How a cash-out refinance works
A cash-out refinance replaces your mortgage with a larger one and pays you the difference in cash. It’s often used for renovations, paying off higher-interest debt or other large expenses. The amount you can take out depends on your home’s value and the loan type’s limit on how much of that value you can borrow.
The limits
Conventional and FHA cash-out loans generally go up to 80% of your home’s value. VA cash-out refinances can go higher, commonly 90% (VA allows up to 100%, but many lenders cap lower). Closing costs, often around 2% to 3% of the loan, come out of what you could otherwise take.
An example
With a $600,000 home and a $300,000 balance, a conventional cash-out refinance could reach $480,000, leaving about $168,000 in cash after closing costs.
When it doesn’t make sense
A cash-out refinance replaces the rate on your whole balance. If your current rate is well below today’s rates, a home equity loan or line of credit, which leaves your first mortgage untouched, is often cheaper. The calculator flags this when it applies.
Other things to weigh
- Turning short-term debt into a 30-year mortgage can raise the total you pay, even at a lower rate.
- Your home secures the loan, so keep the payment comfortable.
What lenders look at
Expect an appraisal to set the value, a credit check and full income documentation, much like a purchase. Many lenders want a credit score of 620 or higher for conventional cash-out loans and require that you’ve owned the home for at least six months to a year. Closing takes a few weeks, and federal law gives you three business days after signing to cancel a refinance on your main home.
Questions buyers ask
How soon can I do a cash-out refinance after buying?
Conventional loans usually require that you’ve owned the home for at least six months, and FHA requires a year of payments history. Lenders also use the appraised value at the time of the refinance.
How much equity can I take out?
Usually up to 80% of your home’s value minus what you owe, for conventional and FHA loans; VA loans can go higher.
Is a cash-out refinance better than a HELOC?
If your current rate is low, a HELOC or home equity loan usually costs less because it leaves your first mortgage in place.
Are cash-out rates higher?
Yes, typically somewhat higher than rate-and-term refinances and purchase loans.