The Quick Read: A conventional cash-out loan is realistic when your score is in the middle band, but it asks more of the rest of your file. The wholesale programs Lendmire places files with start at a 620 decision score. Equity, debt-to-income ratio, and payment history then decide how smoothly the deal works. A fair score mostly changes what the loan costs, not whether the door is open. Approval always depends on lender guidelines and full file review.
Key Takeaways
- A conventional cash-out refinance replaces your current first mortgage with a larger one. You keep the difference as cash.
- On a one-unit primary home, the cap is 80% of the home’s value. On two- to four-unit homes it is 75%.
- A fair score raises the price of the loan and shrinks your margin for error. It does not by itself rule you out.
- The ratio of your debts to your income and the amount of equity you keep matter as much as the score.
- If the file is close but not there, a short “wait and improve” plan often beats forcing a weak application.
What a Conventional Cash-Out Refinance Actually Does
A cash-out refinance pays off your existing first mortgage with a brand-new one. The new loan is bigger than the old balance. The gap comes to you as cash after payoffs and closing costs.
“Conventional” means the loan follows the guidelines of the two big mortgage agencies, Fannie Mae and Freddie Mac, rather than FHA or VA rules. Lendmire’s cash-out refinance programs are arranged through wholesale lenders. Lendmire is the broker. The lender reviews the file and makes the credit decision.
The whole balance gets the new loan’s terms. That is the part people miss. You are not borrowing a little extra on top of the old loan. You are replacing it.
The Fannie Mae Selling Guide lists what the proceeds can do. They can pay off the existing first mortgage, cover closing costs, retire other liens on the home, or go to any purpose you choose. That last option is why people use it for repairs, debt payoff, or tuition.
Here is a rule from practice, not theory. Occupancy sets the leverage. The caps here are for a home you live in. A second home or rental sits under a lower cap, and Lendmire’s piece Conventional Cash-Out Refinance Credit Requirements for a Second Home covers that lane.
What Does “Fair Credit” Mean to a Mortgage Lender?
Fair credit means a score in the middle band. It is better than poor, but below the tier lenders call good. Think of a borrower with a few late payments in the past, or credit cards carrying high balances.
Lenders do not stop at the label. They look at which score they pulled. They look at why it is where it is. A score held down by high card balances reads differently from one held down by a recent missed mortgage payment.
Two borrowers with the same score can get very different outcomes. The first has a long, clean payment history and a single maxed-out credit card. The second has three recent late payments. The first file is far easier to place.
Can a Fair Score Qualify for a Conventional Cash-Out?
Often, yes. Across the wholesale conventional programs Lendmire works with, the starting point is a 620 decision score. A decision score is the single credit number a lender uses after pulling reports from the credit bureaus. It is typically the middle score when there are three. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review.
The automated underwriting finding governs most files. That is the computer review the lender runs before a person looks at it. The total ratio ceiling on these programs is 50%. Total ratio means your monthly debts, including the new housing payment, as a share of gross monthly income.
The rules at the agency level have also moved. Fannie Mae announced that its automated system no longer applies a fixed minimum credit score. Instead it weighs a broader set of risk factors. That is real news, but read it carefully.
- It applies to the automated system, not to manually underwritten loans, which still carry minimums.
- Individual lenders can set their own stricter floors.
- Credit still drives the price of the loan.
- Income, assets, ratios, and property rules still apply.
So the old line “you need a 620 for conventional” is partly outdated at the agency level. In practice, with the lenders Lendmire places files with, 620 is still the working floor.
Manually underwritten loans use 36% or 45% total ratio limits, depending on the score and reserve factors in the agencies’ Eligibility Matrix. Reserves are cash left in the bank after closing. A lower score generally needs more of them to hold the same ratio.
How the Loan Is Underwritten, Step by Step
Underwriting is the lender’s review of whether you can repay. Here is how a cash-out file moves.
1. Application and disclosures. You apply, and the lender issues a Loan Estimate. For a refinance, it shows your costs and the payoffs netted against the new loan, so you can see cash back.
2. Credit and automated review. The lender pulls credit and runs the file through the automated system. It weighs your score, ratios, reserves, and income stability together. For a fair score, this is where the file takes shape.
3. Ownership and seasoning checks. Seasoning is a required waiting period. The mortgage being paid off must be at least 12 months old, measured note date to note date. You must also have been on title for six months. Delayed financing, inheritance, and legal-award cases are the exceptions.
4. Appraisal. An appraiser sets the home’s value. That value feeds the loan-to-value (LTV) test. LTV is the new loan amount divided by the home’s value.
5. Payoff and proceeds. The new loan pays off the old first mortgage, any other required liens, and closing costs. What remains goes to you.
6. Closing Disclosure. This final form shows the real numbers for cash to you. Compare it against your Loan Estimate line by line.
One point on appraisals. A strong appraisal does not raise the cap. If the cap is 80% on your one-unit home, a higher value raises your dollars of equity but not the percentage the lender allows.
What Lenders Weigh Besides the Score
With a fair score, the rest of the file carries more weight. Here is how the other factors trade off, roughly in order of impact.
| Factor | Why it matters | How it can offset a fair score |
|---|---|---|
| LTV after appraisal | Less borrowed means less risk | Borrow well under the cap |
| Total ratio | Shows room in your budget | Pay down debts before applying |
| Reserves | Cash cushion after closing | Document savings and retirement funds |
| Payment history | Recent lates weigh most | Show 12+ months of on-time payments |
| Card balances | High use drags the score | Pay balances down before the credit pull |
| Income stability | Steady income reduces risk | Document a long job or business history |
A pattern I see often: borrowers focus on the score and ignore the ratio. Paying a card down helps twice. It lifts the score and it lowers the monthly debt in the ratio.
Equity cushion matters too. The CFPB’s guide to using home equity notes that lenders typically want you to keep a meaningful share of your home’s value as equity. Treat the 80% cap as a ceiling, not a target. A fair-credit file that borrows well below the cap is much easier to place.
What Fair Credit Does to the Cost
Credit changes price in a predictable way. Lenders add risk-based pricing adjustments, which are extra costs that grow as your score drops and your LTV rises. Cash-out refinances carry the heaviest of these adjustments, and they show up either in your interest rate or as a cost at closing.
Each lender’s pricing decides the real cost, and your Loan Estimate will show it. The direction is what matters.
- A lower score raises the cost.
- A higher LTV raises the cost.
- A cash-out loan costs more than a rate-and-term refinance at the same score and LTV.
Mortgage insurance follows a separate rule. It is required above 80% LTV, which is why a standard one-unit cash-out at the 80% cap does not carry it. If a wholesale lane stretches higher, insurance can come into play. You can request cancellation at 80% of the original value, given good payment history, no other liens, and no decline in value. The servicer must end it automatically at 78%. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
One lane deserves a mention. A wholesale option reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a 30-year fixed rate, a primary residence, a conforming loan amount, and its own six months of seasoning. A fair-credit borrower generally falls below that score line. If your score climbs, it becomes worth a second look.
A Scenario to Picture
Say you have a score in the low 600s, a one-unit home you’ve lived in for several years, and a mortgage balance near 60% of the home’s value. You want to pay off credit cards that carry a large share of your monthly debts.
The 80% cap leaves room. But borrowing right up to it would give you the highest-cost version of the loan. A smaller cash-out, say a loan closer to 70% of value, keeps leverage lower and the file stronger.
Then run the ratio. If the card payments you retire are bigger than the extra mortgage payment, your total ratio drops. That helps the automated review. If they are not, the refinance may leave your budget tighter than before.
Now the honest tradeoff. Paying off cards with home equity turns unsecured debt into debt secured by your house. The CFPB has warned that cash-out refinances can raise foreclosure risk because they carry higher balances and payments, and that the move shifts card debt onto the home. Missing a card payment hurts your credit. Missing a mortgage payment can cost you the house.
Where the General Rule Breaks
The 80% rule and the seasoning clocks hold for most files. Here are the named cases where they bend or do not apply.
Delayed financing for cash buyers. If you paid cash for the home, you may be able to refinance without the usual wait. The original purchase must be arm’s-length, and the source of funds must be documented. The loan still counts as cash-out, so the appraisal, credit review, and standard LTV cap all apply.
Two- to four-unit homes. The cap drops to 75% on a primary residence with two to four units. The extra units are not a shortcut to more cash.
Texas homesteads. A cash-out on a Texas homestead is capped by the state constitution at the agency figure. The wholesale lane described above is not written there.
Transactions that are not eligible as cash-out. The agency guide lists several. They include loans with a temporary interest rate buydown and the payoff of an installment land contract. Some properties with an energy-improvement lien also hit limits.
Student loan cash-out. The agency guide describes a feature that pays off student loans and waives the cash-out pricing adjustment when its conditions are met. Ask your loan officer whether it is available on the program you are using.
Special programs. HomeReady allows purchase and limited cash-out only. It does not allow a full cash-out refinance. Limited cash-out, the rate-and-term refinance, is a different loan with lighter pricing adjustments. It pays off the first mortgage and closing costs, with only incidental cash back.
Prior credit events. After a bankruptcy, foreclosure, or short sale, the agencies set waiting periods. Those are four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
Conventional vs. Other Ways to Get Equity Out
Conventional is not the only route. The right fit depends on your score, your current loan, and how much you need.
| Option | What happens to your first mortgage | Best fit if… |
|---|---|---|
| Conventional cash-out | Replaced entirely | Your current loan terms are not worth keeping |
| FHA or VA cash-out | Replaced entirely | A score or ratio makes conventional hard |
| HELOC or home equity loan | Stays in place | You like your first loan and need less cash |
| Wait and improve | Stays in place | A few months would lift the score |
The tradeoff with a HELOC or home equity loan is simple. Your first mortgage stays untouched, so you keep whatever terms you already have. The CFPB’s Office of Research notes that a cash-out refinance at a higher rate than the loan it replaces can cost far more than these options. That is the core reason to compare before you commit.
If you hold an FHA loan today, Lendmire’s article on whether an FHA-to-conventional cash-out needs better credit walks through that switch.
This one is a genuine toss-up for many fair-credit borrowers. A government-backed cash-out may accept the file more easily. The conventional loan, though, can be cheaper over time once your score improves, and it lets mortgage insurance end on a set schedule. The answer depends on your numbers.
Should You Do It?
A cash-out refinance makes sense when the money earns its keep. Home repairs that protect the home’s value are a clear example. Paying off high-cost debt can also work, if you stop running the cards back up.
It makes less sense when the cash covers spending with no lasting benefit. It also falls flat when your current loan has terms you cannot match, since you give those up.
Ask three questions before you apply:
1. Does the new loan’s cost, across the whole balance, make sense for what I get?
2. Will my total monthly debts go down, stay level, or rise?
3. If my income dipped, could I still carry the home loan?
On credit effects: the CFPB found that scores often jumped at first, then slipped gradually, though they stayed above pre-refinance levels. Borrowers most often cited paying off other debts. The result is a pattern, not a promise.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The Wait-and-Improve Plan
If your file is close but not ready, a short plan can change the result. Work in this order.
1. Pull your credit reports and fix errors. A wrong late payment or a stale collection can cost real points.
2. Pay down card balances. High utilization is often the fastest lever. Aim to cut balances before the next statement posts.
3. Stop opening new accounts. Each new inquiry and account can weigh on the score.
4. Build on-time history. A clean recent stretch counts for more than old problems.
5. Document your reserves. Statements for savings and retirement accounts help a borderline file.
6. Re-check the file. Once balances are down and payments are current, talk to a loan officer again.
If a lender counteroffers with a smaller loan amount or a higher cost, do not treat it as a rejection. Often it is the file telling you what it can carry. If you are declined, ask for the reason. Then use it as your to-do list.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off your existing first loan and gives you the difference in cash.
LTV (loan-to-value): The new loan amount divided by the home’s appraised value.
Decision score: The single credit score a lender uses, usually the middle of three scores.
Seasoning: A required waiting period, such as how long you have owned the home or held the loan being paid off.
Total ratio: Your monthly debts, including the new housing payment, as a share of gross monthly income.
Reserves: Cash and liquid assets you still hold after closing.
Mortgage insurance: Coverage that protects the lender when your LTV is above 80%. It can be cancelled at set points.
Frequently Asked Questions
Can I get a conventional cash-out refinance with bad credit?
It gets much harder below the working floor. The wholesale conventional programs start at a 620 decision score, and lenders can set stricter minimums. If your score sits below that, the more realistic paths are rebuilding for a few months or looking at government-backed options.
Does a cash-out refinance hurt my credit?
Applying causes a small inquiry effect, and a new loan can briefly move your score. Over time, paying off other debt can help. The CFPB’s research found scores rose at first and then eased, though they stayed above where they started.
How much equity do I need to leave in the home?
On a one-unit primary residence the cap is 80% LTV, so you keep at least 20% equity. On two- to four-unit primary homes the cap is 75%. Many fair-credit borrowers do better borrowing well under the cap. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
What if I recently bought my home?
Two clocks apply. You generally need six months on title, and the mortgage being paid off must be at least 12 months old. A cash buyer may qualify under the delayed financing exception, which has its own documentation rules.
Is a cash-out refinance better than a HELOC?
It depends on the terms. A HELOC leaves your first mortgage in place, while a cash-out resets the entire balance. If your current loan is one you want to keep, a HELOC or home equity loan often deserves a hard look first.
Your Next Step
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. Bring your current loan details, a rough sense of your score, and the amount you need. A broker can show you where the file stands before you apply. Every program is subject to lender guidelines and full file review, and 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 with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
2. Fannie Mae Selling Guide Announcement SEL-2025-09
3. CFPB: Using Home Equity to Meet Financial Needs
6. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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 You Cash Out Refinance a Vacation Home Under Conventional Rules? · Bank vs Wholesale Lender for a Conventional Cash-Out Refinance · How to Apply for a Conventional Cash-Out Refinance Step by Step
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
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.