The Quick Read: Yes, on a conventional loan. Agency guidelines treat cash from a cash-out refinance as a return of your own equity, so it can fund a second-home down payment. The catch is that the larger loan on your main home and the new second-home loan both count against your debt load, and the second home must qualify on its own. FHA Streamline and VA IRRRL loans are not built to pay out cash.
How Does the Money Get From Your Home to a Down Payment?
A cash-out refinance replaces your current first mortgage with a larger one. The new loan pays off the old balance and the closing costs. You keep the rest as cash. That cash is borrowed money secured by your primary home, and the second-home lender treats it that way.
Fannie Mae’s Selling Guide accepts borrowed funds secured by an asset, real estate included, for a down payment, closing costs and reserves. The stated reason is that the money is a return of equity. The same section says the lender must count the payment on that loan as a debt.
So the answer has two halves. The money is allowed. The debt it creates is also counted.
Why It Must Be a True Cash-Out Loan
A rate-and-term loan, which agencies call a limited cash-out refinance, pays off your existing first mortgage, closing costs and a purchase-money second lien. It allows only incidental cash back. Under Fannie Mae’s announcement on limited cash-out loans, that cap is the greater of 1% of the new loan or $2,000. That will not cover a down payment.
If you want real cash, you need the cash-out version. Here is how the two compare.
| Factor | Rate-and-term (limited cash-out) | Cash-out refinance |
|---|---|---|
| Cash to you | Incidental only | The leftover equity |
| Max LTV, one-unit primary home | 95% | 80% |
| Mortgage insurance | Above 80% LTV | Not an issue at 80% |
| Down payment use | No | Yes |
LTV means loan-to-value: the loan balance as a percentage of the home’s appraised value. Those figures are subject to lender guidelines and full file review.
What Does Your Current Loan Need to Qualify?
The first mortgage you are paying off must be at least 12 months old, counted from note date to note date. Fannie Mae’s cash-out refinance topic sets that seasoning rule. Seasoning is simply the waiting period a lender wants before a new loan can replace an old one.
You also need to have been on title for six months. Exceptions exist, including delayed financing, which covers a home bought with cash. Per the archived version of the same guide, the purchase must have been arm’s-length and the source of funds documented. That page is an older version, so current wording may differ.
Cash-out is also tighter on leverage. On a one-unit primary residence, the conventional cap is 80% LTV. That means you must keep at least 20% equity after the new loan. One wholesale lane reaches 89.99% LTV with no mortgage insurance, but it carries a 680 score, a 50% ratio and its own six months of seasoning. It applies to a primary residence on a conforming balance and a thirty-year fixed loan. It is not written on a Texas homestead, where the state constitution caps cash-out at the agency figure. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
How the Two Loans Work Together
You are qualifying twice. First for the larger loan on the home you live in. Then for the second-home purchase, where the new primary payment counts in your debt-to-income ratio. Debt-to-income, or DTI, is your total monthly debts divided by your gross monthly income.
The second home adds its own payment, taxes, insurance and any HOA dues. Most automated findings allow a total ratio up to 50%, and manually underwritten loans run tighter at 36% or 45%. A borrower who sizes the cash-out only to hit the down payment, without checking both payments, is the file that stalls.
For the second home itself, leverage runs up to 90% on a purchase. That implies a minimum down payment of 10%. A second-home cash-out refinance, if you later tap that property, caps at 75%. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Picture a homeowner with a large amount of equity and a steady salary. She sizes the cash-out to cover the down payment percentage on the vacation place plus closing costs. Her primary payment rises. Her second-home payment lands on top. The question is whether both fit inside the ratio ceiling with reserves left over. That is the real test, not whether the cash is allowed.
What Paper Trail Does the Second-Home Lender Want?
A clean one. On a purchase, the lender must document that large deposits used for the down payment came from an acceptable source, according to Fannie Mae’s rules on depository accounts. Your cash-out settlement statement does that job. Keep it with the deposit record.
Two practical points:
- Let the cash-out close and fund before the purchase contract needs the money.
- Do not move the proceeds around. Park them in one account until the purchase.
Gift money is a different matter. Many second-home programs restrict gifts, so do not plan on mixing them in.
What Counts as a Second Home?
Agency rules define a second home tightly. It must be a one-unit dwelling you occupy for some part of the year. It must be suitable for year-round use and under your exclusive control. It cannot sit in a rental pool or a timeshare. Rental income cannot be used to qualify.
Occupancy decides leverage. A true second home gets up to 90% on a purchase. One trap is worth naming: you cannot buy a new primary residence and move out of the home you just refinanced under owner-occupied terms. Misstating occupancy or the source of funds is a serious problem, not a technicality.
What About FHA and VA Loans?
No, not for this goal. HUD says cash in excess of $500 may not be taken out in an FHA Streamline. The loan being refinanced must already be FHA-insured and current, and the refinance must deliver a net tangible benefit.
A VA IRRRL is a rate-reduction product for an existing VA loan. VA Circular 26-19-05 separates it from Type I and Type II cash-out refinances. Type II is the VA route to cash. Government-backed programs are generally aimed at primary residences, so a second-home purchase is a poor fit for them. Check program rules with a broker before assuming otherwise.
What Are the Risks?
Your primary home becomes the collateral behind the down payment for a vacation property. That is the honest framing.
The CFPB’s home equity guide warns that a cash-out refinance can raise your payment and lengthen the payoff time. It also notes lenders typically want you to keep 10% to 20% of your home value as equity. Add two sets of closing costs, since you pay at both closings.
It is also a bad fit when:
- your reserves are thin after the down payment
- your income may change soon
- the plan depends on rental income to make the second home work
- your current first mortgage is better than what the market offers today
That last point matters. A cash-out refinance replaces the entire first mortgage. This is a genuine toss-up for some borrowers: a HELOC or home equity loan leaves your first mortgage in place, though it brings its own payment and terms.
Cash-Out, HELOC or Something Else?
| Option | First mortgage | Payment structure | Main risk |
|---|---|---|---|
| Cash-out refinance | Replaced | One larger loan | Higher balance, new terms |
| HELOC | Stays | Separate line | Variable draw and payment |
| Home equity loan | Stays | Second fixed loan | Two liens on your home |
| Savings | Untouched | None | Depletes reserves |
| Delay purchase | Untouched | None | Market moves |
For a side-by-side look at the equity-line route, see Lendmire’s comparison of a cash-out refinance and a HELOC for a second-home down payment.
If your current loan is a good one, keep it in the comparison. The right choice depends on what you give up. Lendmire’s team arranges these loans through cash-out refinance programs and can compare the equity each option reaches.
Is the Cash Taxable?
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit. That includes interest on debt tied to a second home.
Key Terms Defined
Cash-out refinance: a new, larger mortgage that pays off your current one and gives you the difference in cash.
Limited cash-out (rate-and-term) refinance: a refinance that pays off the old loan and costs, with only incidental cash back.
Seasoning: the waiting period before a loan or ownership stake qualifies for a new transaction.
DTI: your total monthly debts divided by your gross monthly income.
LTV: the loan balance as a percentage of the property’s appraised value.
Frequently Asked Questions
Can I use cash-out proceeds for the full price of a second home?
In principle, yes, if the cash is large enough. But the 80% cap on a primary-home cash-out limits how much equity you can pull. Most buyers use proceeds for the down payment and closing costs, then finance the rest with a second-home loan that has to qualify on its own.
Does the second-home lender count my new, bigger payment?
Yes. The payment on the larger primary loan goes into your DTI along with the new second-home payment. Fannie Mae’s guidance says a secured loan’s payment must be counted as a debt. Size both loans together.
Can I do a rate-and-term refinance and still pull cash for the down payment?
No. A rate-and-term refinance caps cash back at the greater of 1% of the new loan or $2,000 under Fannie Mae’s guidelines. A true cash-out refinance is the loan type that releases meaningful equity.
What if I bought my current home recently?
You generally need a first mortgage at least 12 months old and six months on title. Delayed financing is one exception for homes bought with cash. These are subject to lender guidelines and full file review.
Can a HELOC be a better fit?
Sometimes. A HELOC leaves your current first mortgage alone, which matters if that loan is a strong one. The trade-off is a separate payment and its own terms. Compare both before choosing.
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. Program figures are subject to lender guidelines, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
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.
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References
1. Fannie Mae Selling Guide B3-4.3-15, Borrowed Funds Secured by an Asset
2. Fannie Mae Selling Guide Announcement SEL-2025-08
3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. Fannie Mae Selling Guide archive version of B2-1.3-03 (02/01/2023)
5. Fannie Mae’s rules on depository accounts
8. CFPB, Using Home Equity to Meet Financial Needs
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 Qualify for a Cash-Out Refinance on a Free-and-Clear Home · How to Turn Cash-Out Refinance Equity Into a Second Home Down Payment · How Much Down Payment a Cash-Out Refinance Gives on a Low First Mortgage
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.