Quick answer
A cash-out refinance replaces your mortgage with a new, larger loan and pays you the difference at closing. Most programs cap the new loan at 80% of your home's value (VA can go higher). Expect closing costs of about 2% to 5% of the new loan. It makes the most sense when today's rate is at or below your current rate. If your current rate is lower, a HELOC or home equity loan usually costs less.
How a cash-out refinance works
You apply for a new first mortgage bigger than what you owe. At closing, the new loan pays off the old one, covers the closing costs, and the rest comes to you. You end up with one loan, one payment and one rate, applied to the whole balance.
That last part is what people miss. You aren't just borrowing the cash at today's rate. You're re-pricing every dollar you already owe.
Cash-out refinance requirements
| Loan type | Typical max loan-to-value | Typical credit | Notes |
|---|---|---|---|
| Conventional | 80% (primary home) | 620+, best pricing 740+ | Lower caps on second homes and rentals |
| FHA | 80% | 580+ with many lenders | You must have lived there and paid on time for 12 months |
| VA | Up to 90% with many lenders | Often 620+ | For eligible veterans and service members |
| Non-QM (bank statement, DSCR, P&L) | Often 70% to 80% | Often 660+ | For self-employed borrowers and investors |
Most lenders also want the current loan to be at least 6 to 12 months old, a debt-to-income ratio under about 45% to 50%, and documented income. Program rules vary, and these are typical figures, not guarantees.
An example: cash-out refi vs. keeping your mortgage
Example only. You owe $300,000 at 3.25% with 25 years left, so your payment is about $1,462. The home is worth $600,000 and you want $180,000.
| Example only | Cash-out refinance | Keep mortgage + HELOC |
|---|---|---|
| New loan(s) | $480,000 at 6.75%, 30 years | Keep $300,000 at 3.25% + $180,000 HELOC at 8.25% |
| Monthly payment | About $3,113 | About $1,462 + $1,238 interest-only = $2,700 |
| Closing costs | About $10,000 to $24,000 | Usually much lower |
| Rate risk | Fixed | The HELOC is variable |
In this example the HELOC route is about $400 a month cheaper during the draw period. That's because the $300,000 keeps its 3.25% rate. The HELOC payment rises once you start paying principal, and its rate can change. Run both paths with the HELOC vs cash-out calculator.
When a cash-out refinance is the better choice
- Your current rate is at or above today's rates. Then you lose nothing by refinancing, and you may lower your payment while taking cash out.
- You need a large amount and want it fixed. A single fixed rate on everything is simpler and protects you if rates rise.
- You want to change the loan itself: remove a co-borrower after a divorce, drop FHA mortgage insurance, or move from an adjustable rate to fixed.
- You don't qualify for a second lien but do qualify for a first mortgage, which happens with some property types.
When a HELOC or home equity loan is the better choice
- Your first mortgage rate is well below today's rates.
- You need a smaller amount, or you'll use it in stages.
- You want to keep closing costs low.
- You plan to pay the money back within a few years.
More detail: HELOC vs cash-out refinance, and for rentals, investment properties.
Costs to plan for
A cash-out refi is a full mortgage closing: appraisal, title insurance, lender fees, recording and prepaid taxes and insurance for the new escrow account. Ask for a Loan Estimate and compare the total cost, not just the rate. Rolling the costs into the loan is common, but you pay interest on them for the life of the loan.
FAQ
How much cash can I get from a cash-out refinance?
Usually up to 80% of your home's value, minus what you owe and closing costs. On a $600,000 home with $300,000 owed, that's up to about $180,000 before costs. VA loans can go higher with many lenders.
Is a cash-out refinance a good idea?
It's a good idea when today's rate is at or below your current mortgage rate, or when you need to change the loan itself. If your current rate is much lower, a HELOC or home equity loan usually costs less.
How long do I have to wait to do a cash-out refinance?
Most lenders want the current loan to be at least 6 to 12 months old. FHA requires 12 months of living in the home and on-time payments.
What credit score do I need for a cash-out refinance?
Around 620 for conventional loans and lower with some FHA lenders, though the best pricing usually takes 740 or higher.
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