The Quick Read: Four checks tell you whether a conventional cash-out refinance is realistic. How old is your current first mortgage? How long has someone been on title? Do you live in the home? Does enough equity remain after the new loan? On a one-unit primary home the cap is 80% loan-to-value, and a file that fails that equity test rarely survives on strength elsewhere. Final eligibility is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
What a Conventional Cash-Out Refinance Actually Is
A cash-out refinance replaces your current first mortgage with a new, larger one. The new loan pays off the old one. You keep the difference 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: 7.40% as of October 15, 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.
“Conventional” means the loan follows Fannie Mae or Freddie Mac rules rather than FHA or VA rules. Those two agencies set the standards most wholesale lenders build on. As a broker, I place these files with wholesale lenders every week, and the same handful of tests decide most outcomes. Lendmire’s cash-out refinance programs run on those tests.
The Fannie Mae Selling Guide defines the transaction this way: the new first mortgage pays off the existing first mortgage on the same property. It can also be a new mortgage on a home with no lien at all. Own your home outright and take a loan against it? That still counts as cash-out. Many owners assume otherwise.
Freddie Mac puts no specific limits on what you do with the money. Debt payoff and repairs are common uses. The decision is yours.
A rate-and-term refinance, which the agencies call a limited cash-out refinance, replaces the loan and returns only small incidental cash. It can reach 95% loan-to-value on a one-unit primary home. A true cash-out caps at 80% on that same home, which means less leverage because you are pulling equity out. For a deeper look at the equity share, see Lendmire’s piece on sizing your equity share.
Key Takeaways
- The big four tests are loan age, time on title, occupancy, and post-loan equity.
- A one-unit primary residence caps at 80% loan-to-value. Two- to four-unit homes, second homes, and investment properties cap at 75%.
- Most wholesale conventional programs start at a 620 decision score, and the automated finding governs most files.
- Exceptions exist for inherited homes, court awards, and recent cash purchases.
- A “no” on one test often has a fix, and sometimes the fix is just waiting.
Key Terms Defined
Loan-to-value (LTV): The new loan balance divided by the home’s appraised value, shown as a percentage.
Seasoning: The waiting period a lender wants before you can refinance or cash out, measured from a set event like a note date.
Debt-to-income ratio (DTI): Your total monthly debt payments divided by your gross monthly income.
Note date: The date you sign the loan agreement. Seasoning is counted from this date, not from when you first applied.
Mortgage insurance: Coverage that protects the lender, required on conventional loans above 80% LTV. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Limited cash-out refinance: A refinance that pays off the existing first mortgage and closing costs, with only small incidental cash back.
The Four Tests, Step by Step
Think of this as a screening order. Run the tests in sequence and stop at the first one you fail. Each has a clear pass, borderline, or fix-first outcome.
Test 1: Is Your Current First Mortgage Old Enough?
The first mortgage being paid off must be at least 12 months old. The count runs from the existing loan’s note date to the new loan’s note date. The Fannie Mae guide excludes two cases: second liens being paid off, and a buyout of a co-owner under a legal agreement.
Pass: your loan closed more than a year before the new note date. Borderline: you are a month or two short. The fix is waiting, and waiting costs nothing. Applying early only wastes a credit pull.
Test 2: Has Someone Been on Title Long Enough?
At least one borrower must have been on title for six months before the new loan is funded. “On title” means your name is on the deed. For most owners this test is invisible because they have owned far longer.
It bites recent buyers. If you closed on the home a few months ago, the six-month clock matters. Three exceptions soften it.
- Delayed financing. You bought with cash, the purchase was arm’s-length, and the file documents the funds you used. The six-month wait is waived. The file must show no purchase-money financing.
- Inheritance or legal award. If the lender documents an inheritance, or an award in a divorce, separation, or dissolution of a domestic partnership, no waiting period applies.
- Entity ownership. Time in a majority-owned LLC counts toward the six months, though ownership must transfer to you personally to close. Time in a revocable trust counts when you are the primary beneficiary.
In the wholesale lane I work in, the same 12-month and six-month seasoning rules apply, with the same exceptions.
Test 3: Do You Live There?
On a primary residence, the property must be your home. Freddie Mac’s Guide section 4301.5 requires every borrower on a primary-residence cash-out to occupy the property.
Occupancy also sets leverage. A second home or investment property caps at 75%, not 80%. That is all this article will say about those property types.
Test 4: Does the Equity Survive the New Loan?
This test decides most outcomes. A one-unit primary residence is capped at 80% LTV on a cash-out refinance. Two- to four-unit primary residences, second homes, and investment properties are capped at 75%. The Fannie Mae Eligibility Matrix lists these caps by occupancy and unit count. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
The key word is “after.” You need equity left once the new loan is on the home, not just equity today. If your current mortgage already sits near 70% of the value, an 80% cap leaves room for about 10% of the value in new borrowing, before closing costs come out. If it sits near 78% or 79%, the room is nearly gone and the refinance may yield little cash.
Here is a quick method that needs no dollar figures. Take the appraised value and find 80% of it. Subtract your current payoff. What remains is the most cash the cap allows, before closing costs come out. If the answer is near zero, the refinance is probably not worth pursuing.
Appraised value drives all of it. An appraisal is required on a cash-out, and a value that comes in lower than you hoped shrinks the available cash. The CFPB also notes that none of the home-equity options lets you convert 100% of your equity to cash.
Credit, Income, and Ratios: The Supporting Tests
Past the four main tests, the file is underwritten on credit and ratios. Here is what I see across the wholesale conventional programs.
The programs I place start at a 620 decision score. On an adjustable rate under manual underwriting, the floor is 640. The automated finding governs most files, with a total ratio ceiling of 50%. Some lenders add their own, higher floors, which is why two lenders can give different answers on the same file.
Manually underwritten loans use ratios of 36% or 45%, with reserve and score factors set by the Eligibility Matrix. Reserves are cash left over after closing, counted in months of payments. Fannie Mae’s guide requires six months of reserves on certain automated files when DTI exceeds 45%.
One lane deserves a mention. A wholesale option reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% ratio. It must be a thirty-year fixed on a primary residence with a conforming balance, and it carries its own six months of seasoning. In Texas, the state constitution caps a homestead cash-out at the agency figure, so that lane is not written there. All of this is subject to lender guidelines and a full review of property, leverage, and credit.
Credit Events and Waiting Periods
A past credit event can sit between you and approval. The agencies set the waiting periods: four years from a chapter 7 discharge, seven years from a foreclosure, and four years from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
If you are inside a waiting period, equity does not fix it. Wait it out, or ask a loan officer whether your circumstances qualify for the shorter path.
Does Mortgage Insurance Apply?
On a standard cash-out at 80% or below, no mortgage insurance is needed. That is part of why 80% is the working ceiling. Above 80% LTV, mortgage insurance is required. A borrower can request cancellation at 80% of the original value with good payment history, no subordinate liens, and no decline in value. The servicer must terminate it automatically at 78% under the Homeowners Protection Act. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
The 89.99% wholesale lane noted above carries no mortgage insurance. Published typical annual premiums elsewhere run from 0.58% to 1.86% of the balance. That is a range, not a quote.
Where the General Rule Breaks
Most files fit the general tests. Some do not. These are the edge cases I see most.
Free and clear. No mortgage on the home? A new first lien counts as cash-out. Fannie and Freddie both treat it that way. The 80% cap and the occupancy rules apply.
Listed for sale. The home must come off the market on or before the disbursement date. A listing still active at closing can stop the loan.
Paying off a co-owner. The 12-month seasoning does not apply when you buy out a co-owner under a legal agreement, such as a divorce settlement. Freddie Mac also has a special-purpose cash-out path for some situations. A loan officer can tell you whether yours fits.
Energy-retrofit (PACE) liens. Freddie Mac requires the PACE obligation to be paid in full when a cash-out pays it off.
Student loan cash-out. Fannie Mae’s guide includes a section on student loan cash-out refinances with its own treatment. Ask for the details before assuming it fits your file.
Loan size. A cash-out must fit within your county’s conforming loan limit, which the FHFA sets by county and number of units. Balances above the limit fall into jumbo territory, where different rules apply. Check your county on the FHFA conforming loan limit page.
A Worked Scenario
Picture an owner with a one-unit primary residence. The current first mortgage closed more than a year ago. Her name has been on title for years. The first mortgage sits at about 60% of the home’s value.
At an 80% cap, she has room for roughly 20% of the home’s value in new borrowing, before closing costs come out. That is the ceiling, not a promise. If the appraisal comes in below her estimate, the room shrinks.
Now change one fact. Say her balance is already near 75% of the value. Only about 5% of room remains. Closing costs might consume most of it. The test passes technically, but the refinance is not worth doing.
The pass-or-fail line is not the whole story. Headroom is the real question.
What the Money Costs You in Practice
The new loan replaces your whole existing mortgage, not just the cash portion. It carries new terms, and repayment usually runs 30 years. The CFPB notes that a cash-out can lengthen the time to pay off your mortgage, and the monthly payment may rise because the new loan is larger.
Closing costs are itemized on the Loan Estimate and the Closing Disclosure. Some can be rolled into the loan. Higher LTV and lower credit also carry pricing adjustments, and the Loan Estimate shows what they cost you.
If you are replacing a loan you like with one you do not, the cash has to be worth it. Compare the cash-out against keeping your first mortgage and borrowing separately against the home. Know what you give up before you decide.
On debt consolidation, the CFPB’s research on cash-out borrowers found that paying off other debts was the most common reason for a cash-out. Credit scores rose after the refinance and then gradually worsened, though they stayed above pre-refinance levels. The same release warns that moving unsecured debt into a mortgage can raise foreclosure risk. Unpaid credit card debt does not put your house on the line. A mortgage does.
Near-Miss Playbook
When one test fails, the next step depends on which one.
| Failed test | What to do |
|---|---|
| Loan under 12 months old | Wait until the note date passes the mark |
| Under six months on title | Check for a delayed-financing or inheritance exception |
| Equity too thin | Wait for value or principal to build, or take a smaller amount |
| Ratio above the ceiling | Pay down debts before applying |
| Credit event inside waiting period | Wait, or ask about extenuating circumstances |
| Score below the floor | Pay down card balances and reapply |
One practical tip: do not open new credit or change jobs while a file is in process. Underwriters re-check both.
Conventional, FHA, or VA?
Conventional is not the only path. If your existing loan is FHA or VA, a government streamline may beat a cash-out when you want an easier credit review rather than cash. An FHA Streamline needs no appraisal on an existing FHA loan, and a VA IRRRL skips the VA appraisal on an existing VA loan. Neither returns meaningful cash. For help choosing between them, see Lendmire’s piece Conventional Cash-Out Refinance for Owners Picking a Loan Type.
If you want cash and have a high-balance loan, jumbo may be the answer. Above the conforming limit, jumbo lanes take over with a 660 decision score and leverage to 90%.
A conventional cash-out tends to fit when you want real cash, have sound credit, and keep meaningful equity after the new loan.
Before You Apply: A Short Sequence
1. Find your first mortgage’s note date and check that it is at least 12 months before the note date your new loan would carry. Your lender may apply its own timing on top of the agency rule. 2. Confirm your time on title, and note any exception that might apply. 3. Estimate your home’s value conservatively, then compare 80% of it against your payoff. 4. Pull your credit report and check for errors and recent credit events. 5. Gather pay stubs, tax documents, and bank statements. Self-employed borrowers should expect to show more income history. 6. Decide what you will do with the cash and whether it justifies replacing your whole loan.
After you apply, the lender delivers a Loan Estimate. It is not an approval. It lists terms and costs only. Before closing, you receive a Closing Disclosure. On a refinance of your home, you then get a three-business-day right to cancel before cash is disbursed.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Can I cash out right after I buy my home?
Usually not. Six months on title and a first mortgage at least 12 months old are the standard tests. Delayed financing is the main exception for cash purchases. Inherited homes and court awards also carry exceptions.
Does owning my home free and clear change anything?
It does not make the loan a non-cash-out. Fannie Mae and Freddie Mac both treat a new first lien on an owned-outright home as a cash-out. The 80% cap on a one-unit primary residence still applies.
Is there one minimum credit score?
Not a single universal one. The wholesale programs I place files with start at a 620 decision score, and the automated finding governs most files. Some lenders set higher floors. Your score also interacts with leverage and ratios.
Does a Loan Estimate mean I’m approved?
No. It is a standardized disclosure of terms and costs. Approval comes only after underwriting reviews your full file.
What if I’m denied?
Ask which test failed. Many denials trace to thin equity, a ratio over the ceiling, or a score under the floor. Each has a fix, and some need only time. A denial based on one lender’s overlay may not repeat elsewhere.
Next Step
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 your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. 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. Freddie Mac Seller/Servicer Guide 4301.5
3. Fannie Mae Eligibility Matrix
4. FHFA conforming loan limit data
5. CFPB’s research on cash-out borrowers
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Conventional Cash-Out Refinance for Owners Planning the Timeline · Conventional Cash-Out Refinance Total Cost Over the Life of the Loan · How Much Cash You Net on a Conventional Cash-Out Refinance
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.