Cash-Out Refinance: Requirements, Equity Limits, and How the Money Reaches You

A cash-out refinance replaces your existing mortgage with a larger one and pays you the difference. The size of that difference is not decided by how much equity you have. It is decided by a loan-to-value ceiling in the rules of whichever program the loan runs through, and on a one-unit primary residence that ceiling is 80%.

BEDRWay is not a lender or a mortgage broker. This page sets out published program rules and names the document behind each one. Nothing on it is an offer of credit, and whether a file meets these requirements is decided by the lender who underwrites it.

What a cash-out refinance is, and what it replaces

One loan doing two jobs. The new mortgage pays off the old one in full, and what is left after the payoff and the costs of closing goes to the borrower. One lien remains on the property, not two, and the old loan's terms stop applying the day the new note is signed. A second mortgage does the opposite, leaving the first lien alone and sitting behind it. If you do not want cash and only want to change the terms of the loan you have, that is a rate-and-term refinance instead.

A worked example, start to finish

A house appraises at $300,000 and the existing mortgage balance is $200,000. At an 80% ceiling the new loan can be as large as $240,000. That pays off the $200,000 first mortgage, and the $40,000 left over is the gross cash-out figure. Closing costs come out of that $40,000, or they are financed and come out of the $240,000 instead. The $60,000 of value above the 80% line is not available here, and it is not lost either. It stays as equity.

What "cash to borrower" means at the closing table

The money does not appear at signing. Proceeds go to the settlement agent, who clears the existing servicer and the title and recording charges, then disburses the remainder. On a primary residence a mandatory delay usually sits between signing and disbursement, set by federal law rather than by the lender. Usually, not always: a refinance by the lender that already holds the loan is exempt except as to the new money. See the timeline.

How much cash can you take out?

The 80% rule is a ceiling on the loan, not on your equity

The constraint is loan-to-value: the new loan divided by appraised value. Program rules cap that ratio, which caps the loan, which caps the cash. Equity is what is left after the cap, not the input to it.

Freddie Mac's published maximum LTV/TLTV/HTLTV table for conforming mortgages, read on 25 August 2026, caps a cash-out refinance at 80% of value on a one-unit primary residence, 75% on a two-to-four-unit primary residence, on a second home and on a one-unit investment property, and 70% on a two-to-four-unit investment property. Fannie Mae sets its ceilings in the Eligibility Matrix, which Selling Guide section B2-1.3-03 incorporates by reference.

No statute sets an 80% national limit on borrowing against a home. The ceiling exists because Fannie Mae and Freddie Mac will not buy the loan above it and FHA will not insure it, so lenders do not write it. Individual lenders often apply stricter limits of their own.

LTV and CLTV: what a second lien does to your number

With a HELOC or home equity loan already recorded, the cap is measured on the combined figure. CLTV counts every lien, so an existing second consumes room under the same ceiling the new first mortgage needs. Either pay the second off with the proceeds, or ask its holder to subordinate. Subordination is a request, not a right.

Work out your own ceiling

You can work out your own cash-out ceiling against your own value and balance, or check how much equity you have and your current LTV first. Those tools answer how much. This page answers under what rules.

Cash-out refinance requirements

Seasoning: the rule almost every article gets wrong

Search for how soon you can take cash out after buying and you will find six months on one major site and twelve on another. Both are real. They are two different clocks, and either one stated alone gives somebody a wrong answer.

Fannie Mae's Selling Guide section B2-1.3-03, in the edition dated 10 December 2025, sets the first clock: where an existing first mortgage is being paid off through the transaction, it must be at least 12 months old at the time of refinance, measured from the note date of the existing loan to the note date of the new one. The same section sets the second separately: at least one borrower must have been on title for at least six months before the new loan disburses. The twelve-month test arrived in Announcement SEL-2023-01 of 1 February 2023, required for note dates on and after 1 April 2023.

Freddie Mac states the same pair on its own cash-out requirements page, differing only at the margin: Freddie measures the title clock to the note date of the new loan, where Fannie measures it to the disbursement date.

Practically, then. Bought with a mortgage: twelve months from that note date is your gate. Bought for cash: nothing is being paid off, so the six-month title clock binds, and the delayed financing exception in the same Fannie Mae section can waive even that where the purchase was arm's length, no mortgage financing was used, and the settlement statement and source of funds are documented.

Equity, credit, debt-to-income and reserves

Read the ceiling from the other side and it is a rule about what stays: 20% of appraised value on a one-unit primary residence, more on investment property. This is why a homeowner with real equity can still be told the transaction does not work. It is not the equity that is short, it is the room under the ratio.

Minimum credit scores sit higher than on a purchase of the same property, published alongside the LTV caps in the Eligibility Matrix. Debt-to-income is the second gate, and B2-1.3-03 adds a reserve requirement on top of it: for casefiles run through Desktop Underwriter, if the DTI ratio exceeds 45%, six months of reserves is required. Reserves are liquid assets left after closing. Where your own debt-to-income ratio sits is worked through elsewhere on this site.

Occupancy, property type, and a property that was listed for sale

Occupancy changes the cap, not just the paperwork, and the unit count moves it again. One detail catches people who changed their mind about selling: B2-1.3-03 requires that properties which were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.

The appraisal, and what happens if it comes in low

Every figure above is measured against appraised value, so the appraisal is the one event that can move the whole transaction. A low value cuts the ceiling proportionally, and the responses are few: take less cash, bring funds to closing to get under the ratio, request a reconsideration of value with better comparable sales, or stop. A reconsideration has to be evidenced. It is not an appeal against a disappointing number.

Program rules side by side: conventional, FHA, VA, USDA and investment

FHA cash-out

FHA sat at 85% of adjusted value until HUD Mortgagee Letter 2019-11 reduced the maximum LTV and CLTV from 85% to 80% for case numbers assigned on or after 1 September 2019. Pages published in 2026 that still say 85% are recycling a figure that has been wrong for seven years. FHA also carries mortgage insurance premiums that behave differently from conventional PMI, a difference set out in how FHA and conventional loans differ.

On FHA seasoning this page states no number. Those tests live in Handbook 4000.1, published summaries of them contradict each other, and a figure that cannot be checked against the handbook is one this page will not print.

VA cash-out

VA is the outlier on the ceiling. Announcing its interim final rule on 19 February 2019, the Department of Veterans Affairs stated that certain borrowers can use VA-guaranteed cash-out refinance loans to borrow up to 100 percent of the value of their home, and that it will not guarantee one above that. Lenders frequently cap lower, so the program maximum and what a given lender writes are two different numbers. The same rule set the seasoning test: at least 210 days must pass and six monthly payments must be made before the existing loan is refinanced, and the new loan must give the veteran at least one of eight net tangible benefits. A Certificate of Eligibility and the VA funding fee both apply.

USDA: there is no cash-out option

USDA's Single Family Housing Guaranteed Loan Program handbook, HB-1-3555, Chapter 6, states that borrowers are not eligible to receive cash out from a refinance transaction, across all three routes: streamlined, streamlined-assist and non-streamlined. Taking equity out of a USDA-financed home means refinancing into a different program, or adding a second lien.

Investment property and DSCR

Agency guidelines allow cash-out on investment property at the lower ceilings above, but they underwrite the borrower: personal income, personal ratios, tax returns. Most rental-property cash-out refinances therefore go through a DSCR loan instead, where the qualifying test is the property's own rental income against its own obligation. You can check a property's debt service coverage ratio first.

Texas homeowners: the cap that really is a law

Texas is the exception to the guideline-not-statute point above. Article XVI, Section 50(a)(6)(B) of the Texas Constitution requires that a home equity extension of credit be of a principal amount that, added to the aggregate of the outstanding principal balances of all other indebtedness secured by valid encumbrances of record against the homestead, does not exceed 80 percent of the fair market value of the homestead on the date the extension of credit is made.

Two consequences follow. Value is fixed at closing, so a later appraisal increase does not create room on an existing loan. And because the limit counts every lien rather than only the new one, a Texas homestead cannot be stacked to the combined position other states permit. Texas cash-out loans carry procedural requirements of their own, which is a matter for a lender licensed there.

Documents you will be asked for

• The most recent statement on the mortgage being paid off, plus any second lien
• 30 days of pay stubs and two years of W-2s
• One to two years of federal tax returns, two if you are self-employed
• Two to three months of bank and asset statements, which is where reserves are evidenced
• The homeowners insurance declarations page, and HOA dues where there is an association
• Photo identification
• Certificate of Eligibility on a VA loan; leases and Schedule E on an investment property

Largely the same paperwork as the documents lenders ask for on a purchase, gathered before the appraisal rather than after it.

What it costs, and what resetting the term does

A full origination carries the full set of charges: lender fees, appraisal, title search and title insurance, recording and transfer charges, prepaid taxes and insurance into a new escrow account, and discount points if any are used. Published rules of thumb expressing that as a percentage of the loan disagree with each other, which is reason enough to price your own file. A closing cost estimate on your own numbers is more use than either range.

The second cost is structural. A refinance restarts amortisation: a loan paid down for seven years, replaced with a fresh thirty-year term, goes back to the beginning of the schedule where the balance falls slowly. Total interest across the life of the debt can rise even where every other measure looks favorable.

Cash-out refinance vs HELOC vs home equity loan

The three do the same job through different structures. This compares structure only. Which one fits depends on terms a licensed loan officer reviewing your file can put in front of you.

People take a second mortgage instead when they do not want to disturb the first one. There is also the case where the house should not be collateral at all: a modest, short-lived borrowing need secured against a home turns an unsecured problem into one that can end in foreclosure.

Consolidating credit cards: what changes, and what does not

Rolling revolving balances into a mortgage changes three things. Unsecured debt becomes secured against the property. Several obligations become one. And the repayment horizon usually stretches from a few years to the length of a mortgage. What it does not change is the balance: the debt is still owed, on different security and a longer schedule, and stretching it can raise the total interest paid over its life. This page does not tell you which way that lands for your file, because it depends on terms it cannot see.

From application to the money reaching you

The sequence is fixed even though the calendar is not: application and disclosures, documentation, appraisal, underwriting, conditions, closing disclosure, signing, then disbursement. How long each step takes depends on the lender, the appraiser's schedule in your market and how quickly conditions clear, so no honest guide can promise a date.

One interval is fixed, and by law rather than by the lender. Under Regulation Z, 12 CFR 1026.23, a borrower refinancing a principal residence may rescind until midnight of the third business day following consummation, delivery of the rescission notice, or delivery of all material disclosures, whichever happens last, and the proceeds may not be disbursed until that window closes. Signing day and money day are never the same day.

One nuance catches people refinancing with their current lender. Under 1026.23(f)(2) a refinancing by the same creditor of credit already secured by the consumer's principal dwelling is exempt, except to the extent the new amount financed exceeds the unpaid principal balance, the earned unpaid finance charge and the costs of the refinancing. On a same-lender refinance, it is the new money that stays rescindable.

Taxes: when the interest is deductible

The test is what the money was used for, not what the loan is called. IRS Publication 936, in the edition for preparing 2025 returns, states that no matter when the debt was incurred, interest is not deductible to the extent the proceeds were not used to buy, build or substantially improve the home securing the loan. Cash taken out to clear credit cards or pay tuition therefore produces no deductible mortgage interest, even though it is secured by the house. The same publication caps the deduction at the first $750,000 of home mortgage debt ($375,000 if married filing separately), with $1 million and $500,000 preserved for debt incurred before 16 December 2017. That is a summary of a published rule, not tax advice.

Risks, and who this is wrong for

• The collateral changes. Debt that could previously only damage your credit becomes debt secured by the roof over your head.
• The equity cushion shrinks. Taking the ratio to its ceiling leaves the minimum permitted margin, which is what absorbs a fall in local values.
• The clock restarts. Years of amortisation already served are given back.
• Wrong for a short-lived need. Origination costs are incurred once and in full, however briefly the money is wanted.

Frequently asked questions

How much equity do I need for a cash-out refinance?

Enough that the new loan still fits under the program ceiling. On a one-unit primary residence with conventional or FHA financing the new loan cannot exceed 80% of appraised value, so at least 20% has to remain. On investment property more stays behind, and on a VA loan it can in principle be nil.

How soon can you do a cash-out refinance after buying a house?

If you bought with a mortgage, the loan being paid off must be at least twelve months old measured note date to note date, per Fannie Mae Selling Guide B2-1.3-03. If you bought for cash the six-month ownership test applies instead, and the delayed financing exception can waive even that on a documented arm's-length purchase.

Does a cash-out refinance hurt your credit?

The application involves a hard credit enquiry, and the old account closing while a larger new one opens changes both the average age of your accounts and the balance reported. Whether that matters depends on the rest of your file. Paying revolving balances down with the proceeds moves utilisation the other way.

How long does a cash-out refinance take?

There is no fixed answer, and a page that gives one is describing its own average rather than your file. The only interval fixed by law is the three-business-day rescission period on a primary residence, during which the money cannot be released. Even that one has a carve-out: under 12 CFR 1026.23(f)(2), where the lender refinancing you is the one that already holds the loan, the right reaches only the cash above the existing balance and costs.

Is the interest on a cash-out refinance tax deductible?

Only to the extent the money was used to buy, build or substantially improve the home securing the loan, per IRS Publication 936 for 2025 returns, and within the $750,000 limit ($375,000 if married filing separately). Proceeds used for anything else produce no deductible mortgage interest. Confirm your position with a tax professional.

Can you get a cash-out refinance on a USDA loan?

No. USDA HB-1-3555, Chapter 6, states that borrowers are not eligible to receive cash out from a refinance transaction, and that holds for its streamlined, streamlined-assist and non-streamlined options alike. Taking equity out of a USDA-financed home means refinancing into a different program, or adding a second lien.

Cash-out refinance by state

The eighty per cent ceiling is an investor overlay and applies everywhere. What varies is the law underneath it: Texas caps cash-out on a homestead in its own constitution, recording and transfer costs differ by an order of magnitude between states, and the property tax that lands in the new payment is set county by county. One page per state, each figure carrying the publisher it came from and the day somebody read it.

• Cash-out refinance in California
• Cash-out refinance in Florida
• Cash-out refinance in Tennessee
• Cash-out refinance in Texas