The Quick Read: It depends on what you are protecting. A cash-out refinance replaces your current mortgage with one larger loan, so it suits homeowners whose existing first mortgage is not worth keeping. A home equity loan leaves that first mortgage alone and adds a second one, so it suits homeowners who want to keep the loan they have. Either way, the new payment counts against you when you qualify for the next house, and your current home becomes collateral for both loans.
Side-by-Side
The table compares the two paths on the points that matter most when the money is going toward another purchase. Figures for the cash-out column come from the wholesale conventional programs Lendmire works with and are subject to lender guidelines and full file review.
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: 7.18% as of November 5, 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.
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| What happens to your first mortgage | Paid off and replaced | Stays in place |
| Number of loans afterward | One larger loan | Two: the first plus a second lien |
| Typical leverage limit | 80% LTV on a one-unit primary home | Set by the second-lien lender’s own limits |
| Seasoning | Existing first mortgage at least 12 months old; 6 months on title | Varies by lender |
| Mortgage insurance | Above 80% LTV, with one wholesale exception | Not part of a typical second lien |
| Credit floor | 620 decision score on wholesale conventional | Varies by lender |
| Documentation | Full file review, appraisal | Varies; appraisal or valuation common |
| Effect on next purchase file | New payment counts as debt | Second payment counts as debt |
Treat the right-hand column as general direction. Home equity lenders set their own limits, and some set a higher credit floor than the conventional cash-out path. The left column reflects what Lendmire sees across the programs it places.
Can You Use Home Equity to Buy Another House at All?
Yes. Both paths are common ways to raise a down payment or reserves. A cash-out refinance pays off your old mortgage, and what is left over goes to you. Corporate Finance Institute describes it the same way: the old loan is paid off and a new one takes its place. A home equity loan is a lump sum borrowed against your equity. When you already have a mortgage, it becomes a second mortgage paid alongside the first.
Lendmire’s cash-out refinance programs page lays out the conventional lane in more detail. Lendmire is a broker, so it arranges these loans through wholesale lenders in the 16 states where it handles consumer lending. It does not lend directly.
Two limits apply to both paths. You cannot turn all of your equity into cash, because lenders typically want you to keep a meaningful cushion. And a government cash-out has its own occupancy rule: VA’s cash-out refinance requires you to live in the home you are refinancing, so it is not a route to fund a different house with equity.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance tends to win when the first mortgage itself is the problem, or when you want one payment instead of two. Several situations point that way.
Your current loan has little left worth protecting. If your existing mortgage does not have terms you would hate to lose, replacing it costs you little. You swap one loan for one loan, and the leftover proceeds fund the down payment.
You want a single, simple obligation. One larger first mortgage is easier to track than a first plus a second. The tradeoff is a bigger single payment and, often, a longer payoff horizon. A bigger payment and a longer payoff are not reasons to avoid the loan, but they are reasons to know your plan.
You have enough equity to clear the leverage cap. On the conventional path, the cap is 80% LTV on a one-unit primary residence and 75% on two- to four-unit primary homes, second homes, and investment property. Occupancy sets the leverage. If your home is worth a lot more than you owe, that room matters. Every figure here varies by lender and program, and guidelines, property type, leverage, and credit profile all apply.
You qualify on the cash-out conventional rules. The first mortgage being paid off must be at least 12 months old, measured note date to note date, and at least one borrower generally needs to have been on title for six months. Freddie Mac’s cash-out program carries the same six-month title idea. There are exceptions for delayed financing, inheritance, and legal awards. If you bought recently, the timing may rule this path out for now.
A wholesale no-mortgage-insurance lane fits your profile. Across the wholesale programs Lendmire places, one lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score and a 50% ratio ceiling on a thirty-year fixed, a primary residence, a conforming balance, and its own six months of seasoning. It is not written in Texas, where a homestead cash-out is capped at 80% of the home’s value by the state constitution. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Mortgage insurance is the usual cost above 80% LTV on the agency path, and the no-MI lane above is the exception. Where insurance applies, the borrower may request cancellation at 80% of the original value with good payment history, no subordinate liens, and no decline in value. The servicer must end it automatically at 78%. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
One caution. A cash-out loan is not an FHA or VA streamline. If you hold one of those loans and want equity, a streamline will not get it for you.
When a Home Equity Loan Is the Better Fit
A home equity loan wins when the first mortgage is the thing you most want to keep. Everything else about the decision flows from that.
You hold a first mortgage with terms you value. Replacing it would mean giving up whatever made it attractive. A second lien lets you borrow against equity without touching the first loan. That is the core logic, and it is the point where a home equity loan most clearly beats a cash-out refinance.
You need a defined lump sum. A home equity loan delivers one fixed amount. If you know roughly how much the down payment and reserves require, that clarity helps. These loans usually carry a fixed interest rate, though another CFPB page says they may be fixed or adjustable, so confirm the structure before you sign.
You are short of the cash-out requirements. If your first mortgage is under 12 months old or you do not meet the title rules, a second lien may be the only equity path open. Lenders set their own seasoning and leverage limits on seconds, so this is worth testing.
You want a smaller disruption to the first loan. You skip the payoff, the new first-lien file, and the term reset. You also take on a second set of costs. CFPB tells borrowers to compare more than the monthly payment, because these loans can carry upfront fees. The same goes for a cash-out refinance, so compare the full cost on both paths.
Home equity loans have a quirk worth knowing for the purchase file. Fannie Mae‘s Selling Guide allows borrowed funds secured by an asset, including real estate, as a source of down payment, closing costs, and reserves. The lender must still count the monthly payment on that loan as a debt, and it needs documentation of the loan terms and the transfer of funds.
What the Next Lender Counts
This is where many buyers get surprised. Whichever path you choose, the purchase lender sees more debt.
With a cash-out refinance, your old payment is replaced by one larger payment. With a home equity loan, your first payment stays and a second one is added. In both cases the new house adds its own payment on top. Underwriters test total debt against income, so the ratio on your next file reflects the whole stack. On most conventional files, the automated finding governs, with a total ratio ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45% depending on the reserve and score factors.
The equity does not come free. The payment you create to raise the cash is a payment you must qualify with.
Sequence matters too. If you draw the funds first, the new payment is on your credit file before the purchase lender reviews it. If you try to close the purchase first and borrow later, the purchase lender may not allow the secured loan as a source of funds. Ask the purchase lender how it wants the funds documented before you commit to a path.
Occupancy of the house you are buying also shapes the leverage you can get on it. On the agency purchase path, one-unit primary residences reach 95% LTV, or 97% for first-time buyers on the eligible programs. Second homes reach 90%. Investment property reaches 85% on one unit and 75% on two to four units. If your next house is a second home or a rental, confirm the property’s intended use before you size the down payment. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
The Risks Nobody Puts in the Headline
Both a cash-out refinance and a home equity loan put your current home on the line, because each one is secured by that house. A cash-out refinance does it by replacing your first mortgage with a larger one, while a home equity loan does it by adding a second lien on top of the existing mortgage.
Once the equity is borrowed, you have two properties’ worth of obligations tied to the same income. A stress test is worth doing before you apply. Ask what happens if one property sits empty for a few months, if your income dips, or if repairs hit both houses in the same year. If the answer is that you would be short, the borrowing is too big or the timing is wrong.
Many borrowers spend cash-out money on improvements or on paying down other debts. Using the cash toward a second purchase is a more concentrated bet, since both houses then depend on the same income and the same equity.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit. The IRS ties home equity interest to how the money is used, which matters when the cash goes toward another house.
Neither option is right for every buyer. If you cannot clear the leverage and ratio tests with room to spare, savings, a longer wait, or selling one property may serve you better than borrowing against both.
Key Terms Defined
LTV (loan-to-value): The loan balance divided by the home’s appraised value, shown as a percentage.
CLTV (combined loan-to-value): All liens on the home added together, divided by its value. It matters most when a second mortgage is involved.
Seasoning: The minimum time you must have owned the home or held the loan before a lender will allow a cash-out.
Second lien: A loan secured by the same home that is repaid after the first mortgage if the home is sold.
Limited cash-out (rate-and-term) refinance: A refinance that pays off the old loan and costs, with only small incidental cash back.
A Balanced Verdict
Pick the cash-out refinance if you are happy to replace your first mortgage, you meet the seasoning and leverage rules, and you prefer one loan to two. Pick the home equity loan if your first mortgage is worth keeping, you need a fixed lump sum, or the cash-out seasoning rules block you for now. Pick neither if the combined payments leave you with no cushion.
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 full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Can I use a streamline refinance to pull cash out for my next house?
No. FHA streamlines are underwritten as rate-and-term refinances with no cash out, and the VA IRRRL is for existing VA loans and gives no cash either. If you want equity from a government-backed loan, you need a cash-out product, and VA’s version requires you to live in the home you are refinancing.
How much equity do I need to keep?
Lenders typically want a cushion, and CFPB’s guide puts it at 10% to 20% of the home’s value. On the conventional cash-out path, the leverage cap is 80% LTV on a one-unit primary residence and 75% on two- to four-unit primary homes, second homes, and investment property, subject to lender guidelines.
Does the new payment count when I qualify for the next house?
Yes. A cash-out refinance replaces your payment with a larger one, and a home equity loan adds a second payment. The purchase lender counts those payments as debt, and the new house adds its own. Your total ratio has to fit within the lender’s ceiling.
Can I do a cash-out right after buying my current home?
Usually not. On the conventional path, the first mortgage being paid off must be at least 12 months old, and a borrower generally must have been on title for six months. Delayed financing, inheritance, and legal-award exceptions exist. A home equity loan may have different seasoning rules, depending on the lender.
Is mortgage insurance always required on a cash-out refinance?
No, though it is required above 80% LTV on the agency path, with one exception. 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 with a conforming balance. Where insurance applies, it can be cancelled at 80% of original value on request and ends automatically at 78%.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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. Corporate Finance Institute: Cash Out Refinance
2. Freddie Mac’s cash-out program
3. CFPB
4. Fannie Mae
5. IRS: Real estate taxes, mortgage interest, points and other property expenses
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 Much Cash Comes Out of a Cash-Out Refinance to Access Cash From Home Equity? · How Much Cash Comes Out of a Cash-Out Refinance on a Rural Home With USDA Loan? · Cash-Out Refinance vs Home Equity Loan for a Retiree Divorce Buyout
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.