The Quick Read: Generally no, the cash you receive is not reported as income, because a cash-out refinance is a new mortgage, not a paycheck. You are borrowing against equity you already own. Two other things do touch your taxes or your traditional personal-income documentation. First, whether any interest on the new loan is deductible depends on how you use the money. Second, the lender may ask for your filed returns or transcripts to document income. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Is the Cash Reported as Income?
The cash is generally not treated as earned income. A cash-out refinance replaces your current first mortgage with a larger one, and the difference comes to you at closing. That is debt, and you owe it back. Lenders do not issue a 1099 for it.
The tax question that does exist is separate. It is about the interest you pay on the new loan, not the cash you receive. This article does not state deduction limits. Your tax professional and the IRS decide that, not your lender. The IRS Publication 936 page lists the current revision.
After closing, expect a Form 1098 from your servicer showing mortgage interest paid. Hand it to your preparer along with your closing statement. If you refinanced during the year, you may have statements from two servicers. Keep both.
Does the Lender Look at Your Tax Returns?
Sometimes. This is the half of the question most borrowers miss. Cash not being income does not mean the loan stays away from your returns. The lender still has to document that you can repay the new, larger balance.
On a conventional file, income documentation runs through the automated underwriting finding. Across the wholesale programs placed through Lendmire, the automated finding governs most files. It tells the lender what to collect.
Here is how the Fannie Mae rules work. When personal returns are required, the Selling Guide on tax return and transcript documentation calls for copies of the filed originals with all schedules. The lender may instead pull IRS transcripts. To do that, each borrower whose income is used signs Form 4506-C. That form lets the lender order transcripts for up to four years or tax periods, and it stays valid for 120 days after you sign.
There is an exception. If Desktop Underwriter validates all of a borrower’s income, no signed 4506-C is required for that borrower. A sole proprietor’s Schedule C income validated by DU can also mean the lender does not need the returns. Fannie Mae’s DU validation FAQ says that when a component is not validated, the DU message lists the documents needed. The message governs.
A quick map of who gets asked for what:
| Borrower type | Returns or transcripts? |
|---|---|
| Wage earner, income validated by DU | Often not needed |
| Wage earner, income not validated | DU message lists what to provide |
| Self-employed | Business and personal returns likely, separate 4506-Cs |
| Rental income on the return | Schedule E or Form 8825 documentation |
Self-employed files carry the most paper. Rental income reported on a partnership or S-corporation return follows documentation aligned with Schedule E. If your income is lower on paper than in real life, Lendmire’s piece Conventional Cash-Out Refinance Tiers on Low Self-Employed Tax Returns walks through how that reads in a file.
What Does Show Up on Your Return After Closing?
Usually just the interest. Here is a plain mapping:
| Item | Where it shows up |
|---|---|
| Cash you receive | Not reported as income |
| Mortgage interest paid | Form 1098 from your servicer |
| Whether interest is deductible | Your tax professional, per IRS rules |
| Closing statement | Keep it for your preparer |
Whether you benefit from any deduction also depends on whether you itemize. That is a decision for you and your preparer, not a lender question. Keep records of where the money went: contractor invoices, payoff letters, account statements. If a tax professional later asks how you used the proceeds, you want paper.
Does How You Spend the Money Matter?
For the loan, no. For the tax return, it can. Both agencies let you spend the cash on anything. Fannie Mae’s cash-out refinance guide says the equity taken out may be used for any purpose, and Freddie Mac’s cash-out guide section places no restriction on use of proceeds. So the myth that cash-out money is only for home improvements is wrong on the lending side.
The tax side is different. The IRS ties interest deductibility to how the proceeds are used. That is exactly why you should talk to a preparer before you spend the money, not after. A single loan and a single payment can be treated differently depending on where each part of the money went. This article stops there on purpose.
What Decides How Much Cash You Can Take?
Four things: your home’s appraised value, the leverage cap, your credit and ratios, and your documented income.
Freddie Mac requires a new appraisal and inspection report on a cash-out refinance, per its product page. The appraised value sets your loan-to-value ratio, and that ratio sets the ceiling.
Across the programs placed through Lendmire, a conventional cash-out refinance on a one-unit principal residence caps at 80% LTV. Two- to four-unit principal residences, second homes, and investment properties cap at 75%. A one-unit manufactured home on a principal residence cash-out is limited to 65% on the Fannie Mae Eligibility Matrix, and single-width manufactured homes are limited to purchase and limited cash-out refinances only. These figures are subject to lender guidelines and full file review.
One wholesale lane reaches 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio, a thirty-year fixed, a primary residence, and a conforming balance, with its own six months of seasoning. It is not written in Texas, where a homestead cash-out is capped by the state constitution at the agency figure. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
On credit, the wholesale conventional programs start at a 620 decision score, with a total ratio ceiling of 50% on automated findings. Reserves can apply on DU cash-out files with a debt-to-income ratio above 45%, per the alternate Eligibility Matrix copy. Mortgage insurance applies above 80% LTV, cancels on request at 80% and ends automatically at 78%. Cash-out loans at or below the caps above generally do not need it.
What Slows Cash-Out Files Down?
Seasoning trips more files than anything else. A handful of rules matter:
1. The loan you are paying off must be at least 12 months old. The count runs from note date to note date. Fannie Mae’s guide states it.
2. A borrower must have been on title for six months. Freddie Mac’s guide lists exceptions for inheritance or legal award, construction-to-permanent and renovation loans, and manufactured-home conversion to real property.
3. Delayed financing is a narrow exception for recent purchases. The original purchase must be arm’s-length and documented, so describe it to your loan officer early.
Other things that come up:
- Occupancy. For a primary residence cash-out, all borrowers must occupy the home.
- Delinquent taxes. Real estate taxes more than 60 days past due can be rolled into the loan, but an escrow account must be set up.
- Community Seconds. These are not permitted with cash-out refinances.
- PACE obligations. Freddie Mac says a PACE obligation paid off with cash-out proceeds must be paid in full, and Fannie Mae can make a borrower ineligible for cash-out if equity is there and the PACE loan is left in place.
- Buying out a co-owner. Freddie Mac’s special purpose cash-out section requires at least 12 months of joint ownership before application, with an inheritance exception and primary-residence occupancy.
Self-employed borrowers should expect the longest document list.
How to Prepare Your Documents
Have these ready before you apply:
- Recent filed returns, if your income needs them.
- Your signature on Form 4506-C when asked.
- Proof you live in the home.
- Your current mortgage statement.
- A list of how you plan to use the cash.
For your preparer after closing: the Form 1098, the closing statement, and receipts showing where the money went.
Lendmire arranges these loans through wholesale lenders. Explore the available cash-out refinance programs to see how your equity, occupancy and income fit. Lending is licensed in 16 states: Alabama, California, Colorado, Florida, Georgia, Indiana, Michigan, Montana, New Mexico, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, and Washington.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off your current one and gives you the difference in cash.
Form 4506-C: A form that lets the lender order your tax transcripts from the IRS.
Desktop Underwriter (DU): Fannie Mae’s automated system that returns a finding and lists the documents a lender must collect.
Form 1098: The year-end statement from your servicer showing mortgage interest paid.
Seasoning: The minimum time you must own the home or hold the current loan before cashing out.
LTV: Loan-to-value, the loan balance divided by the home’s appraised value.
Is a Cash-Out Refinance Worth the Risk?
It depends on what the money does. The CFPB’s Office of Research blog on cash-out refinances notes that a cash-out refinance replaces the original mortgage, while home equity loans and HELOCs leave the first lien in place. That difference matters if you like your current loan.
The CFPB’s paper on paydown behavior also warns that converting other debt into mortgage debt secured by your home can put the home at risk of foreclosure if payments become unsustainable. It adds that paying off other debts can make sense when the cost of the refinance is less than the cost of keeping that debt. Weigh both sides before you borrow.
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
Do I report a cash-out refinance on my taxes?
Not as income. The cash is borrowed money, so it is generally not reported. What can appear on your return is the mortgage interest from your Form 1098, if you itemize and qualify. Ask a tax professional how your use of the money affects that.
Will the lender ask for my traditional personal-income documentation?
Often, but not always. It depends on how your income is documented and what automated underwriting returns. If DU validates all of a borrower’s income, no signed 4506-C is required for that borrower. If it does not, the DU message lists what to provide.
Is all the interest on a cash-out refinance deductible?
Not necessarily. IRS Publication 936 says deductibility depends on the mortgage date, the amount, and how you use the proceeds. The IRS and a tax professional decide it. Your lender does not.
Can I use cash-out money for anything?
On the lending side, yes. Fannie Mae and Freddie Mac both allow cash-out proceeds to be used for any purpose. The use can matter for tax purposes, so ask a preparer before you spend the money.
Can I cash out right after buying my home?
Usually not. The loan being paid off generally must be at least 12 months old, and a borrower must have been on title for six months. Exceptions exist for inheritance, legal award, and delayed financing on recent arm’s-length purchases, subject to lender guidelines and full file review.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. 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. IRS Publication 936 landing page
2. Fannie Mae Selling Guide B3-3.1-02, Tax Return and Transcript Documentation Requirements
4. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
5. Freddie Mac Guide Section 4301.5 Cash-out refinance Mortgages
6. Freddie Mac Cash-out Refinance product page
7. Fannie Mae Eligibility Matrix
8. Fannie Mae Eligibility Matrix (alternate copy)
9. Freddie Mac Guide Section 4301.6 Special purpose cash-out refinance Mortgages
10. Office of Research blog on cash-out refinances
11. CFPB paper: Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
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: Conventional Cash-Out Refinance Documentation for Each Borrower Type · Can a Condo Owner Get a Conventional Cash-Out Refinance? · Conventional Cash-Out Refinance Requirements for a Condo Building
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.