The Quick Read: A cash-out refinance has no “medical bill” category, and the lender does not underwrite the invoice. It underwrites your home, your credit, your income and the new first mortgage. On a conventional loan, the main tests are equity (80% LTV on a one-unit primary residence), the age of the loan you are paying off (at least 12 months), and six months on title. The cash you receive is yours to direct, and the equity caps it, not the size of the bill. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
What a Cash-Out Refinance Actually Does
A cash-out refinance replaces your current first mortgage with a bigger one. The new loan pays off the old one, covers closing costs, and sends you the difference. The Consumer Financial Protection Bureau describes it the same way: you take a larger mortgage, use part of it to pay off the current one, and take the rest 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.
Your medical debt is not part of the loan. You get cash, and you decide what it pays. That is why the same file looks identical whether the money goes to a hospital, a roof or a credit card.
Two terms matter before we go further. LTV, or loan-to-value, is the new loan balance divided by the home’s appraised value. Equity is the part of the value you own outright. If you want the program side of this, Lendmire’s cash-out refinance programs page lays out the options the brokerage arranges through wholesale lenders.
Does the Lender Care That the Money Is for a Medical Bill?
No. Across the wholesale programs we place files with, the purpose of the cash does not change the requirements. Most lenders do not ask for invoices or proof that the money pays a provider. The file is judged on the property and the borrower.
That cuts both ways. A large bill does not earn you extra room. If the bill is bigger than your equity allows, the loan cannot stretch to cover it.
The Requirements, Step by Step
Here is how a conventional cash-out file moves from application to payout. Every figure is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
1. The loan gets classified. If the new loan pays off your mortgage and returns cash beyond a small incidental amount, it is a cash-out refinance. Cash-out pricing applies, which means the lender charges for the added risk through the loan terms.
2. Time-based gates are checked. The first mortgage being paid off must be at least 12 months old, measured from its note date to the new note date. At least one borrower must have been on title for six months. Fannie Mae set both rules in its 2023 selling guide announcement, and the 12-month rule applies to cash-out loans with note dates from April 1, 2023 onward. Exceptions exist for delayed financing, inheritance and legal awards.
3. The appraisal sets the value. A cash-out refinance normally uses a full appraisal. Equity is measured from that value.
4. Leverage is tested. Conventional cash-out tops out at 80% LTV on a one-unit principal residence. Two- to four-unit principal residences, second homes and investment property are capped at 75%, so occupancy sets the leverage. A wholesale lane reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% ratio, on a thirty-year fixed, primary residence, conforming balance, with its own six months of seasoning.
5. Credit and income are reviewed. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total debt ratio ceiling of 50%. Manually underwritten loans use 36% or 45%, depending on reserves and score.
6. Cash is paid out. The lender pays off the old loan and costs first. The remainder goes to you.
Mortgage insurance is required above 80% LTV on the Fannie Mae and Freddie Mac path, except in the wholesale no-MI lane described above. Cash-out loans at 80% or below do not carry it. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
How Much Cash Can You Actually Get?
Equity sets the number. The sequence is simple:
1. Take the appraised value and multiply by the maximum LTV for your occupancy.
2. Subtract your current mortgage payoff, any liens being cleared, and the closing costs that are financed.
3. What remains is the most cash the loan can return.
Picture three homeowners, all on one-unit primary residences with the same 80% cap. These are modeled situations, not quotes.
- The bill fits easily. The homeowner owes little on the mortgage. The cap leaves a cushion well beyond the bill, so the loan returns enough cash with room to spare.
- The bill barely fits. After the payoff and costs, the cash left is close to the bill. Closing costs can tip this one, so the net number matters more than the headline number.
- The bill exceeds the cap. The loan cannot return enough. Options include paying part from the cash-out, negotiating the balance down, or using a payment plan for the rest.
Closing costs reduce what you take home, because they come out of the loan proceeds or the balance. Your Loan Estimate shows them before you commit. The CFPB also notes that lenders typically want you to keep some equity, generally in the range of 10% to 20% of the home’s value, across all home equity products.
Medical Collections, Credit and Income
Medical debt on your credit report is not an automatic stop sign. For Fannie Mae loans, medical collection accounts are excluded from the collection limits and are not required to be paid at or before closing. On a one-unit principal residence, borrowers are not required to pay off other outstanding collections or non-mortgage charge-offs either. Individual lenders can add their own overlays, so ask early.
Two cautions apply:
- Accounts reported as past due, rather than in collection, generally must be brought current.
- Falling behind on your mortgage while carrying medical debt can close the door. Late mortgage payments hurt far more than a medical collection does.
There is also a common myth to clear up. Medical debt is not off credit reports by law. A federal rule that would have removed it was vacated by a federal court in July 2025, according to the Congressional Research Service. The same source notes that the three major credit bureaus voluntarily removed an estimated 70% of outstanding medical debt from reports in 2022. Policies and state laws vary, so your own report is what counts.
A medical event can also complicate the income side. Time off work, a spouse’s lost wages or new disability income all get reviewed. Underwriters want income that is documented and likely to continue.
Programs That Don’t Fit a Medical Bill
Some refinance products are built for other jobs.
| Program | Cash back? | Why it matters here |
|---|---|---|
| Conventional cash-out | Yes, within the LTV cap | The main route for this goal |
| Rate-and-term (limited cash-out) | Only incidental | Fannie Mae allows the lesser of 2% of the new loan or $2,000 |
| FHA Streamline | Almost none | HUD caps cash at $500 |
| VA IRRRL | None | VA-to-VA only, built for lowering the payment |
| VA cash-out | Yes | Needs a Certificate of Eligibility and passes a net tangible benefit test |
Freddie Mac’s incidental cash limit is a little different: the greater of 1% of the new loan or $2,000. An FHA borrower who wants cash needs an FHA cash-out refinance, which requires a full appraisal. VA cash-out loans carry a funding fee unless you are exempt, and the VA’s funding fee page lists it. The VA IRRRL fee is 0.5% unless exempt.
Edge Cases Where the Rule Bends
- Delayed financing. Someone who bought a home with cash can take equity out within the six-month window. Fannie Mae lists it as an exception to the seasoning rule. Cash-out pricing still applies.
- Free and clear homes. A home with no mortgage is still a cash-out refinance.
- Second liens. Paying off a HELOC or other non-purchase-money second lien generally counts as cash-out.
- Texas homesteads. A cash-out on a homestead (a Section 50(a)(6) loan) is capped at 80% of the home’s value by the state constitution. The no-MI wholesale lane is not written there.
- A second home or rental. Those can be cashed out, but occupancy sets the leverage, so the cap drops to 75%.
- Self-employed borrowers. The cash-out rules are the same, but income documentation takes more care. Bring complete records.
Fix the Bill Before You Borrow
Think about this before you sign anything. An unpaid medical bill usually has no lien on your home. A cash-out refinance changes that. Once you pay the bill with mortgage cash, you have turned an unsecured debt into one secured by the house, and missed payments put the home at risk.
Before borrowing, ask for an itemized bill and check it for errors. Ask the provider about payment plans, which are often interest-free. Ask about financial assistance or charity care. Negotiating a smaller balance can shrink the loan you need, or remove the need entirely.
The Trade-Off: Short Debt, Long Mortgage
The CFPB warns that a cash-out refinance may extend the time it takes to pay off the mortgage, and the monthly payment may increase because the new loan is larger. A bill you could clear in a year becomes a decades-long obligation.
The larger cost is easy to miss. A cash-out refinance replaces your whole first mortgage, not just the new cash. If your existing loan has favorable terms, giving them up can cost more than the medical balance. A home equity loan or HELOC leaves the first mortgage alone, which is why it deserves a comparison.
The CFPB also found that cash-out borrowers often use the money to pay down credit card and auto debt, and that their credit scores jump at first, then worsen gradually, per its research on cash-out borrowers.
| Option | First mortgage | Home at risk? | Best fit |
|---|---|---|---|
| Cash-out refinance | Replaced entirely | Yes | Large bill, existing terms not worth keeping |
| HELOC or home equity loan | Stays in place | Yes | Smaller or staged bills |
| Provider payment plan | Untouched | No | Almost any bill, tried first |
| Charity care or assistance | Untouched | No | Qualifying income |
Honestly, the payment plan wins on cost nearly every time. Cash-out makes sense when the first mortgage is worth replacing anyway and the bill is too big for the other routes.
Key Terms Defined
- Cash-out refinance: a new, larger first mortgage that pays off the old one and returns the difference to you as cash.
- LTV (loan-to-value): the loan balance divided by the home’s appraised value.
- Seasoning: the waiting period a lender requires, such as the age of the loan being paid off or time on title.
- Limited cash-out refinance: a rate-and-term refinance that returns only a small, incidental amount of cash.
- Delayed financing: an exception that lets a cash buyer take equity out soon after purchase.
- Net tangible benefit: a test on some government refinances showing the borrower gains something real from the new loan.
- Medical collection: a medical bill that a provider has sent to a collection agency and that appears on a credit report.
Where Your Decision Stands in Practice
Run through this order. First, find out whether the bill can shrink. Second, check whether your loan is at least 12 months old and you have six months on title. Third, estimate the cash left after payoff and costs against the 80% cap. Fourth, compare the cost of replacing your current mortgage against a HELOC or a payment plan. Fifth, confirm you can carry the new payment through a period of reduced income.
Whether a bank statement cash-out can work when income is hard to document is covered in a separate guide, and the question of which cash-out program fits a major medical expense is worth weighing alongside it.
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 have to show the lender my medical bills?
Usually not. The loan is underwritten on your property, credit and income, and the cash is yours to direct. Lenders generally do not ask for invoices. Keep your own records anyway, because you will want them if you negotiate the balance.
What if my bill is bigger than my equity allows?
The loan cannot exceed the LTV cap, so the cash will fall short. You can apply the cash-out to part of the bill and negotiate or set up a payment plan for the rest. Asking about charity care also helps. Lowering the balance first may bring it within reach.
Will medical collections stop me from getting approved?
Not by themselves. Fannie Mae does not require medical collections to be paid before closing. Past-due accounts must generally be brought current, and individual lenders may have stricter overlays. Late mortgage payments are a much bigger problem than a medical collection.
Can I get a cash-out refinance with a medical bill and low credit?
It depends on the score and the rest of the file. The wholesale conventional programs start at a 620 decision score, and the 89.99% no-MI lane needs 680. Some lenders set a higher floor. A lender’s full file review decides, and nothing here is a commitment to lend.
Is a cash-out refinance a good way to pay a medical bill?
Sometimes, but rarely first. It converts an unsecured debt into one tied to your home and replaces your whole mortgage. Try a payment plan, charity care and negotiation first. Cash-out can make sense when the bill is large and your current mortgage terms are not worth keeping.
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 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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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. CFPB, Using home equity to meet financial needs
3. Fannie Mae Capital Markets cash-out update
4. Fannie Mae Selling Guide B3-5.3-09
5. Congressional Research Service, medical debt
7. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Best Cash-Out Refinance Program on a Duplex You Live In · Best Cash-Out Refinance Program to Cover the Down Payment on Your Next Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.