The Quick Read: A conventional cash-out refinance replaces your current first mortgage with a larger one and hands you the difference as cash, and you can spend that cash on any project. On a one-unit primary residence the new loan generally tops out at 80% of the appraised value, so the loan has to cover your payoff, your closing costs and your project budget inside that cap. If the project cost fits, this is the simplest way to fund it. If it doesn’t, a renovation product or a second lien may reach further. Everything here is subject to lender guidelines and full file review.
What a Cash-Out Refinance Actually Does
A cash-out refinance pays off your existing first mortgage and gives you a new one. The new balance is bigger than the old one. The gap, after costs, comes to you as cash.
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.
Freddie Mac’s Guide defines it as a mortgage with no specific restriction on how the proceeds are used. That covers two cases: paying off an existing first lien, and putting a new mortgage on a home you own free and clear. A free-and-clear home still counts as cash-out.
No use-of-proceeds restriction means you don’t submit contractor bids on a standard cash-out. The lender doesn’t hold the money back for the work, and it doesn’t inspect progress. You get the funds and you run the project. That is the main difference from a renovation loan, covered below.
Lendmire is a mortgage broker licensed for consumer lending in 16 states. Across the wholesale programs it places files with, the conventional cash-out is the cleanest option when the project budget fits inside the equity cap. Lendmire’s cash-out refinance programs page lays out the program family.
How the Loan Is Sized, Step by Step
The short version: appraised value times the leverage cap, minus your payoff, minus costs. What’s left is your project money.
Here is the sequence a file follows.
1. Set the project budget. Start with contractor estimates. Add a contingency line, because a project that outgrows its funding is hard to fix after closing.
2. Check the clocks. The first mortgage being paid off must be at least 12 months old, counted from note date to note date. At least one borrower must also have been on title for 6 months. Exceptions exist for delayed financing, inheritance and legal awards. If you bought recently, check this step before anything else.
3. Apply and run automated underwriting. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, and the total ratio ceiling is 50%. Loans that go to manual underwriting follow ratio limits of 36% or 45%, with reserve and score factors from the Eligibility Matrix.
4. Get the appraisal. A standard cash-out is valued “as is.” The appraiser reports what the home is worth today, not what it will be worth after your project. That number sets the maximum loan.
5. Compute the ceiling. Multiply the appraised value by the leverage cap. Subtract the payoff of your current loan. Subtract closing costs and any fees you finance. The remainder is your cash.
6. Review the Loan Estimate and Closing Disclosure. These two documents are how you compare offers. Check the cash to you line against your project budget.
7. Wait out the cancellation window. Funds are disbursed after it ends (more on that below).
8. Run the project with your own contractor. Park the cash in a dedicated account and pay out on a draw schedule.
The Leverage Cap, in Plain Terms
The cap depends on how the home is used. This is the one table worth keeping.
| Property type | Cash-out leverage cap |
|---|---|
| One-unit primary residence | 80% |
| Two- to four-unit primary residence | 75% |
| Second home | 75% |
| Investment property | 75% |
Occupancy sets the number. Cash-out can be written on a primary residence, a second home or an investment property, and the property’s use decides which cap applies. Most readers of this piece are looking at the first row.
The Fannie Mae Eligibility Matrix is the agency’s own grid for these caps. Confirm the current version before you plan around any figure, since the matrix gets updated.
Think about what 80% means. At that cap, 20% of the home’s value has to stay as equity after the loan. You can’t borrow your full equity. Say your home appraises with roughly 40% equity. The cap lets you pull some of it out, but not all of it. Financed closing costs also use up room under the cap. Every dollar of fees you roll into the loan is a dollar less for the project.
One wholesale lane goes higher. It reaches 89.99% leverage with no mortgage insurance, but it needs 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 not written in Texas. It’s the exception, not the rule. Most files run on the 80% cap.
In Texas, a cash-out on a homestead is a Section 50(a)(6) loan. The state constitution caps it at 80% of the home’s value.
Mortgage Insurance and Credit Score
Mortgage insurance is required above 80% leverage on the agency path, with the wholesale no-MI cash-out lane above as the exception. The standard cash-out sits at or under 80%, so most borrowers won’t carry it on this product. When it does apply, you can request cancellation at 80% of the original value, given good payment history, no subordinate liens and no drop in value. The servicer must end it automatically at 78%.
Credit matters in two places. It has to clear the 620 floor. After that, the score and leverage band together set the price. Cash-out loans carry their own price grid, built from credit score and leverage. Fannie Mae states that a loan-level price adjustment applies to certain cash-out refinances based on those two inputs (see Selling Guide B2-1.3-03). You won’t see it as its own line on your disclosure. It is folded into the pricing. Better credit and lower leverage generally mean better pricing, though exact outcomes depend on the lender.
Reserves can trigger too. On automated Fannie Mae files, the matrix notes minimum reserves for cash-out refinances when the debt-to-income ratio is above 45%. Treat 45% as a reserve trigger, not a ceiling. The ceiling is 50%.
Where the General Rule Breaks
The 80% rule is where most plans first run into trouble. Here are the named edge cases.
Renovation loans are a different product. A standard cash-out values the home as it stands. Fannie Mae’s HomeStyle Renovation product sheet limits a refinance to 75% of the as-completed appraised value, and it requires a minimum renovation cost of $5,000. The matrix shows no cash-out option for a principal residence under HomeStyle. So the two products solve different problems. A renovation loan lends against future value and requires project documentation. A cash-out lends against current value and requires none.
Which one fits? If the work will add a lot of value and the as-is cap leaves you short, look at the renovation product. If the as-is cap covers the budget, the cash-out is simpler. Two real trade-offs here. The renovation route needs bids and inspections. The cash-out route needs the project to fit now.
Recent purchase. If you bought within the last year, the 12-month clock on the loan being paid off probably blocks you. The exception is delayed financing, for a home bought with cash. Freddie Mac’s Guide requires that the purchase Closing Disclosure show no financing secured by the property, that title show no liens, and that the source of purchase funds be fully documented.
Limited cash-out is a different thing. A rate-and-term refinance allows only incidental cash back. At Fannie Mae the cap is the lesser of 2% of the new loan or $2,000. At Freddie Mac it is the greater of 1% of the new loan or $2,000. If you want real project money, that product won’t deliver it. A rate-and-term refinance also runs to 95% leverage on a one-unit primary residence, which is why borrowers sometimes confuse it with cash-out. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Property-specific limits. Manufactured homes may face lower caps. Ask early.
Conforming limit. The new loan, including financed costs, has to fit under the conforming loan limit the FHFA sets each year. The limit varies by county. If your balance would land above it, jumbo programs take over, with their own score floors and leverage rules.
The Cancellation Window and Contractor Timing
On a refinance of your primary residence, federal rules give you a three-business-day right to cancel. The CFPB explains that Saturdays count as business days, while Sundays and legal public holidays don’t. The clock starts only after all required events have happened, including your receipt of the notice of the right to rescind.
Two points matter for a project. First, your money isn’t in hand the moment you sign. Don’t schedule a contractor deposit for closing day. Second, if you cancel, you still owe your original loan. Cancelling a refinance doesn’t cancel the old mortgage.
You can waive the window only for a bona fide personal financial emergency. A remodel start date usually isn’t one.
Cash-Out vs. the Alternatives
Four tools compete for the same job. Here’s how they differ.
| Tool | What happens to your first mortgage | Valuation basis | Documentation |
|---|---|---|---|
| Cash-out refinance | Replaced entirely | Current value | None on use of funds |
| Home equity loan | Stays in place | Current value | Varies by lender |
| HELOC | Stays in place | Current value | Varies by lender |
| Renovation mortgage | Replaced | As-completed value | Bids, plans, draws |
The big question is what you’re willing to replace. A cash-out swaps your whole first mortgage. That means the trade-offs hit the entire balance, not just the project amount. The CFPB’s research on cash-out refinances frames cash-out as a way to tap home equity, and it notes that closing costs on the new loan can be substantial, including origination, appraisal and title fees.
A second lien leaves the first mortgage alone. If the loan you have now is one you’d hate to lose, that matters. This is a genuine toss-up for plenty of borrowers: a cash-out gives you one payment and one loan, while a second lien protects what you already have. Run both side by side on the Loan Estimate.
What Goes Wrong on These Files
A few failure modes show up again and again.
The budget grows after closing. The cash-out is a one-time draw. If contractors come in over, there’s no draw schedule to go back to. Build the contingency in before you size the loan, not after.
Closing costs eat the margin. Lender fees, appraisal, title and prepaid items can be financed. Financing them uses equity room under the cap. A project that fit on paper can come up short once costs are netted out. Ask for the cash-to-you figure, not just the loan amount.
The seasoning clock. Borrowers learn about the 12-month and 6-month rules after they’ve picked a contractor. Check the note date on your current loan and your date on title first.
Treating the new payment as a rounding error. You’re replacing your whole mortgage with a larger one. Stress-test the new payment against your monthly budget before you apply, with a buffer for a bad year. If the new payment only works when everything goes right, size the project down or pick a different tool.
Break-even on a good existing loan. If your current mortgage terms are strong, replacing them is a real cost. Count what you give up on the whole balance, not just what you gain on the project money.
Refinancing mid-project. If work has already started or been paid for, cash-out can still be used to reimburse yourself, because use of funds isn’t restricted. But a renovation product would require documentation you may not have anymore. Talk to a loan officer before you start, not partway through.
Key Terms Defined
Cash-out refinance: A new first mortgage, larger than the one it replaces, that pays you the difference as cash.
Loan-to-value (LTV): The first mortgage divided by the home’s appraised value. CLTV adds other liens.
Seasoning: The minimum time a loan or ownership has to exist before cash-out is allowed.
Limited cash-out: A refinance that allows only small, incidental cash back, also called rate-and-term.
Loan-level price adjustment (LLPA): A pricing add-on tied to credit score and leverage, folded into the rate or points.
As-completed value: What the home is expected to be worth after planned renovation work, used by renovation loans.
Frequently Asked Questions
Can I use cash-out refinance money for any home project?
Yes. Freddie Mac’s Guide describes cash-out as having no specific restriction on how proceeds are used, so a remodel, an addition or a new roof all qualify. A standard cash-out doesn’t require contractor bids. A renovation mortgage does.
How much can I borrow for a remodel?
On a one-unit primary residence, the new loan generally reaches up to 80% of the appraised value. From that, subtract your current payoff and financed closing costs. What remains is your project cash. Two- to four-unit homes, second homes and investment properties run at 75%. All of it is subject to lender guidelines and file review.
Does the appraisal count the value my project will add?
Not on a standard cash-out. The appraisal reflects the home as it is today. Renovation products can use an as-completed value instead, which can reach further when the work adds a lot of value.
Can I cancel after I sign?
On a refinance of your primary residence, you have three business days to cancel, counting Saturdays but not Sundays or legal holidays. If you cancel, you still owe your original mortgage. Funds are disbursed after the window ends.
I bought my home recently. Can I still do a cash-out?
Usually not right away. The first mortgage being paid off must be at least 12 months old, and a borrower must have been on title for 6 months. Delayed financing for cash purchases, inheritance and legal awards are the named exceptions.
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. Call 828-256-2183 or request a quote.
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.
For the program’s current guidelines, see conventional loan programs.
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References
2. Fannie Mae Eligibility Matrix
3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. Fannie Mae HomeStyle Renovation product sheet
6. CFPB research: Cash-out refinances and paydown behavior
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 Reserves Are Verified on a Conventional Cash-Out Refinance? · Can You Use a Conventional Cash-Out Refinance Right After a Rehab? · How a Conventional Cash-Out Refinance Works for a First-Timer
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.