The Quick Read: A conventional cash-out refinance is usually off the table in your first year, because the agencies want the mortgage being paid off to be at least 12 months old. A home equity loan sits behind your first mortgage, so that rule does not apply to it directly. Lenders set their own waiting periods and equity limits for it. Which one fits depends on how you bought, which loan you hold, and how much equity you actually have.
The Honest Answer in One Paragraph
A cash-out refinance replaces your first mortgage with a new, larger one and hands you the difference. A home equity loan leaves your first mortgage alone and adds a second loan on top. In year one, the cash-out refinance is mostly for people in a narrow set of situations, such as a cash buyer using delayed financing. The home equity loan is for people with a low-balance, low-payment first mortgage they want to keep, who have built real equity, and who find a lender willing to lend against it this early. For most new owners with a small down payment, the true answer is neither. Equity is thin, and waiting is the cheaper move.
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.
Side-by-Side
| 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 | Two |
| Conventional leverage (one-unit primary) | 80% LTV | Set by each lender |
| Age of existing loan | First mortgage at least 12 months old | Agency rule does not apply; lender-specific |
| Time on title | 6 months, with exceptions | Lender-specific |
| Credit floor | 620 decision score on wholesale conventional | Varies by lender |
| Mortgage insurance | Not applied at 80% LTV or below | Typically not part of a second lien |
| Occupancy | Primary, second home or investment; occupancy sets leverage | Varies by lender |
| Documentation | Full income, asset and appraisal review | Full review; valuation method varies |
Program figures reflect what we see across the wholesale conventional programs and are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
What “Less Than a Year” Really Means
Two clocks run at once, and people mix them up.
The first is time on title. That is how long you have been on the deed. For a conventional cash-out, the wholesale programs we place files with look for a borrower on title for 6 months, with exceptions for delayed financing, inheritance and legal awards. Freddie Mac’s Guide section 4301.5 has its own ownership requirement and an exception table. Check the exact wording there, because the details differ by situation.
The second is loan age. The mortgage you are paying off must be at least 12 months old, counted from its note date to the note date of the new loan. Fannie Mae’s Selling Guide B2-1.3-03 sets that rule, and Fannie Mae’s announcement explains it applies to note dates on and after April 1, 2023. Freddie Mac applies a similar loan-age rule.
Here is the catch. Six months on title does not beat a 12-month loan age. If you bought with a mortgage last spring, you can be well past six months and still blocked.
Home appreciation does not fix this either. Extra equity is not one of the listed exceptions.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance wins when you can actually qualify for it and the bigger picture favors replacing the loan. In your first year, that is a short list.
You bought with cash. Fannie Mae’s guide includes a delayed financing exception for recent all-cash buyers. You can take a loan against the home without waiting out the usual clocks, though the source of your purchase funds must be documented. Cash-out pricing and leverage still apply. It does not help if a mortgage funded the purchase.
You inherited the home or received it through a legal award. The agencies carve out exceptions here. The details are specific, so a lender needs to review your file.
Your current first-mortgage terms are not worth keeping. If you would be giving up a first mortgage you like, a cash-out refinance is the wrong tool. If the opposite is true, replacing it in one move can simplify things: one loan, one payment. You still need to be past the loan-age rule.
You want a single payment and a fresh start. The consumer protection agency notes in its comparison of home equity products that depending on the terms, a cash-out refinance may be more or less expensive than a HELOC. Neither is automatically cheaper.
Past the one-year mark, leverage on a one-unit primary residence runs to 80% LTV on the conventional programs. Two- to four-unit properties, second homes and investment properties run to 75%. Occupancy sets the leverage. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
One more lane to know about. Across the wholesale programs Lendmire places files with, there is a conventional cash-out reaching 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio and a thirty-year fixed on a primary residence with a conforming balance. It has its own six months of seasoning. Subject to lender guidelines. For details on how Lendmire arranges these loans, see its cash-out refinance programs page.
In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution. The wholesale lane above is not written there.
Government loans change the answer
An FHA cash-out is generally unavailable on a home you have owned under 12 months, since FHA looks for 12 months of ownership and occupancy before the case number is assigned. Have your loan officer confirm the current FHA requirement for your file. VA is different. VA’s seasoning test applies only when the loan being refinanced is itself a VA loan, per the VA Lenders Handbook, Chapter 6. Every VA cash-out also has to show a net tangible benefit. Lenders may add their own waiting periods on top.
When a Home Equity Loan Is the Better Fit
A home equity loan fits when your first mortgage is worth keeping and you have genuine equity.
According to the Consumer Financial Protection Bureau, a home equity loan lets you borrow against your home’s equity, usually as a lump sum with a fixed rate. If you already have a mortgage, it becomes a second mortgage you pay in addition to the first, as the bureau explains.
Three situations point this way:
- You hold a first mortgage you do not want to lose. The first loan stays untouched. That matters if its terms suit you better than anything you could get today.
- You only need a modest amount. A second lien covers a defined sum without rewriting your whole mortgage.
- You own the home for less than a year. The 12-month rule targets a first mortgage being paid off, and a home equity loan does not pay it off, so that clock does not block a second lien in the same way. Lenders can and do set their own minimum ownership time, so ask.
The hard part is equity. Lenders cap the combined balance of both loans against the home’s value, and those limits vary. If you put down a small amount, your equity may be too thin to borrow against at all. Run that math before you apply.
Here is how that looks. Picture a buyer who put 5% down and bought last year. Even after modest appreciation, the first mortgage may already use up most of what a lender will allow on the combined balance. A second lien then has almost no room. A buyer who put 20% down has far more room. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
(Valuation also matters. For a recent purchase, lenders often want an appraisal or other valuation, and the product type affects which one. Expect the value to be tested, not assumed.)
What Each Option Costs You Besides Money
Both loans use your home as collateral. If you cannot repay a home equity loan, the lender could foreclose, the CFPB warns. The same goes for a cash-out refinance, where the whole balance is secured by the home.
A cash-out refinance gives up your current first mortgage. A home equity loan keeps it. If your first mortgage is one you like, that matters more than almost anything else on the page.
Upfront fees apply to home equity loans, too. Compare the total cost of each path using the Loan Estimate you receive.
On the credit side, a new loan means a new inquiry and a new account. If you are mid-purchase on anything else, hold off on new credit.
Key Terms Defined
Seasoning: the waiting period a lender or agency requires before a loan or ownership qualifies.
Time on title: how long your name has been on the deed to the property.
Loan age: how long the existing mortgage has been in place, measured from its note date.
Combined loan-to-value (CLTV): all loans against the home added together, divided by its value.
Lien position: the order in which lenders get paid if the home is sold or foreclosed. A first mortgage is first. A home equity loan is second.
Delayed financing: an exception letting a recent all-cash buyer take a cash-out loan without the usual wait.
Which Applies to You?
| How you got the home | Likely path | Why |
|---|---|---|
| Bought with cash | Cash-out refinance via delayed financing | Exception to the usual clocks |
| Bought with a mortgage, under 12 months | Home equity loan, or wait | Loan-age rule blocks conventional cash-out |
| Inherited or legal award | Ask about exceptions | Agencies carve these out |
| FHA loan, under 12 months | Home equity loan, or wait | FHA looks for 12 months of ownership |
| VA loan, refinancing a non-VA loan | VA cash-out may be possible | VA seasoning applies only to VA-to-VA |
Every row is subject to lender guidelines and full file review.
What to Do in Your First Year
If you are inside the window, you have three moves.
Wait. For many people, this is a more affordable option. Time fixes the loan-age rule, and payments build equity.
Use a different product. If you want a better first-mortgage structure rather than cash, a rate-and-term refinance on a one-unit primary residence runs to 95% LTV (97% for some first-time-buyer programs). The new loan pays off the existing first mortgage, closing costs and any purchase-money second lien, with only incidental cash back. Fannie Mae’s cap is the lesser of 2% of the new loan amount or $2,000. Freddie Mac’s is the greater of 1% of the new loan amount or $2,000. Mortgage insurance applies above 80% LTV, with the no-MI wholesale cash-out lane described above as the exception. If you hold an FHA or VA loan, the FHA Streamline and VA IRRRL are the streamlines. The IRRRL is VA-to-VA only and is not a cash-out. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Prepare now. Keep your documents current. Hold off on new credit. Get a sense of your home’s value.
For more context, Lendmire’s piece Cash-Out Refinance vs. Home Equity Loan When You Need Full Value covers the equity side in more depth.
The Verdict
Neither option is better in the abstract. In your first year, the cash-out refinance is mostly gated by the 12-month loan-age rule, with exceptions that fit only a few buyers. The home equity loan is more accessible on paper, but it depends on lender overlays and on whether you have enough equity to borrow against.
If you bought with cash, inherited, or hold a VA loan with a non-VA payoff, a cash-out may be reachable now. If you bought with a mortgage and a small down payment, waiting is usually the stronger play. If you have real equity and a first mortgage worth keeping, a home equity loan is the one to price. A full file review decides what actually applies.
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
Can I do a cash-out refinance right after buying a home?
Usually not on a conventional loan. The mortgage being paid off must be at least 12 months old, measured note date to note date. The main exception is delayed financing for recent all-cash buyers. FHA also looks for 12 months of ownership and occupancy, while VA’s seasoning test applies only to VA-to-VA refinances.
Does a home equity loan have a waiting period?
No agency rule I found sets one for a second lien. Lenders set their own, along with their own equity and combined-loan limits. Ask each lender directly before you apply. A lender can say no based on thin equity alone.
How much equity do I need?
For a conventional cash-out on a one-unit primary residence, leverage tops out at 80% LTV, so you need at least 20% equity left after the new loan. A home equity loan depends on the lender’s combined-loan limit. Small down payments often leave too little room for either.
Will I lose my current mortgage if I refinance?
Yes. A cash-out refinance pays off and replaces your first mortgage. A home equity loan leaves it in place and adds a second payment on top. If your first mortgage has terms you like, that difference matters most.
Is a cash-out refinance cheaper than a home equity loan?
Not always. Compare the total cost on each Loan Estimate, not just the monthly payment.
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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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 Guide Section 4301.5
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. Fannie Mae Capital Markets, Updates to Cash-Out Refinance Eligibility
4. CFPB: Loans similar to a HELOC
5. VA Lenders Handbook (Pamphlet 26-7), Chapter 6
6. Consumer Financial Protection Bureau
7. CFPB: Home equity loan vs HELOC
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 Lenders Underwrite a Cash-Out Refinance After Owning the Home Over a Year · How to Replace Your Old Loan With a Cash-Out Refinance · How to Use Cash-Out Refinance Proceeds as Reserves on the Same Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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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.