The Quick Read: A true cash-out refinance on the home you own can fund the next down payment, but a rate-and-term refinance cannot. A conventional cash-out loan stops at 80% of your home’s value on a one-unit primary residence. The new, larger payment then counts against you when you apply for the next mortgage. Work backward from the cash you need, then check that both homes’ payments fit.
Key Takeaways
- Only a cash-out loan returns meaningful cash. A rate-and-term (limited cash-out) refinance allows only small, incidental cash back.
- Leverage depends on occupancy: 80% on a one-unit primary residence, 75% on two- to four-unit homes, second homes and investment property.
- Two waiting periods apply: the loan being paid off must be seasoned, and you must have been on title long enough.
- The purchase lender counts the new payment and the next home’s payment together. Your cash does not erase either one.
- Subject to lender guidelines and full file review, the plan works best when you have real equity, steady income and reserves left over.
Which Refinance Can Actually Fund a Down Payment?
Only a true cash-out refinance can. A rate-and-term refinance, also called a limited cash-out refinance, replaces your loan, rolls in closing costs and returns only a small amount of cash. It exists to change the rate or term, not to pay out equity.
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.
A cash-out refinance does the opposite. The new loan is bigger than what you owe. It pays off your old first mortgage, covers closing costs, and sends the difference to you as cash. You can spend that cash on a down payment.
Lendmire’s cash-out refinance programs page lays out how those loans are arranged. As a broker, Lendmire places them with wholesale lenders in the 16 states where it handles consumer lending. It does not lend the money itself.
Here is a quirk that surprises people. If you own your home free and clear, a brand-new mortgage on it still counts as cash-out. Paying off a second lien that was not used to buy the home also pushes a “limited” refinance into the cash-out category. The label follows the money, not the marketing.
How Does the Process Work, Step by Step?
1. Confirm the current home’s occupancy. A cash-out is written on that home as a primary residence, second home or investment property. Occupancy sets the leverage.
2. Check both waiting periods. The first mortgage being paid off must be old enough, and you must have been on title long enough.
3. Get an appraisal. Value sets the ceiling. The cash you can reach is a percentage of the appraised value, minus what you owe and the closing costs.
4. Go through full underwriting. Expect income, asset, credit and employment documents. Cash-out loans are not streamlined.
5. Close and receive the cash. The new loan pays off the old lien. The balance goes to you.
6. Park the cash in a trackable account. The next lender will want to see where the money came from.
7. Contract on the next home. The purchase lender runs a fresh application, with the new payment already on your books.
You know your real cash before you make an offer. The reverse order leaves you with a contract and no certainty about the loan that funds it.
How Much Cash Can You Pull Out?
Occupancy decides the cap. Per the Fannie Mae Eligibility Matrix, conventional cash-out tops out at 80% of value on a one-unit principal residence, apart from one wholesale lane described below. The other categories sit lower.
| Property being refinanced | Conventional cash-out LTV |
|---|---|
| One-unit principal residence | 80% |
| Two- to four-unit principal residence | 75% |
| Second home | 75% |
| Investment property | 75% |
LTV means loan-to-value: the new loan as a percentage of the home’s appraised value. At 80%, you keep at least 20% equity in the home after closing.
Across the wholesale programs Lendmire works with, one lane goes further than that 80% cap. It reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% total ratio, a 30-year fixed rate, a primary residence and a conforming loan balance. It has its own six months of seasoning. It is not written in Texas, where a cash-out on a homestead is capped at 80% of value by the state constitution. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Manufactured homes carry a lower cash-out cap than site-built homes under the same matrix. Check that before building a plan on one.
A Worked Example in Percentages
These inputs are modeled assumptions, not market data. Say your home is worth 100% of its appraised value, and you owe 50% of it. A cash-out at 80% LTV creates a loan equal to 80% of value. Subtract the 50% payoff. That leaves 30% of value before closing costs. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Closing costs come out of that 30%. Suppose they take a few points. You now hold something under 30% of the home’s value in cash.
Now point that cash at the next purchase. If the next home costs about the same as your current home’s value, a 20% down payment uses 20% of that price. The rest covers that purchase’s closing costs and leaves a cushion. That is the sizing logic: start with the down payment you want, add both sets of closing costs, add reserves, and ask whether your equity can supply the total. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
If the math only works at the very edge of 80%, the plan is too tight. Leave room.
What Are the Waiting Periods?
Two clocks run at once, and each one can delay the plan on its own.
The first clock is the age of the loan you are paying off. Per the Freddie Mac Single-Family Guide, a cash-out that pays off a first lien needs that lien to be at least 12 months old, measured from note date to note date. Named exceptions include co-owner buyouts, construction-to-permanent or renovation loans, and manufactured-home conversions to real property.
The second clock is time on title. On the conventional files Lendmire arranges, the borrower must have been on title for six months. Exceptions exist for delayed financing, inheritance and legal awards.
Seasoning is the waiting period a lender wants between two events, here between a purchase or prior loan and the cash-out. Bought your current home three months ago? You will probably wait. A recent buyer who hopes to fund the next house from equity should check both clocks first.
How Does the Bigger Payment Affect Buying the Next Home?
It counts in full. Cash from a refinance is still borrowed money. When you apply for the next mortgage, the purchase lender adds your new larger payment to the new home’s payment. That sum goes into your debt-to-income ratio (DTI), which compares your monthly debts to your monthly income.
This is where plans fail. The cash feels like savings, but the debt behind it is permanent. The U.S. Consumer Financial Protection Bureau notes in its guide to using home equity that a cash-out refinance replaces your mortgage with a larger loan. That can lengthen your payoff time and raise your monthly payment.
What the purchase lender looks at:
- Credit. The wholesale conventional programs Lendmire works with start at a 620 decision score. On a file that runs through automated underwriting, the automated finding governs.
- Total ratio. A file that runs through automated underwriting has a ceiling of 50%. A file that is manually underwritten uses 36% or 45%, depending on score and reserves.
- Reserves. Cash left over after closing. The Fannie Mae matrix applies reserve requirements to cash-out files when the ratio runs high.
- Documentation. The lender will want to trace the cash from the refinance closing to the purchase closing.
- Down payment size. Reaching 20% down on the next home avoids mortgage insurance. That insurance is required above 80% LTV on the agency path, with the wholesale no-MI cash-out lane as the one exception. Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance.
Watch for one mistake: counting the same dollars as both down payment and reserves. Cash can only do one job. If it goes into the down payment, it is no longer sitting in an account as a cushion.
Self-employed borrowers should expect extra documentation on the income side, on both loans. That is a good reason to talk through the plan before you pull the trigger.
What About FHA and VA Loans?
Government-backed loans work differently, and the streamline versions cannot help here.
The FHA Streamline and the VA IRRRL (Interest Rate Reduction Refinance Loan) are built for people who already have an FHA or VA loan. They have light underwriting and a net tangible benefit test, meaning the refinance must help the borrower. They are not cash sources. An IRRRL cannot take equity out.
A veteran who wants cash needs a VA cash-out. Per VA’s cash-out loan page, the borrower needs a Certificate of Eligibility, the loan comes through a private lender, and a funding fee may be due at closing. VA cash-outs require VA’s own appraisal and must pass the net tangible benefit test. They can also refinance a non-VA loan into a VA loan.
FHA cash-out is limited to homes you live in. It generally requires that you have owned and occupied the home for a period before applying. Its leverage runs lower than FHA purchase leverage. Anyone who recently bought or inherited a home and rented it out may not qualify. Confirm the current rule with a loan officer.
Where the General Rule Breaks
- Free-and-clear homes. No old loan to pay off, but still a cash-out. The same leverage caps apply.
- HELOC payoff. Paying off a home equity line is a special case for seasoning. Whether it counts as cash-out depends on how the line was used.
- Texas homesteads. The 80% cap is written into the state constitution, and the 89.99% no-MI lane is not offered there.
- Keeping the old home after you move. Occupancy sets leverage, so a cash-out written while you live there differs from one written after you move. The timing of the refinance versus the move can change the program and the cap.
- Co-owner buyouts. Buying out a co-owner under a written agreement is a limited cash-out transaction at both agencies, so it is not a path to extra cash.
- Manufactured homes. Expect a lower cash-out cap.
If your situation touches any of these, raise it at the start. A change in timing or program can matter more than a change in strategy.
Cash-Out Refinance vs. the Alternatives
Cash-out is not the only way to reach your equity. Compare the options by what they change on your existing loan.
| Option | What changes | Main tradeoff |
|---|---|---|
| Cash-out refinance | Replaces first mortgage with a larger one | Loses your existing loan terms |
| HELOC | Adds a second lien, variable draws | Adds another debt on the home |
| Home equity loan | Adds a fixed second lien | Second payment plus first |
| Savings | Nothing changes | Slower to build |
The key difference is whether your first mortgage survives. A cash-out replaces it entirely. A HELOC or home equity loan leaves it alone and stacks a second payment on top. A second lien still counts as borrowed money for the purchase lender, and it raises its own eligibility questions.
Cash-out also costs more to set up. A new first mortgage carries full closing costs, and cash-out pricing is higher than rate-and-term pricing. Loan-level price adjustments apply to certain cash-out transactions based on LTV and credit score. Read the Loan Estimate line by line before you commit.
Should You Do This?
Run this check before you apply.
- You have equity well above what you need, so the loan stays under the cap with room to spare.
- Your income comfortably covers both payments at the DTI limits above.
- You will still hold reserves after the down payment and both sets of closing costs.
- Your existing loan terms are not something you would be sorry to lose.
- The plan only works at the 80% cap.
- Your DTI is already near the ceiling.
- The next home depends on a contingency you cannot control.
- You plan to spend the cash before the purchase lender approves you.
That last point deserves emphasis. Do not move or spend the cash before the next loan is approved. Large unexplained transactions complicate documentation.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off the old one and pays you the difference in cash.
Limited cash-out (rate-and-term) refinance: A refinance that pays off the old loan and costs, with only a small amount of cash back.
LTV (loan-to-value): The loan amount as a percentage of the home’s appraised value.
Seasoning: The required waiting period after a purchase or prior loan before a new cash-out is allowed.
DTI (debt-to-income): Your total monthly debt payments divided by your gross monthly income.
Reserves: Money left in the bank after closing, usually counted in months of payments.
Frequently Asked Questions
Can I use cash-out refinance money for a down payment on any kind of home?
Generally yes. A true cash-out loan places no specific restriction on how you use the proceeds. What changes is the next loan. The purchase lender reviews the new payment, your reserves and the paper trail for the cash. The next home’s occupancy, whether primary, second or investment, then sets its own leverage rules.
Does a no-closing-cost refinance give me a down payment?
No. A “no-closing-cost” refinance is still a rate-and-term loan, with the costs built into the rate or the balance. It returns little or no cash. To reach meaningful cash, you need a true cash-out loan, which is a separate program with its own pricing and caps.
Can I borrow 100% of my equity?
Not on a conventional loan. Conventional cash-out stops at 80% of value on a one-unit primary residence and 75% on two- to four-unit homes, second homes and investment property. One wholesale lane reaches 89.99% with no mortgage insurance, under tight requirements. VA allows higher leverage than conventional, subject to VA’s rules and its own appraisal.
How long must I own my home before a cash-out?
Two clocks apply. The first mortgage being paid off must be at least 12 months old, and you must have been on title for six months. A recent buyer should expect to wait.
Will the refinance hurt my chances of qualifying for the next mortgage?
It can, because your larger payment goes into the DTI calculation alongside the next home’s payment. A strong income and healthy reserves help. A high DTI at the 80% cap makes the plan fragile. The CFPB’s own research on cash-out borrowers found credit scores rose after closing because borrowers paid down other debt. That finding concerns debt payoff, not down payments.
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. Every figure here is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
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.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Eligibility Matrix
2. Freddie Mac Single-Family Guide, Section 4301.5
3. CFPB: Using Your Home Equity
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 a No-Cost Cash-Out Refinance Works · How a Cash-Out Refinance Changes Your Payment Versus Today · How a Cash-Out Refinance Works After a Second-Home Cash Purchase
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.