Cash-Out Refinance
A cash-out refinance replaces your current mortgage with a larger one and pays you the difference in cash. Conventional cash-out on a primary residence is generally limited to about 80% of your home’s value, so the cash you can take depends on your current balance, value and qualification.
Key Takeaways
- Conventional and FHA cash-out loans are generally limited to about 80% loan-to-value. VA allows more, with lender caps.
- Your new rate applies to the entire loan, not just the cash you take out.
- Your home secures the loan, so the cash you borrow puts your home at risk if you cannot pay.
- A HELOC or home equity loan can leave your first mortgage in place, and may be better when your current rate is low.
How does a cash-out refinance work?
You apply for a new loan that is larger than what you owe. At closing, the new loan pays off your old mortgage and closing costs, and you receive the rest as cash. Your payment, rate and term are all reset for the whole new balance.
What are the loan-to-value limits?
| Loan type | General cash-out limit |
|---|---|
| Conventional, primary residence | About 80% of value; second homes and investment properties often lower |
| FHA | Up to 80% of value; see FHA cash-out refinance |
| VA | VA allows up to 100% of reasonable value; many lenders cap at 90%. See VA cash-out refinance |
| Jumbo | Lender-set, usually lower; see jumbo cash-out refinance |
Loan limits also matter. Check the loan limit lookup for your county, since a larger balance can push you from a conforming loan into a jumbo loan.
What can I use the cash for?
- Home improvements and repairs, including an accessory dwelling unit, which can add value or income.
- Paying off higher-interest debt. Be careful: you turn unsecured debt into debt secured by your home, and you repay it over a much longer period.
- Education costs or major medical bills.
- Investing in another property or a business. This adds risk. Think about whether you could carry the payments if income dropped.
- Reserves. Some homeowners keep part of the cash as a cushion.
Ask a tax professional about whether interest on a cash-out loan is deductible, since it depends on how you use the money.
What are the risks?
- Your home secures the loan. Missing payments can lead to foreclosure.
- You lose your old rate. If your current rate is lower than today’s rates, the whole balance moves to the new, higher rate.
- Costs are higher. Cash-out loans often have higher pricing than rate-and-term loans, and closing costs often run roughly 2% to 5% of the loan. See the costs of refinancing.
- Less equity. You reduce your cushion, which matters if values dip.
- Longer debt. Spending borrowed money on short-term items while paying for 30 years is costly.
What are the alternatives?
HELOC
A home equity line of credit is a second lien with a variable rate and a draw period. You borrow only what you need, and your first mortgage stays in place. Read the HELOC guide, how much you can borrow and HELOC vs. home equity loan.
Use savings with a rate-and-term refinance
If you only need a small amount, you may prefer a rate-and-term refinance and use existing savings.
Reverse mortgage
Homeowners 62 and older may consider a HECM. See the reverse mortgage guide.
Wealth Builder HELOC
Some homeowners compare a first-lien HELOC with a cash-out refinance. See how the Wealth Builder HELOC compares to a cash-out refinance.
How do I qualify?
- Credit: most conventional loans start at 620, and higher scores improve pricing.
- Debt-to-income: commonly up to about 45% for conventional loans, sometimes higher.
- Seasoning: generally 6 months on title and an existing first mortgage that is at least 12 months old for conventional. See the cash-out timeframe.
- Appraisal: required. See using a new appraisal.
- Occupancy: primary residences get the best terms.
Compare the options on the conventional refinance and VA refinance pages. Read what to consider before refinancing, and see the full chapter at refinancing a home.
At Lendia, we help you size the cash to the need
At Lendia, we compare cash-out refinances, HELOCs and other options from multiple lenders. We show how each affects your payment and your total cost, and we help you borrow only what you need. Contact us or get a rate quote now.
Frequently Asked Questions
How much cash can I take out?
For conventional loans on a primary residence, up to about 80% of the appraised value minus what you owe and your costs. Other programs differ.
Is cash-out income taxable?
Borrowed money is generally not income. Ask a tax professional about interest deductibility.
Cash-out or HELOC?
If your current rate is low and you need a modest amount, a HELOC can keep your first mortgage. If you want a fixed payment on one loan, cash-out may fit.
How long do I wait after buying?
Conventional cash-out generally needs six months on title and an existing first mortgage that is at least 12 months old. See the timeframe guide.
Can I cash out from an investment property?
Often yes, with lower loan-to-value limits and higher pricing.
Rates and terms depend on your situation; approval requires qualification.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.