Conventional Cash-Out Refinance Rules — The Quick Read: Conventional cash-out refinance rules on a primary residence center on four tests. The new loan can reach 80% of the home’s value on a one-unit home, and 75% on a two- to four-unit home. The loan being paid off must be at least 12 months old. At least one borrower must have been on title for 6 months. The borrower must live in the home. Credit, debt-to-income ratio, appraisal and reserves then decide how much cash a file can actually produce, subject to lender guidelines and full file review.
Key Takeaways
- The 80% cap applies to the total new loan, not to the cash you receive. The payoff, closing costs and any other liens come out first.
- Two clocks run at once: 6 months on title and 12 months on the existing first mortgage. Named exceptions exist.
- A mortgage placed on a home you own free and clear still counts as cash-out.
- Cash-out pricing rises with higher leverage and lower credit scores, so equity beyond what you need has a cost.
- Moving other debt into the mortgage puts your home behind that debt.
What Is a Conventional Cash-Out Refinance?
A cash-out refinance replaces your current first mortgage with a larger one and hands you the difference. The new loan pays off the old loan, the closing costs and any liens that must be cleared. Whatever remains goes to you. Fannie Mae’s Selling Guide describes it as a new first mortgage that pays off the existing mortgage on the same property, and it can also be a new loan on a property with no mortgage lien.
“Conventional” means the loan is eligible for sale to Fannie Mae or Freddie Mac rather than insured by FHA or guaranteed by VA. Across the wholesale programs Lendmire works with, this is the lane most homeowners with solid credit and real equity start with. Lendmire is a mortgage broker licensed for consumer lending in 16 states. It arranges these loans through wholesale lenders and does not lend itself.
A home equity loan or HELOC is a different tool. Those sit behind your existing first mortgage and leave it in place. A cash-out refinance replaces the first mortgage entirely, so the old balance, term and rate all get reset. One more point on structure: Freddie Mac’s rules treat a new mortgage on a free-and-clear home as cash-out. Having no lien today does not make the loan a simple refinance.
How Much Can You Borrow? The Leverage Rules
The one-unit rule is 80% of value. On a one-unit principal residence, the conventional cash-out maximum is 80% loan-to-value. On a two- to four-unit principal residence, a second home or an investment property, it is 75%. Occupancy decides the leverage, and the primary residence gets the most room. The Fannie Mae Eligibility Matrix lays out these caps by occupancy and unit count, and the same 80% shows up in Freddie Mac’s one-unit cash-out rule.
Here is how that works in practice. Say a home appraises at a certain value. Multiply it by 80%. That product is the largest total loan, not your cash. From it, subtract:
1. The payoff of your current mortgage. 2. Closing costs and prepaid items, such as taxes and insurance deposits. 3. Any other lien that has to be paid off.
What is left is your cash. A borrower who owes 70% of the home’s value has only a thin slice of that 80% to work with. A borrower who owes 40% has far more. Subordinate financing that stays in place counts toward combined loan-to-value, so a second lien that remains can shrink the amount available.
Two limits sit alongside the percentage. The first is the conforming loan limit set by the Federal Housing Finance Agency, which varies by county and unit count and caps the size of a conventional loan. Above it, jumbo programs take over, with their own rules. The second is the appraisal. Freddie Mac’s cash-out product requires a new appraisal and inspection report, and the waivers that sometimes apply to other loans may not be available here. If the appraisal comes in low, the 80% math runs on the lower number, and your cash shrinks with it.
A Wholesale Lane That Goes Further
There is one structure worth knowing about. Across the wholesale network, a lane exists that reaches 89.99% loan-to-value with no mortgage insurance. It requires a 680 credit score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence and a conforming balance. It carries its own six months of seasoning. Texas homestead cash-outs are capped by the state constitution at the agency figure, so this lane is not written there. It is a niche option, and whether it fits depends on the file and the lender. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
The Two Clocks: Seasoning Rules
Seasoning is the waiting period before you can cash out. Two separate clocks apply, and borrowers often know only one.
Title clock. At least one borrower must have been on title for 6 months before the new loan is disbursed. Fannie Mae states this in its guide. Freddie Mac measures the same six months back from the note date.
Existing-loan clock. The first mortgage you are paying off must be at least 12 months old, counted from its note date to the new loan’s note date. Fannie Mae added this in Announcement SEL-2023-01 for loans with note dates on or after April 1, 2023, and Freddie Mac has a matching rule. A borrower can pass the title test and still fail the loan-age test, for example after a recent refinance.
Misreading these is a frequent stumbling block. “Six months of ownership” is not the only waiting period.
Who Qualifies? Occupancy, Credit and Ratios
For a primary residence cash-out, every borrower on the loan must occupy the home. That is Freddie Mac’s rule in Section 4301.5, and it is the reason the primary-residence lane gets the highest leverage.
Credit works like this. The wholesale conventional programs start at a 620 decision score, and some lenders set a higher floor on cash-out. For most files the automated underwriting finding governs, with a total debt-to-income ratio ceiling of 50%. Manually underwritten loans are held to 36% or 45%, depending on the reserve and score factors in the Eligibility Matrix. The matrix also notes that automated files with a ratio above 45% on a cash-out loan can trigger minimum reserve requirements. Reserves are the savings left after closing. Lenders count them as a cushion.
Waiting periods after credit events are agency rules, not Lendmire’s. They run four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. They can be shorter with documented extenuating circumstances.
Mortgage insurance usually does not enter the picture at the standard cap. Insurance is required above 80% loan-to-value, and a one-unit primary cash-out stops at 80%. If the file lands exactly at the cap, no insurance is typically needed.
How the Loan Moves Step by Step
1. Check the clocks. The lender confirms the 6-month title and 12-month loan-age tests and any exception. Title evidence and the mortgage history support this.
2. Confirm occupancy. Every borrower must live in the home.
3. Appraise. A new appraisal sets the value that the 80% cap is applied to.
4. Underwrite. Automated systems at Fannie Mae and Freddie Mac review credit, income and assets. A human underwriter reviews the file.
5. Size the loan. Value times the cap, minus the payoff, costs and other liens.
6. Handle taxes and escrow. Per Fannie Mae, real estate taxes can be rolled into the new loan if they are not more than 60 days delinquent and an escrow account is set up.
7. Close and wait out rescission. Because this is a consumer loan secured by your home, you get a Loan Estimate early and a Closing Disclosure before signing. After signing, a federal right to cancel gives you three business days. Saturdays count, Sundays and legal holidays do not. Funds are typically disbursed after that window ends.
Documents usually include the deed or title evidence, mortgage statements, the credit report, and income and asset records.
Where the General Rule Bends: Edge Cases
The rules above are the default. These cases change them.
Delayed financing. A borrower who bought with cash can do a cash-out refinance before six months of title. The original purchase must be arm’s-length, the settlement statement must show no mortgage financing, and the source of the purchase funds must be documented. Here is the catch: it still counts as cash-out, so the cash-out leverage cap and pricing apply. Freddie Mac has a matching exception, though the wording of the six-month tests differs between the agencies.
Inheritance, divorce and trusts. Fannie Mae allows exceptions for property that was inherited or awarded in a legal settlement, and for ownership through an eligible trust or an LLC the borrower fully owns. Freddie Mac handles related cases in the same section, including cooperative shares and leaseholds.
Student loan cash-out. Fannie Mae offers a named option where the proceeds pay off eligible student loans. The cash-out price adjustment is waived for those loans. It is narrow, but when it fits it removes a pricing layer.
Co-owner buyout. Freddie Mac’s special-purpose cash-out lets one owner buy out another without receiving cash. It is exempt from the 12-month first-mortgage rule.
Limited cash-out is a different product. A rate-and-term refinance, formally “limited cash-out,” pays off the existing first mortgage, closing costs and a purchase-money second lien, with only incidental cash back. It allows far higher leverage: 95% on a one-unit primary residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows. If your goal is a different term or payment rather than cash, this lane may fit better.
Other properties. If the home is a second home or rental, occupancy decides the leverage, and the cap drops to 75%. Manufactured homes face an even lower cap, which varies by lender. Fannie Mae does not allow cash-out refinances on second-home co-ops. Some states, Texas most notably, add their own home-equity rules, which are beyond a national overview.
What It Costs: Pricing and Budget Effects
Cash-out loans carry a loan-level price adjustment, a pricing add-on based on leverage and credit score. Fannie Mae’s guide confirms it applies to certain cash-out refinances. The general pattern is simple: higher loan-to-value and lower credit scores cost more. Pulling less cash, or staying further under the cap, can reduce that cost. The current structure of these adjustments came through FHFA direction and is described in Fannie Mae Lender Letter LL-2023-01.
The monthly budget changes too. The new loan replaces the old one, and the balance, term and rate can all differ. Research from the CFPB’s Office of Research, as reported by HousingWire, found that a typical cash-out refinance had a longer term and a larger payment than the loan it replaced. Closing costs also matter. If you pull a small amount of cash, those costs can eat much of it. Marketing terms like “no-closing-cost” refinance do not remove costs. They move them into the rate or the balance.
Moving credit card or auto debt into your mortgage can ease monthly cash flow and may help your score in the short term. It also converts unsecured debt into debt secured by your home. Defaulting on a credit card rarely costs you a house. Defaulting on a mortgage can. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Is a Cash-Out Refinance the Right Move?
This one is a genuine judgment call, and the answer flips on a few facts.
| Your situation | Cash-out refinance fits | Another route may fit better |
|---|---|---|
| Existing loan terms | Current loan is worse than what is available | Current loan terms are better than a new one |
| Amount needed | Large, one-time need | Small or ongoing need |
| Equity | Comfortable cushion under 80% | Little equity beyond the cap |
| Timing | Both clocks satisfied | Loan under 12 months old |
| Purpose | Repairs, debt payoff, one planned expense | Spending with no repayment plan |
If your current first mortgage has terms you like, replacing it just to reach equity may cost more than a second lien. If the goal is only a new term or payment, limited cash-out may do it with higher leverage. Common reasons borrowers use cash-out, according to CFPB survey data, are paying off other debts and home repairs or new construction.
Two practical points. First, an appraisal that comes in low is the most common surprise, and it reduces cash dollar for dollar at the cap. Second, if you plan to buy a rental with the proceeds, this article on using a primary-residence cash-out to buy a rental covers that specific path. For the leverage math in more depth, see the maximum LTV explainer for conventional cash-out loans.
If you are comparing programs, Lendmire’s cash-out refinance programs page outlines how the conventional lane is arranged.
Key Terms Defined
Loan-to-value (LTV): The new loan amount divided by the home’s appraised value, shown as a percentage.
Seasoning: The required waiting period on title or on your existing loan before a cash-out refinance is allowed.
Delayed financing: An exception that lets a cash buyer take cash out before the usual six months on title.
Loan-level price adjustment (LLPA): A pricing add-on that depends on leverage, credit score and loan purpose.
Limited cash-out refinance: A refinance that pays off the current loan and costs with only small cash back; also called rate-and-term.
Rescission: The three-business-day right to cancel a refinance secured by your home.
Reserves: Savings left after closing that a lender counts as a cushion.
For the end-to-end picture of how these loans work — qualification, structures, and the full process — see Lendmire’s complete DSCR loans guide.
Frequently Asked Questions
Can I take 80% of my home’s value as cash?
No. The 80% limit applies to the total new loan. Your current payoff, closing costs, prepaid items and any other liens come out of that figure first. Only what remains reaches you. A homeowner who already owes most of that 80% will see little cash.
How long must I own the home before a cash-out refinance?
At least one borrower generally must be on title for 6 months, and the loan being paid off must be at least 12 months old. Exceptions include delayed financing for cash buyers, inherited property and property awarded in a legal settlement. Each agency words its tests a little differently, so a lender reviews both.
Is a loan on a home I own free and clear really cash-out?
Yes. Freddie Mac treats a new mortgage on a free-and-clear home as cash-out, and Fannie Mae’s guide covers the same case. The leverage cap and pricing for cash-out apply, even though there is no loan to pay off.
When do I actually get the money?
After closing, a three-business-day federal right to cancel applies to most refinances secured by your home. Funds typically follow that window. You can waive it only for a bona fide personal financial emergency.
Does a cash-out refinance need mortgage insurance?
Not at the standard one-unit cap of 80%, because insurance is required only above 80% loan-to-value. Where a program goes higher, insurance can apply, and it cancels at 80% on request and ends automatically at 78% under the Homeowners Protection Act. All of it is subject to lender guidelines and full file review.
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.
For the program’s current guidelines, see a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging government-backed purchase loans and the down payment assistance options that sit on top of them through a wholesale lending network. Eligibility is determined by the lender on each file. 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
2. Freddie Mac Guide Section 4301.5
3. Fannie Mae Eligibility Matrix
4. Fannie Mae Announcement SEL-2023-01
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.
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.