The Quick Read: In the first year, a home equity loan is usually the easier of the two to get, and a cash-out refinance is usually the better tool once you are past the waiting periods. A cash-out refinance replaces your mortgage with a bigger one and hands you the difference in cash. A home equity loan leaves your mortgage alone and adds a second loan on top. New buyers often run into a wall with the refinance, because conventional programs want your current mortgage to have some age on it.
Here is who each option is really for. The cash-out refinance fits you if you plan to stay put, you are past the waiting periods, and you are fine with a brand-new first mortgage. The home equity loan fits you if you like your current first mortgage, need a smaller lump sum, or are simply too early for a refinance.
Key Takeaways
- Conventional cash-out refinances run on two clocks: time on title and the age of the mortgage being paid off. The second clock is the one that tends to block new buyers.
- A home equity loan has no standard waiting period. Each second-lien lender sets its own, along with its own limit on total borrowing against the home.
- A cash-out refinance reprices your whole first mortgage. A home equity loan leaves your first mortgage as it is.
- Both loans use your home as collateral. Miss payments on either one and you could lose the house.
- Neither product is cheaper in every case. Cost depends on the terms of the specific loans you compare.
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.
Key Terms Defined
Loan-to-value (LTV): your loan balance divided by the home’s value, shown as a percentage.
Seasoning: the waiting period a lender wants before it will let you borrow again, measured in months.
Note date: the date you sign the loan’s promissory note. Lenders count loan age from this date.
Second lien: a loan that sits behind your first mortgage. If the home is sold or foreclosed, the first mortgage gets paid first.
Side-by-Side
Here is how the two compare on the points that decide eligibility. Conventional cash-out figures reflect the wholesale programs Lendmire places loans with, subject to lender guidelines and full file review.
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| What happens to your mortgage | Replaced by a new, larger one | Stays; a second loan is added |
| Maximum leverage | 80% LTV, one-unit primary home | Total limit set by the lender |
| Credit floor | 620 decision score at wholesale conventional | Each lender sets its own |
| Debt ratio | 50% total ceiling on most files | Each lender sets its own |
| Mortgage insurance | Above 80% LTV, except one no-MI lane | Typically none on a second lien |
| Occupancy | Primary, second home or investment; sets leverage | Lender-specific |
| Documentation | Full mortgage file and full appraisal | Varies by lender |
| Waiting period | Loan being paid off must be 12 months old | Lender sets its own |
A few notes on the table.
On leverage, 80% is the conventional cap for a one-unit primary home. Two- to four-unit primary residences, second homes and investment properties are capped at 75%. Occupancy sets the number, and that is all you need to know about it here.
One wholesale lane goes higher. It reaches 89.99% LTV with no mortgage insurance, but only at a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence and a conforming balance. It carries its own six months of seasoning. Lendmire’s cash-out refinance programs page lays out the leverage tiers if you want to see where your home lands. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
On documentation, a cash-out refinance is a full mortgage review. Expect it to feel like your original purchase loan, appraisal included. That appraisal sets the value, and the value decides how much cash is possible.
The Two Clocks That Decide Your Timing
Most borrowers hear “wait a year” and assume it means a year of ownership. It doesn’t. Conventional cash-out refinances run on two separate tests.
The first is time on title. Under Freddie Mac’s cash-out refinance rules, at least one borrower must have been on title for six months before the note date. Freddie Mac lists exceptions to that test.
The second is the age of the mortgage being paid off. When proceeds pay off a first mortgage, that loan must be at least 12 months old, counted from the old note date to the new note date. The lender documents it with the credit report or title commitment.
The second clock is the binding one. If you bought with a mortgage and closed a few months ago, you have passed neither test for a standard conventional cash-out. You can sit on title for six months and still be blocked.
Three exceptions are worth knowing:
- Cash buyers have a delayed-financing exception that lets them borrow against a home they bought outright, within the usual six-month window. Confirm the current terms with your loan officer.
- The no-MI wholesale lane described above uses its own six-month seasoning, separate from the agency test. It is narrow, so eligibility depends on every condition listed there.
- Inheritance and legal-award situations have their own exceptions to the title test.
One more trap. A refinance creates a new note date. Ask your loan officer whether a refinance now would restart the 12-month clock for a later cash-out. The agency wording measures note date to note date, so it can.
Where Does the Home Equity Loan Stand in Year One?
A home equity loan is a second mortgage with its own separate payment, and the CFPB notes it usually comes as a lump sum repaid monthly. Your first mortgage stays in place. Its note date, term and terms do not change.
That is the structural reason a recent buyer may find a second lien easier. There is no 12-month test on the old loan, because the old loan is not being touched. No agency sets a seasoning rule for second mortgages, so the lender sets its own waiting period. Some want months of ownership. Others look mainly at equity and credit.
The catch is equity. A second-lien lender caps your combined borrowing, first mortgage plus the new loan, as a share of the home’s value. If you bought with a small down payment, there may be little room under that cap. Say you put 5% down. You owe about 95% of the purchase price. A lender that stops combined borrowing well below that has nothing left to lend until the balance drops or the value rises.
Value is the other piece. This early, a lender may use the purchase price, a new appraisal, or both. A home that appreciated quickly can open room fast. A flat market may not.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance is the stronger choice when you are past the clocks and the new first mortgage makes sense on its own. It tends to work when:
- You want one monthly bill. A cash-out refinance leaves a single mortgage payment. The CFPB’s HELOC brochure makes the same point about single-payment structure.
- You need a larger amount of cash. Conventional cash-out reaches up to 80% LTV on a one-unit primary home. A second-lien lender may stop well below that.
- Your current mortgage is not worth protecting. If its terms are not something you want to keep, replacing it costs you nothing in lost benefit. Whether it makes sense is a question about the terms of the new loan, not a rule of thumb.
- You are eligible for the no-MI lane. If you qualify, you can reach high leverage without mortgage insurance, which may change the math.
- You plan to stay long enough. Closing costs on a refinance apply to the whole new loan balance, and the CFPB brochure notes that closing costs are generally higher on a cash-out refinance. A long holding period gives those costs time to pay off.
Mortgage insurance deserves a word. On conventional loans it is required above 80% LTV, except in that one wholesale no-MI lane. You can ask to cancel it 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%. That rule comes from the Homeowners Protection Act, and the “no subordinate liens” condition matters if you are weighing a second loan. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
A cash-out refinance can also stretch your payoff timeline, since it may extend the time it takes to pay off the mortgage. Weigh that against the cash you receive.
When a Home Equity Loan Is the Better Fit
A home equity loan is the stronger choice when you want to leave your first mortgage alone. It tends to work when:
- You are too early for a refinance. If your mortgage is a few months old, the second lien may be the only product open to you.
- You need a smaller amount. Closing costs on a second lien apply to the smaller new loan, not your whole balance. The CFPB’s guide points borrowers toward options with lower up-front costs.
- Your first mortgage is worth keeping. A second lien leaves its terms exactly as they are.
- You expect to move or refinance again soon. A short holding period favors the option with less to recover.
- You want a predictable repayment. The CFPB says a home equity loan usually has a fixed rate, so the structure is a lump sum with level monthly payments.
Two cautions. First, a second lien means a second payment, so your monthly budget has two obligations. Second, if you have mortgage insurance on your first loan, a second lien can complicate the request to cancel it, because cancellation requires no subordinate liens.
Texas borrowers face a different set of rules. A cash-out on a homestead is capped at 80% of the home’s value by the state constitution, and the wholesale no-MI lane is not written there.
Month by Month: What Is Open to You
| Ownership stage | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Early in ownership | Standard conventional is generally not available | Depends on the lender’s wait |
| Middle of the first year | Mostly unavailable; the no-MI lane has its own test | Depends on the lender’s wait |
| Past the first year | Available, subject to all other guidelines | Available, subject to lender terms |
The middle of the first year is where files get interesting. Standard conventional cash-out is still blocked by the 12-month loan-age test, which counts from note date to note date. The wholesale no-MI lane is the exception, and it requires every one of its conditions, including its own six months of seasoning. Check them all before you count on it.
What About FHA and VA Loans?
If your current mortgage is government-backed, the streamline programs do not help you pull cash out. The FHA Streamline needs an existing FHA loan, skips the appraisal, uses a limited credit review and requires a net tangible benefit. The VA IRRRL needs an existing VA loan, has no VA appraisal and also requires a net tangible benefit. It also carries seasoning of the later of 210 days and six payments. Neither one is a cash-out tool.
VA borrowers who want cash have a separate VA cash-out refinance, which has its own seasoning and a different funding fee. On the VA’s funding fee page, the IRRRL fee is 0.5% unless you are exempt, and the cash-out fee is higher. Lendmire’s piece VA Cash-Out Refinance Requirements Within a Year of Buying goes through those details.
Should a New Buyer Replace a Brand-New Mortgage?
Even if you clear every clock, ask whether you should. A refinance means a second set of closing costs within a short window of your purchase. A home equity loan adds one set, on a smaller balance.
Run it this way. Count the cost of the refinance as a share of the full new balance. Then count what you gain: lower leverage cost on the cash, a single payment, or a better structure. If you will not hold the loan long enough to earn that back, the second lien is the cleaner move.
Equity is the other brake. Take the buyer with a 5% down payment who owes 95% of the price. A cash-out at 80% LTV needs the balance to fall, or the value to rise, by 15 percentage points before any cash is possible. That gap closes through paydown and appreciation, and neither happens fast in year one. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Tax treatment of the interest on either loan can differ depending on how you use the money, so ask a tax professional before you choose.
The Verdict
This one is a genuine split. If you are early, need a modest amount and like the mortgage you have, the home equity loan is the practical pick. If you are past the clocks, need a larger sum and want one loan, the cash-out refinance is the cleaner structure.
Both put your home on the line. The CFPB’s brochure is direct on this: if you cannot repay on schedule, you could lose your home. Borrow what the project or purchase needs, not what the lender will allow.
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 six months after buying?
Usually not on a standard conventional program. Six months on title satisfies only one test. The mortgage being paid off must also be 12 months old, counted from note date to note date. Cash buyers and one wholesale no-MI lane have different tests, so ask about your specific situation.
Does a home equity loan have a waiting period?
It depends on the lender. No agency sets a seasoning rule for second mortgages, so each second-lien lender picks its own. Some want several months of ownership. Others focus on equity and credit. Ask before you apply, because the answer varies widely.
Will refinancing my first mortgage restart the 12-month clock?
It can, because a refinance creates a new note date, and the conventional test counts from note date to note date. If you may want cash later, ask your loan officer how a refinance now would affect the timing.
Can an FHA Streamline or VA IRRRL give me cash back?
No. Both are streamline programs built for existing government-backed loans. They are not cash-out tools. A VA cash-out refinance is a separate product with its own seasoning and funding fee.
Which one costs less overall?
It depends on the terms. Compare the full Loan Estimates, including closing costs on the full balance versus the new amount only.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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 §4301.5, Cash-out refinance Mortgages
2. CFPB Ask CFPB: similar loans to a HELOC
4. VA, Funding fee and closing costs
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 Qualify and Apply for a Cash-Out Refinance Six Months After Buying
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
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.