The Quick Read: Your options for pulling equity out of a home that already carries a conventional mortgage come down to one main route: a new conventional cash-out loan that pays off the old first mortgage and hands you the difference. On a one-unit primary residence, that loan generally tops out at 80% loan-to-value, and the new rate and term apply to the whole balance, not just the cash. A second lien or a limited cash-out refinance can fit better, depending on what you want the money for and what your current loan looks like. Everything below is subject to lender guidelines and full file review.
What Is a Cash-Out Refinance on a Conventional Loan?
A cash-out refinance replaces your existing first mortgage with a new, larger one. The new loan pays off the old balance and the closing costs. What is left over comes to you as cash.
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: 7.24% as of October 29, 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.
It is not a second mortgage. A home equity loan or HELOC sits on top of your first loan. A cash-out refinance removes the first loan and writes a new one. Freddie Mac’s Seller/Servicer Guide defines it as a mortgage with no specific restrictions on the use of the proceeds. Fannie Mae’s guide treats it the same way. Repairs, debt payoff, tuition: the agencies do not dictate the use.
One more wrinkle. A home you own free and clear counts too. A new loan placed on a paid-off home is treated as cash-out, not as a plain purchase-style loan.
Key Terms Defined
Loan-to-value (LTV): The new loan balance divided by the appraised value of the home.
Limited cash-out refinance: A refinance that pays off the first mortgage and closing costs, with only small cash back. Lenders also call it a rate-and-term refinance.
Seasoning: How long you have owned the home and held the loan before you can cash out.
Loan-level price adjustment (LLPA): A pricing add-on the agencies apply based on credit score, LTV and loan purpose. Cash-out carries more than limited cash-out.
Delayed financing: An exception that lets someone who bought a home with cash take out a cash-out loan soon after purchase.
What Are Your Real Options?
Holding a conventional loan gives you four paths. Here is how they compare.
| Option | What happens to your current loan | Best for |
|---|---|---|
| Conventional cash-out refinance | Paid off and replaced | Large cash need, current loan is not low-cost |
| Limited cash-out refinance | Paid off and replaced, little cash back | Changing term or removing a borrower, not raising cash |
| Home equity loan | Stays in place; a second lien is added | Protecting a low existing loan |
| HELOC | Stays in place; a revolving line is added | Ongoing or uncertain cash needs |
Lendmire’s cash-out refinance programs page covers the conventional route in more detail. A broker can also look at the second-lien and limited cash-out paths with you, since the right answer depends on the loan you hold today.
The first question is always the same: is your current first mortgage worth keeping? If it is a low-cost loan you want to protect, a second lien may beat a cash-out refinance. If it is not, replacing it costs you less in what you give up.
How Is a Conventional Cash-Out Underwritten, Step by Step?
Across the wholesale programs we place files with, the sequence is consistent.
1. Eligibility screen. The home must be your primary residence for the top leverage tier. Title and loan age must clear the seasoning tests described below.
2. Application and automated underwriting. The lender runs your file through Desktop Underwriter or Loan Product Advisor. The automated finding governs most files. Wholesale conventional programs start at a 620 decision score, and the total debt-to-income ratio ceiling is 50% on automated files.
3. Appraisal. Value sets the ceiling. The cap applies to the new loan, so a higher appraisal means more cash available. A low appraisal shrinks the cash directly.
4. Payoff and proceeds. The new loan pays off your first mortgage, then the closing costs. Whatever remains is yours.
5. Disclosures and closing. Because this is a consumer mortgage on your home, you receive a Loan Estimate and a Closing Disclosure. A refinance of a principal residence carries a three-day right of rescission, per the CFPB’s Your Home Loan Toolkit, so funds are released after that window ends.
On manually underwritten files, debt-to-income runs 36% or 45% with the reserve and score factors in the Fannie Mae Eligibility Matrix. Automated files with DTI above 45% can trigger reserve requirements on cash-out, per the Fannie Mae matrix document. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
How Much Cash Can You Actually Take?
Start with the leverage cap, then work backward.
For a one-unit primary residence, conventional cash-out is capped at 80% LTV. Two- to four-unit primary residences, second homes and investment property are capped lower, at 75%. The Fannie Mae Eligibility Matrix shows the one-unit figure. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The formula has three steps:
- Take the appraised value and multiply by the cap.
- Subtract your current first mortgage payoff.
- Subtract closing costs and any other liens being cleared.
What is left is your cash. The closing-day math matters because costs come out of the proceeds. Borrowers who plan around the gross number are often surprised by the net.
One wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio and a thirty-year fixed rate on a primary residence at a conforming balance. It carries its own six months of seasoning. Not every borrower fits it, and it is not written in Texas. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Mortgage insurance is the other piece. Insurance applies above 80% LTV. Because the standard cash-out cap is 80%, most standard cash-out files do not carry it. Higher-leverage structures do. When it applies, you can request cancellation at 80% of original value with good payment history, no subordinate liens and no decline in value. The servicer must end it automatically at 78%, under the Homeowners Protection Act. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
What Seasoning Rules Apply?
Two clocks run on a conventional cash-out. Both can block a file.
The first mortgage being paid off must be at least 12 months old, measured from its note date to the new loan’s note date. That is Fannie Mae’s rule, set in Selling Guide Announcement SEL-2023-01. Separately, at least one borrower must have been on title for six months. Freddie Mac’s Guide carries the same six-month title requirement.
Here is the catch. A recent buyer who financed the purchase hits both clocks. A recent refinancer who wants to cash out again hits the 12-month loan-age clock even if they have owned the home for years. Files that assume seasoning away are the ones that get kicked back.
Where Does the General Rule Break?
The 80% cap and the seasoning clocks are the rule. These are the named exceptions.
Delayed financing. If you bought with cash, you may be able to cash out without waiting. Freddie Mac requires the purchase settlement or closing disclosure statement to show that no financing secured by the property was used. Purchase funds can come from a borrower’s business if the source is documented. This is paperwork-heavy, not paperwork-free.
Inheritance and legal awards. Ownership-seasoning exceptions exist for property received by inheritance or through a divorce award. Wording and conditions vary by agency and lender, so confirm the exact terms on the Fannie Mae Selling Guide page before assuming the exception fits.
Free-and-clear homes. Treated as cash-out, as noted above.
Student loan cash-out. Fannie Mae offers a version that pays off student loans and waives the cash-out pricing add-on when the requirements are met. Standard cash-out LTV limits still apply, and the loan is delivered with special codes.
Special-purpose cash-out. Freddie Mac treats certain purposes, such as buying out a co-owner, as a separate category, and the credit fee is not billed on it.
Property type. Single-width manufactured homes are limited to purchase and limited cash-out under the Fannie Mae matrix. Renovation and construction-to-permanent loans must meet the cash-out rules if they take cash out.
State rules. Some states layer their own cash-out rules on top of the agency rules. Texas is one: a cash-out on a homestead is capped by the state constitution at the agency figure.
Listed for sale. Fannie Mae historically has made a home listed for sale ineligible for cash-out. Confirm the current wording with your loan officer.
Is a Limited Cash-Out Refinance the Better Fit?
Sometimes. A limited cash-out refinance allows 95% LTV on a one-unit primary residence, and 97% where the existing loan is agency-owned and the first-time-buyer program applies. The new loan pays off the first mortgage, closing costs and any purchase-money second lien. Cash back is incidental. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
The trade is clear. You get higher leverage and lighter pricing, but you do not get meaningful cash. Choose it if the goal is a different term, or to remove a co-borrower, or to roll a purchase-money second into the first. Choose cash-out only if you need the money. Mortgage insurance applies above 80% on a limited cash-out file.
What Does a Cash-Out Cost You Beyond Closing Costs?
Closing costs are real. A cash-out is a new mortgage, so it carries origination, appraisal and title costs. The CFPB’s research on cash-out refinances notes these can be substantial.
The bigger cost is structural. Cash-out loans carry loan-level price adjustments tied to credit score and LTV. The cost rises as LTV rises and as credit score falls, and cash-out costs more than limited cash-out at the same LTV and score. Fannie Mae’s guide confirms the adjustment applies to certain cash-out transactions, in addition to other price adjustments.
Then there is the reset. A new loan means a new rate and term on the entire balance. If your current loan is cheaper than what a replacement would cost, you are repricing every dollar of existing debt just to reach the cash you want. That is the central keep-or-replace question, and it is why a second lien is worth pricing alongside.
How Should You Decide?
Run the decision in this order.
1. Name the need. A one-time large expense points to cash-out. Ongoing or uncertain spending points to a HELOC.
2. Look at your current first mortgage. If it is a low-cost loan you want to keep, price a second lien first.
3. Check the clocks. Confirm your loan is at least 12 months old and you have been on title at least six months, or that an exception fits.
4. Check the cap. At 80% LTV, will the cash left after payoff and costs cover the need? If not, no structure on this page fixes it. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
5. Check the file. Credit score, debt-to-income and reserves set pricing and sometimes eligibility.
The CFPB’s guide on using home equity notes that converting equity to cash creates a debt you must repay and recommends speaking with an HUD-approved housing counseling agency if you are unsure. It also notes that lenders typically want you to keep a cushion of equity. The Federal Reserve’s refinancing guidance cautions against using cash-out to pay down unsecured debt without advice, and suggests asking about prepayment penalties on your current loan.
A look at credit: the CFPB found that cash-out borrowers’ scores tended to rise in the quarter after refinancing, then slip, though they stayed above pre-refinance levels.
Frequently Asked Questions
Can I do a cash-out refinance if my current loan is only a year old?
Possibly, if the first mortgage is at least 12 months old measured note date to note date and at least one borrower has been on title for six months. A loan under 12 months old generally has to wait. Exceptions like delayed financing apply only to homes bought with cash.
Is a cash-out refinance the same as a second mortgage?
No. A cash-out refinance replaces your first mortgage with a new one. A home equity loan or HELOC is added on top of the loan you keep. That is why a cash-out reprices your whole balance, while a second lien leaves the first loan alone.
How much equity do I have to leave in the home?
On a one-unit primary residence, the conventional cash-out cap is 80% LTV, so you leave at least 20% equity. Two- to four-unit homes, second homes and investment property are capped at 75%. A wholesale lane reaches 89.99% for qualifying primary-residence borrowers, subject to lender guidelines.
Can I use the money for anything?
Generally yes. Freddie Mac’s guide places no specific restriction on use of cash-out proceeds. That does not mean it is always wise. The loan becomes a debt secured by your home, and the CFPB recommends counseling if you are unsure.
Does a cash-out refinance cost more than a standard refinance?
It usually does. Agency pricing adds a loan-level adjustment for cash-out that rises with LTV and falls with higher credit scores. You also pay the closing costs of a new mortgage, which can come out of your proceeds.
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 figure 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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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. Freddie Mac Seller/Servicer Guide §4301.5
2. CFPB, Your Home Loan Toolkit
3. Fannie Mae Eligibility Matrix
4. Fannie Mae Eligibility Matrix (reserves and DTI)
5. Fannie Mae Selling Guide Announcement SEL-2023-01
7. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
8. CFPB’s research on cash-out refinances
9. CFPB’s guide on using home equity
10. Federal Reserve’s refinancing guidance
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 Find Out Whether Your Conventional Loan Is Fannie or Freddie · Can You Waive Escrow on a Conventional Loan After Closing? · How Much a Conventional Loan Refinance Lowers a Payment
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
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.