The Quick Read: A conventional cash-out refinance replaces your current mortgage with a new, larger one and pays you the difference in cash. “Conventional” means the loan is not insured or guaranteed by the government. It follows Fannie Mae or Freddie Mac rules instead. On a home you live in, the new loan generally tops out at 80% of the appraised value on a one-unit property, subject to lender guidelines and full file review.
Key Takeaways
- The new loan pays off your old first mortgage. You get what is left after payoffs and costs.
- The cap applies to the whole new loan, not to the cash you receive.
- On a one-unit primary home, the cap is 80% of value. On a two- to four-unit primary home, it is 75%.
- Two clocks apply: time on title and the age of your current loan.
- Every borrower on the loan must live in the home.
What Does “Conventional” Mean Here?
Conventional means the loan has no FHA insurance or VA guarantee behind it. Most conventional loans are “conforming,” which means they meet the rules of Fannie Mae and Freddie Mac, the two companies that buy mortgages from lenders. Those rules set the leverage limits, the credit standards and the paperwork.
Across the wholesale programs Lendmire places files with, those agency rules are the backbone of nearly every conventional file. A lender can add stricter rules of its own. That is why two lenders can read the same guideline and set different floors. Lendmire is a mortgage broker, so it compares those programs for you. It does not lend.
FHA and VA loans have their own cash-out versions, with their own rules. This page stays on conventional.
What Makes a Refinance “Cash-Out”?
A refinance is cash-out when you take equity out of the home for any purpose. Fannie Mae’s Selling Guide says the new loan must either pay off an existing mortgage on the same property or be a new loan on a home with no lien. It can also pay off other liens and finance closing costs.
Equity is the part of the home’s value you own: value minus what you owe. A cash-out refinance turns some of it into money.
Three situations still count as cash-out, and they surprise people:
- Paying off a second lien. A HELOC or second mortgage can be paid off in the new loan. Fannie Mae allows this for liens of any age.
- A free-and-clear home. If you own the house outright, a new loan on it is cash-out, because you are taking equity out.
- Rolling in costs. Financing closing costs, points and prepaid items is an acceptable use of the new loan.
Cash-Out vs. Rate-and-Term
A rate-and-term refinance (agencies call it “limited cash-out”) changes the interest rate or the loan term. It pays off the old first mortgage and the closing costs. It allows only incidental cash back. On a one-unit primary home, the wholesale programs we use reach 95% LTV on that type, compared with 80% for cash-out. LTV means loan-to-value: the loan balance divided by the home’s appraised value. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Lower leverage on cash-out is the agencies’ way of pricing in the extra risk of pulling equity out.
Cash-Out vs. a HELOC or Home Equity Loan
A cash-out refinance replaces your first mortgage. A home equity loan or HELOC leaves the first mortgage alone and adds a second loan on top. The CFPB’s research blog draws this same line. Replacing the first mortgage means you give up your existing loan terms. Keeping it means you keep them. For some homeowners, that single fact decides the whole question.
| Option | What happens to your first mortgage | What you end up with |
|---|---|---|
| Cash-out refinance | Paid off and replaced | One new, larger loan |
| Rate-and-term refinance | Paid off and replaced | One new loan, little cash back |
| HELOC or home equity loan | Stays in place | First mortgage plus a second loan |
Why the Primary Home Matters
Occupancy changes the rules. Freddie Mac’s Guide says that on a primary-residence cash-out, all borrowers must occupy the property. A co-borrower who lives elsewhere does not fit.
Occupancy also sets the leverage. Primary homes get the most generous limits. Second homes and investment properties get lower ones. In the programs we place, a cash-out on a second home is capped at 75%, and the same applies to investment property. This page covers primary homes only.
Property type matters too. One unit allows 80%. A two- to four-unit primary home drops to 75%, per the Fannie Mae Eligibility Matrix.
How the Loan Is Underwritten, Step by Step
Underwriting is the lender’s review of whether you and the home fit the program. Here is the order it usually follows.
1. Purpose is set. You tell the loan officer you want cash out, and why. The agencies place no restriction on how you use the money.
2. Ownership clocks are checked. More on these below.
3. Occupancy is confirmed. Every borrower lives in the home.
4. An appraisal is ordered. Freddie Mac’s cash-out product page calls for a new appraisal and inspection report. The appraised value drives everything after it.
5. Credit and ratios are reviewed. The wholesale conventional programs we use start at a 620 decision score. The automated underwriting finding governs most files, with a total debt-to-income ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45%, with reserve and score factors from the Eligibility Matrix. Some lenders set a higher floor than the agency, so a file that misses one lender can fit another.
6. The LTV cap is applied. The cap multiplies against appraised value and sets the largest loan allowed.
7. Payoffs are arranged. Your old first mortgage, any other liens and financed costs come out of the new loan.
8. You close and receive the difference.
Debt-to-income, or DTI, is your monthly debts divided by your monthly gross income.
Reserves
Reserves are savings you could tap after closing. Fannie Mae’s matrix ties a reserve requirement to automated-underwriting loans with a DTI above 45%. A cash-out can push DTI up, so check this before you count on the numbers. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The Math: Cash In Hand Is Not “Available Equity”
This is where most online examples go wrong. The cap applies to the new loan in total. The new loan then has to cover everything before you see a dollar.
Take a home at an appraised value of 100 units. On a one-unit primary home, the new loan can reach 80 units. Say the old mortgage balance is 50 units, and costs and other liens take another 3. You walk away with about 27 units. (These are illustrative proportions, not a quote.)
Cash to you equals the new loan, minus the payoff, minus any other liens, minus financed costs.
Two takeaways follow:
- The more you owe, the less cash the cap leaves you. A home with a small balance yields much more cash than one with a large balance.
- Closing costs shrink the check. Describe them honestly to yourself: they are real, and they are either paid at the table or added to the loan.
Closing costs and any pricing adjustments appear on your Loan Estimate and Closing Disclosure. Compare those documents line by line.
The Two Seasoning Clocks
Seasoning is the waiting period a lender wants before it will let you refinance. Cash-out has two of them, and people mix them up.
Clock one: time on title. At least one borrower must have been on title for at least six months before the note date, per Freddie Mac’s Guide. The note date is the date you sign the loan.
Clock two: age of the loan being paid off. If the cash-out pays off your first mortgage, that mortgage must be at least 12 months old, counted from its note date to the new one. Fannie Mae’s Selling Guide carries the same 12-month test. Freddie Mac adopted it as well.
Wholesale lanes can layer their own seasoning on top. One lane we use 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. It carries its own six months of seasoning. Texas homestead cash-outs are the exception: that lane is not written there. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Where the Clocks Bend
- Delayed financing. If you bought with cash, you can refinance without waiting out six months, as long as the purchase was arm’s-length and you can document where the money came from.
- Inheritance. Freddie Mac notes no seasoning requirement for inherited properties.
- Legal awards. Property awarded in a divorce is generally treated as owned from the transfer date.
- Entity ownership. If title was held by an LLC or similar entity, Freddie Mac lets time in the entity’s name count toward the six months when certain conditions are met.
- Leaseholds and co-ops. The six-month test applies to the ground lease or the co-op shares.
Where the General Rule Breaks
Some cases carry their own rules:
- Special purpose cash-out. Using proceeds to buy out a co-owner, such as after a divorce, follows cash-out rules with modifications. Freddie Mac describes it in Guide section 4301.6.
- Student loan payoff. Fannie Mae waives its cash-out pricing adjustment when the proceeds pay off eligible student loans.
- Ineligible loans. Per Fannie Mae’s guide, a loan with a temporary rate buydown, a HomeStyle Energy loan, or a payoff of an installment land contract does not qualify as cash-out. A PACE loan with enough equity to pay it off must be paid off.
- Delinquent taxes. Property taxes more than 60 days past due can be financed, and an escrow account is then required unless law prohibits it.
- Manufactured homes. Cash-out leverage is lower, especially for single-width homes.
- State law. Some states add their own limits. Texas is the best-known example.
What the Loan Costs You Besides the Interest
Mortgage insurance applies above 80% LTV. Since the standard cash-out cap is 80%, it rarely comes up on the standard lane. It matters on rate-and-term, where leverage runs higher. Where it applies, you can request cancellation at 80% of the original value, and the servicer must end it at 78%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
The other cost is the loan-level price adjustment, or LLPA. It is risk-based pricing the agencies build into the loan. It generally rises with higher LTV and lower credit scores, and cash-out loans carry their own grid, as Fannie Mae’s LLPA matrix shows. You may not see it as a separate line. It can be folded into the pricing. That is why two borrowers with the same balance can get different terms.
Cash-out also resets your loan. New terms replace the old ones. The CFPB’s home equity guide notes that the monthly payment may rise, the payoff timeline may stretch, and that lenders typically want you to keep 10% to 20% equity. No option turns 100% of your equity into cash.
Good Fit, Not a Fit
| A good fit | Probably not |
|---|---|
| You want a lump sum and a single loan | Your current loan terms are hard to replace |
| You can hold the 80% cap and the ratios | You need more cash than the cap leaves |
| Everyone on the loan lives in the home | A borrower lives elsewhere |
| Your loan is past 12 months and title past 6 | You are inside either clock with no exception |
A thought on small amounts: a modest cash-out can be hard to justify once you subtract costs. A HELOC may serve better there. This one is a real tradeoff, and it depends on how much you value keeping your current loan terms.
How Borrowers Actually Use the Money
According to the CFPB’s report, paying off other debts was the most common use, chosen by more than half of cash-out borrowers each year from 2014 to 2019. Home repairs or construction came second.
The CFPB also warns that paying non-mortgage debt with mortgage debt can raise foreclosure risk. Credit card debt is unsecured. Mortgage debt is secured by your house. Moving one into the other changes what is at stake.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off the old one and gives you the difference in cash.
Conforming loan: A conventional loan that meets Fannie Mae and Freddie Mac rules and size limits.
LTV (loan-to-value): The loan amount divided by the home’s appraised value.
Seasoning: The required time you have held title or the loan has existed before you can refinance.
LLPA: A risk-based pricing adjustment the agencies attach to a loan, built into its pricing.
Equity: The home’s value minus what you owe on it.
Before You Apply
Before you ask for numbers, pull together three items:
- The payoff amounts on every lien, including a HELOC.
- The date you took title and the date your current loan closed.
- A list of who will live in the home.
Then compare the cash-out against the alternatives. Lendmire’s cash-out refinance programs page lays out the conventional lane.
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 details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Can I take out all my equity?
No. On a one-unit primary home, the new loan tops out at 80% of the appraised value. That loan also pays off your old mortgage and costs first. The CFPB notes that no home equity option converts all your equity into cash.
Is a cash-out refinance the same as a HELOC?
They are different loans. A cash-out refinance replaces your first mortgage with one new loan. A HELOC sits behind your first mortgage as a second loan and leaves its terms alone.
How long must I own the home first?
At least one borrower must be on title for six months. The mortgage being paid off must also be at least 12 months old. Exceptions exist for delayed financing after a cash purchase, inheritance and legal awards.
Can a co-borrower live elsewhere?
Not on a primary-residence cash-out. Freddie Mac requires all borrowers to occupy the home. A different structure may exist, but it changes the occupancy and the leverage.
Do I need an appraisal?
Yes, in the standard process. Freddie Mac’s product page lists a new appraisal and inspection report for cash-out refinances. The appraised value sets the largest loan the cap allows.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. Freddie Mac Guide Section 4301.5
4. Fannie Mae Eligibility Matrix
5. Fannie Mae Eligibility Matrix (media copy)
7. LLPA matrix
8. CFPB, Using Home Equity Guide
9. CFPB newsroom: cash-out borrowers’ credit scores
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Fannie Mae Cash Out Refinance LTV Investment · Refinance Appraisal Came In High: Can You Borrow More Or Drop PMI Sooner? · Conventional Refinance Debt-to-income Limits: 45%, 50% And The Compensating Factors
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.