The Quick Read: Using a cash-out refinance for a down payment is allowed, but it is not one rule. It is three stacked tests: whether your current home qualifies for the cash-out, whether the new-home lender accepts the money, and whether you can carry two housing payments. A conventional cash-out on a one-unit primary residence is capped at 80% loan-to-value, and the loan has to season before you can use it. Everything below is subject to lender guidelines and full file review, and none of it is a commitment to lend.
What Does “Funding a Down Payment” Actually Mean?
You replace your current mortgage with a bigger one. The difference comes to you as cash. You then use that cash toward the purchase of the next home.
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.
Freddie Mac’s guide defines a cash-out refinance as a mortgage with no specific restrictions on how the proceeds are used. So the purpose is fine. The hard parts are equity, seasoning, qualifying with two payments, and documenting the funds.
Not every refinance produces cash. A limited cash-out refinance pays off the old loan and closing costs and allows only incidental cash back. Fannie Mae’s cap on that is the lesser of 2% of the new loan or $2,000, which will not fund a down payment.
The government streamlines are out too. The FHA Streamline limits cash back to $500. The VA streamline refinance does not allow cash from proceeds at all. If you want real cash, you need a true cash-out loan.
Lendmire’s cash-out refinance programs page lays out the options. Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders rather than lending directly.
Key Terms Defined
Loan-to-value (LTV): the new loan balance divided by the home’s appraised value.
Seasoning: the waiting period a loan or ownership has to age before a lender will refinance it for cash.
Debt-to-income ratio (DTI): your total monthly debt payments divided by your gross monthly income.
Reserves: money left in the bank after closing, counted in months of housing payments.
PITIA: principal, interest, taxes, insurance, and any association dues on a property.
Limited cash-out (rate-and-term) refinance: a refinance that pays off the old loan and costs, with only a small amount of cash back.
The Requirements Checklist
Here is what a conventional cash-out on your current home has to clear. Think of it as the first loan’s gauntlet.
| Requirement | What it means |
|---|---|
| Leverage | 80% LTV on a one-unit primary residence |
| Multi-unit or other occupancy | 75% on 2-4 units, second homes, investment property |
| Loan seasoning | Loan being paid off is at least 12 months old |
| Title seasoning | A borrower on title for at least 6 months |
| Credit | Wholesale conventional programs start at a 620 decision score |
| Ratios | Automated findings govern most files, up to a 50% ceiling |
Each figure comes from the programs we place files with, plus the Fannie Mae Eligibility Matrix for the leverage caps. Occupancy sets the leverage, so a cash-out on a second home sits at 75%, not 80%.
The two seasoning clocks are separate. Many people hear “six months” and stop there. The Fannie Mae Selling Guide requires a borrower on title for six months, and it also requires the existing first mortgage to be at least 12 months old, counted note date to note date. Exceptions exist for delayed financing, inheritance, and legal awards.
One wholesale lane reaches 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence, and a conforming balance. It carries its own six months of seasoning. It is the exception to the usual mortgage-insurance rule. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution. The no-insurance lane is not written there.
How Is the Cash-Out Underwritten, Step by Step?
The lender runs the same review it would on any mortgage, with a few extra checks.
1. Appraisal. The appraised value sets the ceiling. The new loan equals the payoff, financed costs, and your cash out, all inside the LTV cap.
2. Credit. Your decision score has to clear the program floor. After a credit event, the agencies set waiting periods: 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.
3. Income and DTI. The lender verifies income and counts your debts. The new, larger payment on the current home is part of the math.
4. Reserves. On Fannie Mae automated-underwriting files with a DTI above 45%, six months of reserves are required. Cash you are taking out generally does not count toward them.
5. Closing. You receive a Loan Estimate and Closing Disclosure like any mortgage. Closing costs are usually part of the deal, and they reduce the cash you net.
Freddie Mac also applies a credit fee to cash-out loans, tied to score and LTV. Pricing runs higher than on a rate-and-term refinance. The size varies by file, so ask for it in writing.
How Does the New-Home Lender Treat the Cash?
Fannie Mae’s seller FAQ treats borrowed funds secured by an asset as an acceptable source for a down payment, closing costs, and reserves. The reason is simple: the money is a return of your equity.
Expect to document it. The purchase underwriter wants the cash-out closing statement and the deposit trail from your account to the escrow. Clean paper beats clever explanations.
One trap catches people. Proceeds from a cash-out on the very property you are buying are a different case and are generally not accepted as the down payment. This article covers cash from the home you already own.
The Double-Payment Problem
This is where most plans stall. Getting the cash is the easy part. Qualifying for the second mortgage is harder.
Your refinanced home now carries a bigger payment. The new home adds a second one. Under Fannie Mae’s rules on other real estate owned, if your current home is pending sale but the title has not transferred before the new purchase, both the current PITIA and the proposed PITIA generally count.
There is a way out. Fannie Mae waives the current-home payment when you provide documentation, such as an executed sales contract on the current residence. If the sale closes first, the old payment disappears.
Test this before you refinance. Add the new, larger payment on your current home to a realistic estimate on the next one. Divide by gross income. If you land above the ratio ceiling, the cash-out will not save the purchase.
Where the General Rule Breaks
Keeping the old home as a rental. Fannie Mae allows a primary residence you are vacating to be converted to rental use. Its departing-residence policy counts 75% of gross rent against the old home’s PITIA. A lease agreement is not permitted as documentation for a departing residence, so the lender looks for other support, such as a market-rent analysis. Rental income rarely offsets the old payment fully.
Free-and-clear homes. If you own the house outright, a new mortgage on it is treated as cash-out. It does not matter that there was no loan to pay off.
Delayed financing. A cash buyer can skip the title wait. Freddie Mac’s guide covers it, and Fannie Mae adds a rule: if the purchase was funded with an unsecured loan or a HELOC on another property, the cash-out proceeds must pay that loan off or down.
Occupancy. Freddie Mac requires every borrower on a primary-residence cash-out to occupy the home. A non-occupant co-borrower can sink the file.
Government loans. An FHA or VA cash-out can produce real cash, but each has its own rules. A VA cash-out requires a Certificate of Eligibility and may carry a funding fee. FHA cash-out generally expects a stretch of owner-occupancy before you apply. VA warns about misleading refinance offers, so compare terms in writing.
PACE payoffs. If you have an energy-retrofit assessment on the home, special payoff rules apply at both agencies. That is a niche case, but it surfaces.
Cash-Out, HELOC, or Selling First?
A cash-out replaces your entire first mortgage. The new rate and term apply to the whole balance, not just the cash you pull. If your current loan is a good one, that matters. A HELOC or home equity loan leaves the first lien in place and adds a second payment on top, which also counts toward DTI.
| Option | First mortgage | Best when |
|---|---|---|
| Cash-out refinance | Replaced | Your current loan is not one you want to keep |
| HELOC / home equity loan | Stays in place | You like your current loan |
| Sell first | Paid off at sale | You want one payment and can time it |
A cash-out refinance may cost more or less than a HELOC, depending on the terms. Closing costs often apply as well.
Honestly, the sell-first route is often the cleanest if your timing allows. It removes the double payment and the seasoning clocks at once. The cash-out wins when you need the money before the old home sells, or when you plan to keep it.
What Does the Decision Look Like in Practice?
Picture a homeowner with a one-unit primary residence and solid equity. The loan being paid off is well past 12 months old, and she has owned for years. At 80% LTV, the cash she nets is whatever sits between her payoff plus costs and 80% of the appraisal. That is a smaller number than many people expect. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
She now asks four questions:
- Does the cash cover the down payment percentage on the new home, after costs?
- Does her DTI hold with the bigger payment on her current home and a payment on the new one?
- Will she have reserves left after closing, apart from the cash she took out?
- Can she document the money from the closing statement to the escrow?
If she answers yes to all four, the plan is sound. If one is shaky, she either shrinks the purchase, sells first, or picks a different equity tool.
Timing matters too. The seasoning clocks mean this strategy has to be planned months before you make an offer. Refinancing after you are under contract is a recipe for stress.
Common Mistakes
- Assuming a streamline can give you real cash.
- Counting only the six-month title rule and missing the 12-month loan rule.
- Forgetting that the old home’s payment counts until it sells.
- Treating cash-out proceeds as reserves.
- Refinancing first, then discovering the DTI will not support the purchase.
- Expecting rental income to cancel the old mortgage payment.
A larger loan can also extend your payoff time and raise your monthly payment, so run the whole picture.
Frequently Asked Questions
Can I use cash-out refinance money for a down payment?
Yes. Freddie Mac defines a cash-out refinance as a loan with no specific restrictions on how you use the proceeds. The purchase lender will want the funds documented, and the new loan still has to qualify on its own.
How long do I have to own my home before a cash-out refinance?
There are two clocks on a conventional loan. A borrower must be on title for six months, and the mortgage being paid off must be at least 12 months old. Delayed financing, inheritance, and legal-award exceptions exist.
How much cash can I take out?
It depends on the appraisal and occupancy. A conventional cash-out on a one-unit primary residence caps at 80% LTV, and 75% on two- to four-unit homes, second homes, and investment property. Closing costs come out of the total, so your net is lower. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Does my old mortgage payment count when I buy the next home?
Usually, yes. If the old home has not sold and transferred title before the purchase, both payments generally count. An executed sales contract on the current home can remove the old payment from the math.
Is a streamline refinance a way to get cash?
No. The FHA Streamline caps cash back at $500, and the VA IRRRL allows none. Limited cash-out refinances allow only an incidental amount. Real cash requires a true cash-out loan.
Next Steps
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. Work out your two-payment ratio first, and only then pick the loan.
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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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
2. HUD FHA Streamline Refinance
3. Fannie Mae Eligibility Matrix
4. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
5. Fannie Mae Selling FAQ (top trending)
6. Fannie Mae Selling Guide B3-6-06: Qualifying Impact of Other Real Estate Owned
7. Fannie Mae Selling Guide B3-3.8-05
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 With Reserve Requirements After Closing · Cash-Out Refinance Lenders on a Historic Home · Best Cash-Out Refinance Program to Buy a New Primary Home With Your Current Equity
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.