Cash-out refinancing offers homeowners an option for receiving a lump sum payment through their equity in exchange for a new mortgage.
But borrowers typically have three cash-out refinance types to choose from, with the conventional being most common.
Verify your cash-out refinance eligibility. Start hereWhat is a cash-out refinance?
A cash-out refinance leverages your home’s equity in order to provide the borrower with access to a large amount of money. Your mortgage gets replaced (new rate and terms) and you receive the lump sum difference between your old and new loan balance upon closing.
Homeowners generally use cash-out refinances to fund a big expense, be it a home renovation or paying off debt. Very similar to applying for a new mortgage, qualifying hinges on your credit score, income, current property value, how long you’ve owned, and lender guidelines. Also like when applying for a new mortgage, you should shop multiple lenders to negotiate your interest rate and potentially save thousands of dollars over the life of the loan.
Most borrowers have three cash-out refi options: conventional, FHA, and VA.
Conventional cash-out refinance
The most common type of home financing, conventional mortgages have their rules set by the government-sponsored enterprises of Fannie Mae and Freddie Mac.
You’ll likely meet the conventional cash-out qualifications if you’ve owned your property for over a year and have at least 20% equity built up. That 20% gets held over so you avoid mortgage insurance.
In addition, you’ll typically need a minimum credit score of 620, a loan-to-value ratio under 80%, and a debt-to-income ratio under 43% — though these can vary by lender. You’ll also need to get a fresh appraisal for your property to confirm its current value, and your proof of both employment and income.
The table below outlines the general parameters for each of the three most common cash-out refinance types:
| Requirement | Conventional | FHA | VA |
| Maximum Loan-to-Value Ratio | 80% (Keep at least 20% equity) | 80% of appraised value | 90% (cash out up to 90% of value) |
| Minimum Credit Score | 620 | 580 (620+ often needed) | No official minimum (usually 620–640) |
| Maximum Debt-to-Income Ratio | Up to 50% (below 43% preferred) | Flexible (43–50%) | Flexible (VA uses residual income; ~41%) |
| Mortgage Insurance / Fee | PMI if LTV over 80% | MIP required | VA Funding Fee |
| Loan Seasoning | 12+ months | 12+ months of on-time payments | 210 days (~7 months) |
| Appraisal | Required | Required | Required |
Calculating your conventional cash-out refinance
To estimate your maximum cash-out amount, subtract your loan balance from your home’s current value. If your home’s now worth $475,000 and $325,000 remains on your mortgage, you have $150,000 in equity.
Next, multiply your new loan value by 80%. This gives you your ceiling loan-to-value ratio. In the example, this would be $475,000 x .8 = $380,000. Third, subtract your mortgage balance from the new loan amount: $380,000 - $325,000 = $55,000. Fourth, figure out the closing costs, which should be around 2%-5% of the loan amount: $380,000 x .05 = $19,000. Lastly, subtract the closing costs from the available cash to get how much you end up with as your lump sum. Following the steps gets you to a rough estimate of $55,000 - $19,000 = $36,000.
Time to make a move? Let us find the right mortgage for youThe bottom line
A conventional cash-out refinance could be a great way to pull a lot of money from your home equity and put it toward a large expense.
Whether it makes sense for you depends on your financial situation, what mortgage terms you qualify for, and your plan for the cash. If you think a cash-out refi sounds like a good plan, reach out to your lender to get more information and answer any questions.
