A cash-out refinance replaces your current mortgage with a new, larger mortgage. The new loan pays off the old one, and you receive the difference in cash at closing. You end up with one mortgage payment instead of a first mortgage plus a second loan.
Quick example: your home is worth $500,000 and you owe $250,000. A conventional cash-out lets you borrow up to 80% of the value, or $400,000. That pays off the $250,000 and leaves $150,000 before closing costs. Try your own numbers in the cash-out refinance calculator.
How much cash can you take out?
The ceiling is a percentage of your home's appraised value, called the loan-to-value (LTV) limit. It depends on the loan program and how you use the property:
| Program | Property | Maximum cash-out LTV |
|---|---|---|
| Conventional | Primary home, 1 unit | 80% |
| Conventional | Primary home, 2–4 units | 75% |
| Conventional | Second home | 75% |
| Conventional | Investment, 1 unit / 2–4 units | 75% / 70% |
| FHA | Primary home only | 80% |
| VA | Primary home only | 100%, including the funding fee |
| DSCR (investor) | Rental property | Set by each lender — commonly up to 75% |
Conventional limits come from the Fannie Mae Eligibility Matrix and Freddie Mac Guide section 4203.1. FHA's limit is in HUD Handbook 4000.1, and VA's is in federal regulation 38 CFR 36.4306. Lenders can set lower limits than these.
To estimate your own maximum: home value × LTV limit − what you owe − closing costs = cash to you.
Cash-out refinance requirements at a glance
- Equity: you need to owe less than the program's LTV limit — usually less than 80% of the home's value.
- Mortgage age: for conventional loans, the mortgage you're paying off must be at least 12 months old (note date to note date).
- Time on title: at least one borrower must have been on title for 6 months before closing, with exceptions for inherited homes, property awarded in a divorce, and delayed financing.
- FHA: you must have owned and lived in the home as your primary residence for 12 months, with 12 months of on-time payments.
- VA: you need VA eligibility and must live in the home. Refinancing an existing VA loan has its own waiting period.
- Not listed for sale: the home must be off the market by the time the loan funds.
- Credit, income and reserves: you qualify for the full new payment, just like a purchase.
The full checklist, including credit-score details, is in our cash-out refinance requirements guide.
What a cash-out refinance costs
- Closing costs are similar to a purchase loan: appraisal, title insurance, lender fees, recording and prepaid items. They can usually be paid out of your cash proceeds. Your Loan Estimate lists every fee.
- Rate: Fannie Mae and Freddie Mac add loan-level pricing adjustments to cash-out loans, so the rate is usually somewhat higher than on a refinance that takes no cash out. The adjustment grows with LTV and lower credit scores.
- Mortgage insurance: conventional cash-outs stay at or below 80% LTV, so there is no private mortgage insurance on a primary home. FHA cash-outs add 1.75% upfront MIP plus annual MIP. VA charges a funding fee unless you're exempt.
- Your old rate: the new rate applies to the whole balance, not just the cash you take. If your current rate is much lower than today's rates, a HELOC or home equity loan may cost less overall.
How long it takes
Most cash-out refinances take a few weeks from application to closing — the appraisal and underwriting are the main steps. On a primary residence, federal law gives you a three-business-day right of rescission after you sign, so the cash is released after that period ends. Second homes and investment properties don't have the rescission wait.
Common ways people use the cash
- Paying off high-interest debt such as credit cards or personal loans
- Home improvements and remodels
- Buying an investment property or funding a down payment
- Buying out a former spouse after a divorce
- Tuition, medical bills or a cash reserve
Cash-out refinance by loan type
- Conventional cash-out refinance — the most common choice, up to 80% on a primary home
- FHA cash-out refinance — 80% limit with more flexible credit rules, primary homes only
- VA cash-out refinance — up to 100% of value for eligible veterans and service members
- DSCR cash-out refinance — rentals qualified on the property's rent instead of your income
- Jumbo cash-out refinance — for loans above your county's conforming limit
When a cash-out refinance makes sense — and when it doesn't
It tends to work well when today's rate is close to (or below) your current rate, you need a large lump sum, and you'd rather have one fixed payment. It works less well when you have a very low rate you'd give up, you only need a small amount, or you plan to sell soon. Our pros and cons guide walks through the trade-offs, and the cash-out vs. HELOC comparison covers the credit-line option.
Taxes
The cash you receive is borrowed money, so it isn't taxable income. Whether the interest is deductible depends on how you use the money — see cash-out refinance taxes.
Where we help
Tayton Capital is an independent mortgage broker. We arrange homeowner cash-out refinances in Colorado and Florida, and investor DSCR cash-outs in every state on our DSCR list. City-level equity estimates are on our Colorado and Florida refinance pages.
Frequently asked questions
How much equity can I take out with a cash-out refinance?+
Most conventional and FHA cash-outs on a primary home allow up to 80% of the appraised value, minus what you owe. VA allows up to 100% for eligible borrowers, and conventional investment properties are capped at 75% (one unit) or 70% (two to four units).
How soon can I do a cash-out refinance after buying?+
For a conventional loan, the mortgage being paid off must be at least 12 months old and a borrower must be on title for 6 months. FHA requires 12 months of owning and living in the home. If you bought with cash, Fannie Mae's delayed financing exception can allow a cash-out within 6 months of purchase.
Is cash from a cash-out refinance taxable?+
No. It's borrowed money you have to repay, so the IRS doesn't treat it as income. Interest may be deductible only on the part used to buy, build or substantially improve the home, within IRS limits.
Are cash-out refinance rates higher?+
Usually a little. Fannie Mae and Freddie Mac add pricing adjustments for cash-out loans, which grow with higher loan-to-value and lower credit scores. The difference varies by lender and scenario.
How long does a cash-out refinance take?+
Typically a few weeks from application to closing. On a primary home, the cash is released after the three-business-day right of rescission that follows signing.
Is a cash-out refinance or a HELOC better?+
A cash-out refinance is often better when today's rates are close to your current rate and you want one fixed payment. A HELOC or home equity loan is often better when your current mortgage rate is low and you want to keep it.