The Quick Read: Borrowers move to brokers because the rules of a conventional cash-out refinance are the same everywhere, but the lenders applying them are not. Fannie Mae and Freddie Mac set the baseline. Each lender then adds its own overlays, pricing and file handling. A broker can place the same file with several lenders, so a borrower who hit a wall at one bank has more than one door to try.
Why Do Borrowers Switch From a Bank to a Broker?
Most switches come from one of five situations. None of them means the bank did something wrong. They mean one lender is one set of choices.
1. The bank’s own limits are tighter than the agency limits, so the equity the borrower expected is not available.
2. The bank declined or pended the file over something another lender would accept.
3. The borrower got one offer and had nothing to compare it to.
4. The file has a wrinkle, such as a recent inheritance, a divorce award or a recent cash purchase, and the loan officer is not used to it.
5. The borrower wants a loan type the bank does not offer.
A conforming loan is written to Fannie Mae or Freddie Mac guidelines, and those guidelines are public. What the agencies allow is a ceiling. A lender can sit below it. That gap is where borrowers get surprised.
What Is a Conventional Cash-Out Refinance?
A conventional cash-out refinance replaces your current first mortgage with a new, larger one and hands you the difference. Per the Fannie Mae Selling Guide, it can also put a new first mortgage on a home that is owned free and clear. The new loan can pay off the old one, cover closing costs, pay off other liens and put equity in your hands for any purpose.
It is not a rate-and-term refinance with a check attached. A rate-and-term refinance (the agencies call it limited cash-out) pays off the existing first mortgage and closing costs and returns only incidental cash. Leverage is higher on that loan: 95% LTV on a one-unit primary residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows. A cash-out refinance carries a lower leverage cap, longer seasoning and separate pricing. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
| Factor | Cash-out refinance | Rate-and-term refinance |
|---|---|---|
| Cash back | Any amount, within LTV cap | Incidental only |
| Max LTV, 1-unit primary | 80% | 95% (97% in some cases) |
| Max LTV, 2-4 units | 75% | Varies by program |
| Mortgage insurance | Only above 80% LTV | Above 80% LTV |
All figures are subject to lender guidelines and full file review.
If you are comparing programs, Lendmire’s cash-out refinance programs page lays out the conventional lane.
Agency Rules Versus Lender Overlays
The agency rules are the same at every lender that sells conforming loans to Fannie Mae or Freddie Mac. Overlays are the extra conditions an individual lender adds on top. This is the mechanism behind most switching.
Here is what the agency rules say for a conventional cash-out on a primary residence, per the Fannie Mae Eligibility Matrix:
- 80% maximum LTV on a one-unit home.
- 75% on a two- to four-unit home.
- 75% on a second home or investment property.
- 65% on a manufactured home used as a principal residence.
Those are the ceilings. A lender can set its own cap lower on a given property type, apply a lower ceiling for certain credit scores, or require a higher minimum score. Some wholesale rate sheets show tighter caps than the agency maximum. That is legal and common. It is also invisible to the borrower until the file hits underwriting.
Picture a homeowner with a one-unit primary residence who plans around the 80% agency cap. The bank’s matrix caps that same loan lower. The homeowner finds out after the appraisal, and the cash-out amount shrinks. Nothing is wrong with the file. It just landed at the wrong lender.
Across the wholesale programs placed through Lendmire, the conventional cash-out lane is built on the agency envelope: 80% on a one-unit primary, 75% on two- to four-units, second homes and investment property, with a 620 wholesale credit floor and a 50% automated ratio ceiling. There is also a wholesale lane that reaches 89.99% LTV with no mortgage insurance. It needs a 680 score and a 50% ratio on a thirty-year fixed, primary residence, conforming balance, with its own six months of seasoning. It is not written in Texas, where the state constitution caps a homestead cash-out at the agency figure. Everything here is subject to lender guidelines.
The Eligibility Screen: Where Files Break
Every conventional cash-out file runs through the same screen. The items below decide whether the loan works at all, and they are the places where one lender’s handling differs from another’s.
Occupancy. A primary-residence cash-out requires the borrowers to live in the home. Per the Freddie Mac Seller/Servicer Guide, all borrowers must occupy the property.
Title seasoning. At least one borrower must have been on title for six months before the new loan. Inheritance and divorce awards are treated as owned from the date of transfer, so there is no wait. Confirm the specifics against the Guide before relying on them.
Loan seasoning. The first mortgage being paid off must be at least 12 months old, counted from note date to note date. Files that assume this away get kicked back.
Delayed financing. A cash buyer can refinance inside six months if the purchase was arm’s-length and the source of funds is documented. This is a named exception, and a file without the settlement statement and the funds trail will stall.
Credit and ratios. Most files run through automated underwriting, where the finding governs. The wholesale conventional programs start at a 620 decision score, with a 50% total ratio ceiling. Manually underwritten loans use 36% or 45% ratios and the reserve and score factors of the Eligibility Matrix.
Reserves. On an automated file, a debt-to-income ratio above 45% triggers six months of reserves, per the Fannie Mae matrix. Reserves documentation is a common reason for a pended file.
Mortgage insurance. It is required above 80% LTV. You can request cancellation at 80% of the original value with good payment history, no subordinate liens and no decline in value. The servicer must terminate it automatically at 78%. Published typical annual premiums run 0.58% to 1.86% of the balance. That is a range, not a quote. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Loan size. Conforming limits vary by county and unit count. Check your county on the FHFA conforming loan limit page. Above the limit, the loan is non-conforming and agency rules no longer govern it. Jumbo lanes take over, with a 660 decision score, leverage to 90% and loans to $5,000,000.
What a Broker Actually Does on a Cash-Out File
A broker does not lend. The CFPB says a lender makes direct loans, a broker does not lend money, and a broker can help you find different lenders or loans. Some institutions act as both, so ask which one you are dealing with.
On a cash-out file the work looks like this:
1. Intake. The broker collects the occupancy, title history, existing loan date, estimated value, credit and income, and the cash amount wanted.
2. Lender matching. The broker compares the file against several lenders’ matrices. A file that fits one lender’s caps and seasoning can miss another’s.
3. Submission. The package goes to the matched lender with the documents already assembled: payoff information, title history, reserves statements.
4. Conditions. The broker manages what underwriting asks for, so gaps get closed before they become denials.
5. Disclosures and closing. The borrower receives a Loan Estimate and, later, a Closing Disclosure under the standard consumer rules.
This is a convenience of access. It does not guarantee a lower cost than going to a bank directly. What it does is widen the set of lenders applying their own guidelines to your file.
When the Bank Is the Better Choice
Staying put makes sense in several cases. Be honest about them.
- The file is simple, the equity is ample and the bank’s caps match the agency’s.
- You hold deposit accounts or a relationship your bank values, and the bank’s offer holds up against others.
- You want a product only your bank offers.
- You are comfortable with one offer and have compared it to at least one more.
The loyalty question deserves a straight answer. The agency rules do not change because you have an account at a given bank. Whether loyalty earns you better terms depends on that lender, so there is no general rule either way. Get a second Loan Estimate and let the numbers answer.
| Situation | Stay with the bank | Try a broker |
|---|---|---|
| Bank’s caps match the agency’s | Often fine | Optional comparison |
| Bank declined or cut the cash-out | No | Yes |
| Only one offer in hand | Get a second | Yes |
| Recent cash purchase or inheritance | Ask if they handle it | Often useful |
| Loan above conforming limit | Depends on products | Jumbo lanes may help |
Can You Switch Mid-Process?
Yes, a borrower can switch after an application or a decline, and many do. Three things carry over or need redoing.
Credit pulls: a new lender will pull its own.
Appraisal: whether an existing appraisal can be reused depends on the new lender and how the original was ordered. Do not assume it transfers. Ask before paying for a second one.
Disclosures: a new application means a new Loan Estimate. The CFPB advises requesting Loan Estimates for the same kind of loan from different lenders because costs vary. And a Loan Estimate is not an approval.
How Compensation Works, and What to Ask
The CFPB says a broker is paid a loan-specific fee. Ask any broker how they are paid and get it in writing on the Loan Estimate. The CFPB’s loan originator rules exist to guard against steering, meaning pushing a borrower toward a more expensive loan. Ask whether the broker is licensed in your state, and whether they are placing you with more than one lender.
Lendmire is a mortgage broker licensed for consumer lending in Alabama, California, Colorado, Florida, Georgia, Indiana, Michigan, Montana, New Mexico, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia and Washington. It arranges loans through wholesale lenders. It does not lend.
Apples-to-Apples: What to Line Up
When you compare a bank offer to a broker-placed offer, compare the same loan. Same purpose, same term, same cash-out amount. Then look at:
- The maximum LTV the lender applies to your property type.
- The seasoning and reserves the lender requires.
- Whether mortgage insurance applies, and when it cancels.
- The total costs on page two of the Loan Estimate, and the five-year total on page three.
- Whether the new loan replaces a low-cost existing mortgage. Giving up that loan is a real cost, and the Loan Estimate will not tell you so.
Closing costs are built into the loan in different ways. Terms like “no closing costs” mean the costs are folded into the rate or the balance. They do not disappear.
A refinance of your home also carries a three-business-day right to cancel. Rescinding does not cancel your obligation on the original loan.
Edge Cases That Shift the Answer
- PACE loans. A cash-out used to pay off a PACE obligation must follow cash-out rules and the PACE debt must be paid in full. A borrower with enough equity who chooses not to pay it off may be ineligible in certain transactions.
- Free-and-clear homes. Treated as cash-out under both agencies.
- Manufactured homes. The cash-out cap on a principal residence is lower, at 65%.
- Student loan payoff. Fannie Mae waives the cash-out price adjustment when proceeds pay off eligible student loans.
- Existing loan type. Moving from an FHA or VA loan into a conventional one changes which rules apply. FHA Streamline and VA IRRRL are separate government programs with their own tests, such as a net tangible benefit.
- Credit events. Agency waiting periods apply: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu, shorter with documented extenuating circumstances.
- Second homes and rentals. Occupancy decides leverage: 75% on cash-out for a second home or investment property.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Overlay: A rule a lender adds on top of the agency guidelines, such as a lower LTV cap or a higher credit floor.
Seasoning: The minimum time you have owned the home or held the loan being paid off before a cash-out is allowed.
LTV (loan-to-value): The new loan balance divided by the appraised value of the home.
Loan Estimate: The standard form a lender gives you after you apply, showing the loan terms and costs so you can compare offers.
Delayed financing: An exception that lets a cash buyer refinance and recover the purchase funds inside the normal seasoning period.
Limited cash-out refinance: A refinance that pays off the existing mortgage and closing costs and returns only incidental cash. Many people call it rate-and-term.
Frequently Asked Questions
Do banks and brokers follow different rules on a conventional cash-out?
No. For conforming loans sold to Fannie Mae or Freddie Mac, the agency guidelines are the same at every lender. What differs is overlays, pricing and how the file is packaged. A lender’s own limits can sit below the agency maximum.
Is a broker cheaper than a bank?
Not necessarily, and no source supports that claim. A broker gives access to several lenders, which makes comparison easier. Cost depends on the loan and the lender, so compare Loan Estimates for the same loan from each.
Can I switch to a broker after a bank declines my cash-out?
Yes. A new lender will run its own credit check and issue its own Loan Estimate. Ask whether an existing appraisal can be reused before paying for another. Eligibility is subject to lender guidelines and a full file review.
How soon after buying can I do a cash-out refinance?
You need six months on title, and the existing first mortgage must be at least 12 months old. A cash buyer may qualify sooner under delayed financing if the purchase was arm’s-length and the source of funds is documented. Inheritance and divorce awards are treated as owned from the date of transfer.
Does getting a Loan Estimate mean I am approved?
No. The CFPB states that receiving a Loan Estimate means the loan has not yet been approved or denied.
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. Lendmire’s piece What Is The Maximum LTV For A Conventional Cash Out Refinance? is a good next read. Nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
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.
For the program’s current guidelines, see conventional loan programs.
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References
1. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
2. Fannie Mae Eligibility Matrix
3. Freddie Mac Seller/Servicer Guide §4301.5
4. Fannie Mae Eligibility Matrix (alternate PDF)
5. FHFA conforming loan limit page
6. CFPB: What is the difference between a mortgage lender and a mortgage broker?
7. CFPB
8. CFPB: right of rescission FAQ
9. CFPB
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Can a Cash Buyer Do a Conventional Cash-Out Refinance in Six Months? · Conventional Cash-Out Refinance Requirements at a Glance · How to Get a Texas Conventional Cash-Out Refinance as a Lock-in Homeowner
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
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.