The Quick Read: Choosing a program comes down to four checks: how much equity you can reach, whether you pass both seasoning clocks, how the property is used, and what the cash is for. On a one-unit primary home, conventional cash-out tops out at 80% of the home’s value. Two- to four-unit homes, second homes and investment property top out at 75%. A rate-and-term refinance is a different product. If you only need to fix the loan you have, that product may fit better than taking cash out.
Key Takeaways
- Conventional cash-out replaces your first mortgage with one new, larger loan. Leverage caps keep you from borrowing against all of your equity.
- Two clocks apply: the loan being paid off must be at least 12 months old, and a borrower must have been on title for 6 months. Exceptions exist.
- Property use sets the cap: 80% on a one-unit primary residence, 75% on the other categories.
- Some wholesale programs reach higher leverage without mortgage insurance, with their own credit, ratio and seasoning conditions.
- Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What Is a Conventional Cash-Out Refinance?
It is a new first mortgage that pays off your existing first mortgage and puts the extra cash in your hands. The loan is “conventional” because it follows Fannie Mae or Freddie Mac rules without FHA or VA backing. Fannie Mae’s Selling Guide defines it as a new first mortgage on the same property that pays off the existing mortgage, or a new mortgage on a home owned free and clear.
It is not a second mortgage. A home equity loan or HELOC sits on top of your first loan. A cash-out refinance replaces it. That is the central trade-off: you give up the first mortgage you have in exchange for one new loan.
Lendmire is a mortgage broker. Across the wholesale programs it places files with, the cash-out lane is where file problems cluster, because the rules stack: leverage, seasoning, credit, ratios and appraisal all have to line up.
How Is the Loan Underwritten, Step by Step?
The deal works through the same sequence on nearly every conventional cash-out.
1. Classify the transaction. The underwriter decides whether it is a limited cash-out (rate-and-term) or a true cash-out. They carry different caps and different pricing.
2. Check the clocks. The first mortgage being paid off must be at least 12 months old, counted note date to note date. A borrower must also have been on title for 6 months.
3. Order the appraisal. The loan amount is set against appraised value, so the appraisal swings the available cash more than any other item.
4. Run the automated findings. Credit, income, total ratio, reserves and occupancy go through the agency automated system. Wholesale conventional programs generally start at a 620 decision score, and the automated finding governs most files with a total ratio ceiling of 50%.
5. Price the file. Credit score, leverage and occupancy all move the price. Cash-out loans carry risk-based adjustments that rate-and-term loans often avoid. The Fannie Mae Selling Guide says these adjustments apply to certain cash-out refinances based on LTV and credit score.
6. Disclose and close. You receive a Loan Estimate, then a Closing Disclosure before signing. On a primary residence, you also get a three-business-day right to cancel after signing, so funds are not released the moment you sign.
Some of this detail is easy to skip. Do not skip the cancel window if you need money on a specific date.
What Does the Equity Cap Actually Allow?
You cannot borrow against all your equity. The Fannie Mae Eligibility Matrix shows the leverage ceiling by property use, and the program parameters line up with it:
| Property use | Conventional cash-out cap |
|---|---|
| One-unit primary residence | 80% LTV |
| Two- to four-unit primary residence | 75% LTV |
| Second home | 75% LTV |
| Investment property | 75% LTV |
All of these are subject to lender guidelines and full file review. The new loan must also cover your payoff, any purchase-money second lien and financed closing costs. That is why “net cash” is always smaller than “home value minus balance.”
Say a home appraises at a given value and your payoff plus costs already eat most of the 80% cap. The cash left is the gap between that cap and everything the new loan has to retire. If the gap is thin, a cash-out may not be worth doing.
Texas homestead is a special case. The state constitution caps cash-out on the homestead at the agency figure, and the higher wholesale lane described below is not written there. State rules can add limits elsewhere too.
What Are the Two Seasoning Clocks?
Most borrowers meet one clock and miss the other. Check both.
Clock one: loan age. The first mortgage being paid off must be at least 12 months old, note date to note date. A recent refinance can block a borrower who otherwise looks perfect.
Clock two: time on title. At least one borrower must have been on title for 6 months. Freddie Mac’s Guide Section 4301.5 also requires all borrowers to occupy a primary residence in a cash-out transaction.
Exceptions to the title clock exist for delayed financing after an all-cash purchase, inheritance and legal awards such as a divorce decree. They are narrow. A lifetime gift by quitclaim deed is not an inheritance. Delayed financing still counts as cash-out for classification, pricing and caps, and it needs a clean paper trail: an arm’s-length purchase, a settlement statement showing no purchase financing, and documented source of funds.
Which Program Structure Fits Which Borrower?
The decision is rarely “conventional or nothing.” It is which structure matches the goal.
| Goal | Structure to compare | Why |
|---|---|---|
| Fix the loan, no real cash | Rate-and-term refinance | Higher leverage, simpler pricing |
| Pull cash from a 1-unit home | Conventional cash-out | 80% cap, agency rules |
| Pull cash, strong credit, conforming balance | Wholesale no-MI lane | Reaches 89.99% LTV, own conditions |
| Keep the first loan, add cash | Second lien (HELOC or home equity loan) | First mortgage stays in place |
| Existing FHA or VA loan | Government streamline | Different rules, may avoid an appraisal |
Rate-and-term. Often called limited cash-out. The new loan pays off the existing first mortgage, closing costs and a purchase-money second lien, with only incidental cash back. The program reaches 95% LTV on a one-unit primary residence. Fannie Mae’s announcement SEL-2025-08 sets the cash-back cap at the greater of 1% of the new loan balance or $2,000. Mortgage insurance applies above 80% LTV.
The higher-leverage wholesale lane. One wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence, a conforming balance and its own six months of seasoning. It is a specific lane, not a general rule, and it is not written in Texas. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Government streamlines. If your current loan is FHA or VA, compare the FHA Streamline or VA IRRRL before assuming conventional is the best option. Those products have their own seasoning and net tangible benefit tests. Above the conforming limit, jumbo lanes take over with a 660 decision score and different caps.
Lendmire’s cash-out refinance programs page lays out how the conventional lane compares across these options.
Where Does the General Rule Break?
Edge cases are where files stall. These are the named ones.
- Delinquent property taxes. A new loan that finances real estate taxes more than 60 days delinquent without establishing an escrow account is ineligible, except where the law does not allow escrow to be required.
- Co-owner buyout. Fannie can treat it as a limited cash-out refinance when written-agreement and joint-ownership conditions are met. Freddie calls it a special purpose cash-out refinance.
- LLC, LP or trust title. Time held by an entity can count toward the six months in some cases, which matters if you moved the home into a trust.
- Manufactured housing. Cash-out leverage is lower, and single-width homes face limits. Check program rules before planning around one.
- Affordable programs. HomeReady and Home Possible are mostly purchase and no-cash-out refinance products. A cash-out generally means moving to standard conventional.
- Renovation products. HomeStyle Refresh transactions are classified differently. A HomeStyle Renovation limited cash-out used to buy out a co-owner cannot pay out cash proceeds.
- Credit events. Agency waiting periods apply: 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.
What Does Mortgage Insurance Do on a Cash-Out?
On the standard conventional cash-out, leverage stops at 80%, so mortgage insurance generally does not come into play. It matters on rate-and-term refinances above 80% and on the no-MI wholesale lane’s alternatives. Where it applies, you may ask to cancel it at 80% of original value with good payment history, no subordinate liens and no decline in value. The servicer must end it automatically at 78%. Published typical annual premiums run 0.58% to 1.86% of the balance. That is a range, not a quote.
What Does the Decision Look Like in Practice?
Work through these questions in order. Stop where the answer changes the plan.
1. What is the cash for? Paying off high-cost debt, funding a renovation and covering a one-time expense each point toward different tools.
2. How much do you really need? Taking more equity than the purpose requires adds balance and cost. Size the loan to the need.
3. Does the file pass both clocks? If not, check whether an exception applies or whether waiting is cheaper.
4. What does the cap leave you? Subtract payoff, any second lien and financed costs from the cap. If little remains, a second lien or no action may beat a full refinance.
5. Is the rest of your loan worth giving up? A cash-out resets the whole loan, including its term and interest cost. If your current first mortgage is strong, a second lien keeps it intact.
6. Does the paper trail hold up? Gather ID, income documents, the current mortgage statement, insurance information and title details. For delayed financing or a title change, add the settlement statement and source-of-funds records.
Consider three profiles. A homeowner consolidating card balances should weigh the risk: the CFPB has found that paying non-mortgage debts with mortgage debt can increase the risk of foreclosure. A homeowner funding a renovation on a one-unit primary home sits squarely in the 80% lane. A second-home owner works with the 75% cap and should expect tighter pricing and more review.
Closing costs can be rolled into the loan. That lowers cash due at closing but adds interest over time, as the CFPB’s closing disclosure guide explains. Check that the Closing Disclosure matches your Loan Estimate.
Key Terms Defined
LTV (loan-to-value): The new loan balance divided by the appraised value of the home.
Net cash: What you actually receive after the new loan pays off your mortgage, any second lien and financed costs.
Seasoning: The required age of your ownership or your current loan before a cash-out is allowed.
Limited cash-out (rate-and-term): A refinance that pays off the loan and costs, with only a small amount of cash back.
Delayed financing: An exception that allows cash-out soon after an all-cash purchase.
Loan-level price adjustment: A risk-based pricing add-on set by Fannie Mae and Freddie Mac. It is not a closing cost line from the lender.
Frequently Asked Questions
How much equity can I take out with a conventional cash-out refinance?
Up to 80% LTV on a one-unit primary residence, and up to 75% on two- to four-unit homes, second homes and investment property, subject to lender guidelines. The new loan must also pay off your first mortgage and any purchase-money second lien, so the cash you receive is smaller than the equity you see on paper.
Can I do a cash-out refinance right after buying a home?
Usually not. A borrower must have been on title for 6 months, and the loan being paid off must be at least 12 months old. Delayed financing after an all-cash purchase, inheritance and legal awards are the main exceptions, and each needs documentation.
Is a cash-out refinance the same as a home equity loan?
No. A cash-out refinance replaces your first mortgage with one new loan. A home equity loan or HELOC is a second lien that leaves your first mortgage in place. The right choice depends on how good your current first loan is and how much you need.
Do I get a chance to cancel after signing?
Yes, on a primary residence. A refinance carries a three-business-day right to cancel. A waiver requires a genuine personal financial emergency described in your own written statement, so plan any deadline around the window.
Can I get cash out above 80% LTV?
Sometimes. One wholesale lane reaches 89.99% LTV with no mortgage insurance for a primary residence on a conforming thirty-year fixed loan, with a 680 score and a 50% ratio. It has its own six months of seasoning and is not written in Texas. Everything is subject to full file review, and nothing here is a commitment to lend. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
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. Lendmire’s piece Should You Choose a Conventional Cash-Out Refinance Over a Second Lien? covers that comparison in more depth.
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.
For the program’s current guidelines, see conventional loan programs.
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References
1. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
2. Fannie Mae Eligibility Matrix
3. Freddie Mac Guide Section 4301.5
5. CFPB
6. CFPB’s closing disclosure guide
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: Conventional Cash-Out Refinance Requirements for a Clean File · Can You Get a Conventional Cash-Out Refinance on a Vacation Home? · How to Buy Out a Divorcing Spouse With a Conventional Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.