The Quick Read: A conventional cash-out refinance replaces your current first mortgage with a larger one and pays you the difference. On a one-unit primary home, most files cap the new loan at 80% of the appraised value. Beyond equity, the file is tested on credit, debt-to-income, how long you have owned the home, how old your current loan is, and how the property is used.
Key Takeaways
- Equity: The 80% cap applies to the new total loan, not just the cash you receive. Your payoff and closing costs come out first.
- Credit and ratios: Wholesale conventional programs generally start at a 620 decision score, with a 50% total debt-to-income ceiling on most automated files.
- Two clocks: You typically need six months on title and a first mortgage that is at least 12 months old.
- Occupancy: Second homes and rentals get lower leverage than a primary home.
- Use of funds: The rules limit eligibility and leverage. They do not limit what you spend the cash on.
Every figure here is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
What Is a Conventional Cash-Out Refinance?
A conventional cash-out refinance is a new first mortgage that pays off your existing mortgage and hands you the leftover equity as cash. “Conventional” means it follows Fannie Mae or Freddie Mac guidelines rather than FHA or VA rules.
A rate-and-term refinance is different. It changes the rate or term, pays off the first mortgage and closing costs, and allows only incidental cash back. If you take real cash at closing, the loan falls in the cash-out category. The category matters because cash-out files carry lower maximum leverage and extra pricing adjustments built into the loan.
One more case surprises people. A new mortgage on a home you own free and clear still counts as cash-out. There is no old loan to replace, so the whole loan is cash in your hands.
Across the wholesale lenders Lendmire works with, a mortgage broker arranging these loans sees the same pattern. Most cash-out files turn on appraised value and the two seasoning clocks. Credit score and ratios usually come second. Lendmire’s cash-out refinance programs follow that same logic.
The Requirements at a Glance
This table shows what each test checks and where the number comes from.
| Requirement | What it tests | Typical standard |
|---|---|---|
| Max loan-to-value, 1-unit primary | Equity left after cash-out | 80% |
| Max LTV, 2-4 units, second home, rental | Equity at higher-risk occupancy | 75% |
| Time on title | How long a borrower has owned | 6 months |
| Age of current first mortgage | Seasoning of the loan being paid off | 12 months, note date to note date |
| Credit score | Decision score on wholesale programs | 620 starting point |
| Total debt-to-income | Monthly debts against income | Up to 50% on most automated files |
| Appraisal | Current market value | Required |
Lender overlays can be stricter than the agency baseline. Some lenders set a higher credit floor or tighter ratios. Programs, lenders and borrowers differ, so use the table as a starting point, not a verdict.
How Is the Loan Underwritten, Step by Step?
Underwriting follows a fixed order. Each step either confirms the file or changes the structure.
1. Loan purpose is classified. The lender decides whether the loan is limited cash-out or cash-out. Taking meaningful cash, or paying off a non-purchase-money second lien, generally puts you in cash-out territory.
2. Title and seasoning are checked. The lender confirms the six-month title clock and the 12-month age of your current first mortgage.
3. The file runs through automated underwriting. Most conventional files run through the agencies’ automated systems. The finding weighs credit, ratios, reserves and equity together, so one number rarely decides it.
4. The appraisal sets the value. The appraised value, not your purchase price, sets your loan-to-value. Freddie Mac states that a new appraisal and inspection report are required on cash-out.
5. Payoffs are ordered. The lender gets payoff statements for your first mortgage and any other liens.
6. Pricing is applied. Cash-out loans carry price adjustments tied to credit and leverage. They are built into the loan terms. This article does not quote them.
7. The loan is disbursed. The title clock is measured to the disbursement date. The loan then funds and pays your liens, with the rest going to you.
Equity and Maximum Loan: How Much Cash Can You Actually Reach?
Your cash is the maximum loan minus everything that has to be paid first. The Fannie Mae Eligibility Matrix sets the cash-out ceiling at 80% of value on a one-unit principal residence. It sets 75% on two- to four-unit principal residences.
The cap applies to the total new loan. Here is a worked example in percentages only.
- Your home appraises at 100% of its value.
- Your current mortgage balance is 55% of that value.
- The 80% cap allows a new loan up to 80%.
- The gap is 25% of value.
- Closing costs, prepaid items and any other liens you pay off come out of that 25% first. What remains is your cash.
That is the “retained equity” idea. You must keep at least 20% equity in a one-unit primary home after the loan. Starting with only a little more than 20% equity leaves very little to take out.
A low appraisal shrinks the number directly. If the home appraises below what you expected, the 80% cap applies to the lower value. Your cash drops by 80% of the shortfall. A home that appraises low on a file already near the cap can leave no cash at all.
What About the Lane?
One wholesale lane Lendmire places files with reaches 89.99% loan-to-value with no mortgage insurance. It requires a 680 score, a 50% ratio and a thirty-year fixed rate. It also requires a primary residence, a conforming loan balance, and its own six months of seasoning. It is not available everywhere. In Texas, the state constitution caps a cash-out on the homestead at the agency figure, so this lane is not written there. Ask whether a given program fits your state and property before you build a plan around it. Exact terms depend on lender and investor guidelines, credit profile, reserves, and property review.
Mortgage insurance is the other side of leverage. It is required above 80% loan-to-value, and a borrower may ask to cancel it at 80% of the original value. The servicer must end it automatically at 78%. Standard cash-out loans stop at 80%, so most do not carry it.
Credit and Debt-to-Income: What Lenders Weigh
Credit sets your starting eligibility, and ratios and reserves decide how much cushion the file needs. Many borrowers need a higher score to reach the best pricing, because cash-out price adjustments rise with leverage and fall with stronger credit. Final eligibility is subject to lender guidelines, credit approval, reserves, and property review.
Debt-to-income compares your monthly debts to your gross monthly income. The automated finding governs most files, and the total ratio ceiling sits at 50%. Manually underwritten loans are tighter, at 36% or 45%, depending on the reserve and score factors in the Eligibility Matrix.
Reserves are the cash you hold after closing. On automated files, a higher ratio can trigger a reserve requirement. The Fannie Mae Selling Guide on cash-out refinance transactions ties that requirement to higher debt-to-income on automated files. Strong reserves can offset a tighter ratio. A thin file with a high ratio and little savings is where approvals tend to stall.
Past credit events carry agency waiting periods. They are 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. Lenders apply these on top of any program rules.
The ratio treatment of debts paid at closing is its own topic. Lendmire’s piece Conventional Cash-Out Refinance DTI Rules for Debts Paid at Closing covers it. It matters when you plan to use the cash to clear credit cards.
The Two Seasoning Clocks
Cash-out seasoning is two separate clocks, not one waiting period.
| Clock | What it measures | Typical standard |
|---|---|---|
| Time on title | How long at least one borrower has been on title | 6 months before disbursement |
| Loan age | How old the first mortgage you are paying off is | 12 months, note date to note date |
The title clock. At least one borrower must have been on title for six months. Time held in a revocable trust can count when you are the beneficiary. The agencies set the details. The Freddie Mac Seller/Servicer Guide counts certain LLC and partnership ownership time under conditions it lists.
The loan-age clock. The mortgage being paid off must be at least 12 months old. This often delays recent buyers and people who just refinanced.
Named Exceptions
- Inheritance or legal award. The title clock is waived when the lender documents that you inherited the home or were awarded it through divorce or separation.
- Delayed financing. If you bought the home with cash, you can take a cash-out loan soon after. The new loan is limited to your documented initial investment.
- Co-owner buyout. Freddie Mac’s special purpose cash-out lets one owner buy out another. Joint ownership generally must run 12 months before application, with heirs exempt. Cash back to the owner keeping the property is limited.
- Free-and-clear homes. These count as cash-out. Narrow exceptions exist for special programs.
Property Type, Occupancy and Special Cases
The more owner-occupied and simple the property, the more leverage you get. A one-unit principal residence reaches 80%. Two- to four-unit principal residences, second homes and investment properties are capped at 75%. Occupancy decides the cap. If you are weighing a cash-out on a multi-unit you live in, the DSCR vs conventional cash-out refinance requirements on a 2 to 4 unit shows how the lower tier plays out.
A few other rules catch people off guard.
- Listed for sale. The home must be off the market by the disbursement date.
- Past-due property taxes. Seriously delinquent taxes can be paid through the new loan. An escrow account is then required, subject to applicable law.
- Manufactured homes. Cash-out is allowed at a reduced leverage level compared with site-built homes. Check the live matrix for the exact tier.
- Other refinance types. Special programs like HomeReady are limited to rate-and-term. A high-LTV refinance is also a separate limited cash-out option.
- Student loan payoffs. The cash-out price adjustment can be waived when proceeds pay off eligible student loans.
- Loan limits. Conforming limits vary by county. Above them, a jumbo loan takes over with different rules.
What Documents and Appraisal Work Look Like
Expect to document income, assets, your current mortgage and your homeowners insurance. Salaried borrowers usually provide recent pay stubs and tax forms. Self-employed borrowers typically provide business and personal returns. Retirees provide award letters and account statements. Your lender will list exactly what your file needs.
The appraiser inspects the home and compares it to nearby sales. Repairs or condition issues that matter to value can slow the file or lower the number. Planned improvements do not raise the value until they are done. Do the work first if you can.
Is It Worth It? Costs and Decisions
A cash-out refinance is worth considering when the cash has a clear use and replacing the whole loan makes sense. It is harder to justify when you only need a modest sum.
You replace the entire first mortgage, so the rate, term and balance all reset. Closing costs, points and prepaid items can be financed into the loan. That keeps cash out of pocket, but the costs sit in the balance and grow with the loan. If a lender advertises a “no-cost” refinance, the costs are built into the rate or the balance. They have not disappeared.
Here is a simple decision test.
- Compare the loan you have with the full new loan, not just the cash.
- Ask whether the cash covers a purpose that justifies resetting the whole mortgage.
- Ask whether a smaller loan on a second lien would meet the same need.
Use of funds is open. Fannie Mae allows equity to be taken out for any purpose. The CFPB’s research on cash-out refinances adds a caution. Converting credit card or auto debt into mortgage debt puts your home behind that debt. Missing a card payment is unlikely to cost you the house. Missing a mortgage payment can. The same CFPB findings show that debt payoff and home repairs are the most common reasons people take cash out.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Cash-Out Refinance vs. Other Ways to Reach Equity
| Option | How it works | Typical fit |
|---|---|---|
| Cash-out refinance | Replaces first mortgage with one larger loan | Large sum, you want one payment |
| Home equity loan | Fixed second lien beside your first mortgage | Keep a first mortgage you like |
| HELOC | Revolving second lien you draw from | Ongoing or uncertain needs |
| Rate-and-term refinance | Changes terms, minimal cash back | No cash need |
A second lien leaves your first mortgage untouched, which helps when you are happy with the loan you have. A cash-out refinance gives you one loan and one payment. Neither is better in the abstract. It depends on the size of the need and how you feel about your existing first mortgage.
Key Terms Defined
- Cash-out refinance: A new first mortgage that pays off the old one and gives you the extra equity in cash.
- Loan-to-value (LTV): The loan amount divided by the appraised value of the home.
- Seasoning: The minimum time you have owned the home or held the loan before a refinance qualifies.
- Debt-to-income (DTI): Your monthly debts divided by your gross monthly income.
- Reserves: Savings you still have after closing, counted in months of payments.
- Limited cash-out refinance: A refinance that pays off the first mortgage and costs, with only minor cash back.
Weighing Your Options
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 is a mortgage broker arranging conventional, FHA, VA and jumbo loans through wholesale lenders in 16 states. Program terms depend on your file and lender guidelines.
Frequently Asked Questions
What credit score do I need for a conventional cash-out refinance?
Wholesale conventional programs generally start at a 620 decision score. Some lenders set a higher floor, and a higher score tends to improve pricing on cash-out loans. The automated finding weighs credit with ratios, reserves and equity, so the score is one input among several.
Can I use the cash for anything?
Yes. The agencies place no restriction on how you spend the proceeds. The limits fall on eligibility and leverage instead. Paying off other debts and funding home repairs are the most common uses. Remember that debt moved into a mortgage is secured by your home.
How long must I own the home before a cash-out refinance?
At least one borrower typically needs six months on title. The mortgage being paid off must also be at least 12 months old. Inheriting the home or being awarded it in a divorce can waive the title clock, and delayed financing covers recent cash purchases.
Can I do a cash-out refinance if my home is listed for sale?
Not unless it comes off the market. The listing must be withdrawn by the disbursement date. If you plan to sell soon, the costs of refinancing rarely make sense.
Does paying off a home I own outright count as cash-out?
Yes. A new mortgage on a home with no existing lien is treated as cash-out, because the loan puts cash in your hands. The same 80% cap applies to a one-unit primary residence.
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. Freddie Mac Cash-Out Refinance Product Page
2. Fannie Mae Eligibility Matrix
3. Fannie Mae Selling Guide B2-1.3-03 Cash-Out Refinance Transactions
4. Freddie Mac Seller/Servicer Guide Section 4301.5
5. Freddie Mac Guide 4301.6 Special purpose cash-out
6. CFPB: Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
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: Can a Conventional Cash-Out Go Above the Cap Without Mortgage Insurance? · How Much Equity a Conventional Cash-Out Refinance Releases · The Case for a Conventional Cash-Out Refinance in the Second-Lien Era
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.