer take cash out without the usual title wait.
Frequently Asked Questions
Can my parents give me money to use in a cash-out refinance?
Yes, in most cases as a gift toward closing costs or reserves, with a gift letter and a documented transfer. It does not increase your cash-out, which comes from your equity. If your parents expect repayment, it is a loan and gets underwritten as one.
Will a lender count a loan from my brother in my debt ratio?
Yes. A personal loan from a relative is a monthly obligation, even without a lien. A recorded lien adds the combined LTV test and the paperwork described above. Leaving it off the application is a bigger problem than the payment itself.
Can my father co-sign if he doesn’t live in the home?
It depends on the investor. Fannie Mae permits non-occupant borrowers on cash-out refinances. Freddie Mac limits them to purchases and no-cash-out refinances. Ask which guidelines the lender follows before you build the plan around a co-signer.
Can I use cash-out money to pay back a relative who lent me money?
Usually, yes. Proceeds can be used for any purpose. If the relative holds a recorded lien, the closing pays it off and the relative signs a release. The new loan still has to fit within the leverage cap.
Does a family second lien change how my refinance is classified?
Yes. Paying off a second lien that was not used to buy the home makes the refinance a cash-out refinance, whether or not you take extra cash. That can lower your maximum leverage, so tell your broker about any recorded lien up front.
Next Steps
Decide what your relative is actually doing: giving, lending, co-signing, or already owed money. Then match that to a program. 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. Nothing here is a commitment to lend, and every program is subject to lender guidelines and full file review.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B3-4.3-04, Personal Gifts
2. Fannie Mae Selling Guide B2-1.2-04, Subordinate Financing
3. Fannie Mae B2-2-04 Co-Signers / Non-Occupant Borrowers
4. Freddie Mac Guide Section 5103.1, Non-Occupying Borrower
5. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
6. U.S. Department of Veterans Affairs, Interest Rate Reduction Refinance Loan
7. Fannie Mae’s announcement on limited cash-out
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How to Apply for a Cash-Out Refinance as a Retiree Living on Assets · Can You Get a Cash-Out Refinance on a Paid-Off Condo? · Can a Retiree Use a Cash-Out Refinance to Pay for Tuition?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.