Loan options

Cash-Out Refinance

A cash-out refinance replaces your current mortgage with a larger one and hands you the difference in cash at closing. You end up with one loan, one payment, and a lump sum you can use for renovations, debt consolidation, tuition, or an investment. Anything, really, because it’s your equity.

How it works

Say your home appraises at $400,000 and you owe $250,000. Most cash-out programs let you borrow up to 80% of the home’s value, which is $320,000 in this example. The new loan pays off the $250,000 you owe, closing costs come out of the proceeds, and the remainder (roughly $65,000–$70,000 here) is wired to you after closing. On a primary residence, federal law gives you a 3-day right of rescission before the loan funds, so the cash arrives a few business days after you sign.

The new loan is a full first mortgage with its own rate and term, underwritten from scratch: credit pull, income documentation, and a new appraisal. The appraisal matters more here than on any other refinance, because the home’s value directly sets how much cash you can take.

Who qualifies

Typical benchmarks (every program and file differs; these are starting points, not promises):

• Credit score: 620+ for conventional; FHA can be more flexible, and pricing improves meaningfully above 700.
• Loan-to-value: up to 80% for conventional and FHA on a primary residence; VA cash-out can go up to 100% for eligible veterans, though many lenders cap it at 90%. Investment properties typically cap around 70%–75%.
• Seasoning: conventional loans typically require 12 months of ownership; FHA typically wants 12 months of on-time payments; VA typically requires 210 days from the first payment.
• Debt-to-income ratio: typically up to 43%–50%, and the new, larger payment is what counts.
• Property: primary homes get the best terms; second homes and rentals qualify with tighter limits.

What it costs

Expect 2% to 5% of the new loan amount in closing costs (appraisal, title, lender fees, and prepaids), usually deducted from your cash proceeds rather than paid out of pocket. Two costs deserve extra attention:

1. The rate premium. Cash-out loans typically price slightly higher than rate-and-term refinances at the same credit profile.
2. The blended cost of the whole balance. If your existing mortgage carries a low rate, a cash-out refinance reprices all of it, not just the new cash. That can make a modest cash need surprisingly expensive compared to a second-lien option, so always run this comparison.

Our mortgage calculator suite can help you model the new payment against your current one.

Pros and cons

Pros

• One loan and one payment, with no second lien to manage
• Typically lower rates than credit cards, personal loans, and most home equity products
• Large lump sums possible, reaching six figures on higher-value homes
• Proceeds aren’t taxable income, and interest on home-improvement use is generally deductible (ask your tax pro)

Cons

• Your home secures the debt. Falling behind puts the house at risk, which matters if you’re consolidating unsecured debt
• Repricing your entire balance can cost more than a second mortgage if your current rate is low
• Resets your amortization unless you deliberately choose a shorter term
• Closing costs and a full underwriting process, typically 30–45 days

Cash-out refinance vs. the nearest alternatives

• HELOC: a second-lien line of credit that leaves your first mortgage alone. Usually the better tool when your current rate is low, your cash need is smaller or spread over time, or you want to borrow only as needed. The trade-off is a variable rate and a second payment.
• Rate-and-term refinance: if your real goal is a better rate or term and the cash is an afterthought, a standard refinance prices better. Some borrowers do the rate-and-term now and add a HELOC later.
• Home equity loan: a fixed-rate lump-sum second mortgage. It’s a middle path when you want lump-sum cash and a fixed payment without touching the first mortgage.

How to get started with Priority Home Mortgage

We’ll price your scenario three ways (cash-out refinance, HELOC, and home equity loan) and show you the actual blended cost of each, with the numbers coming from our own in-house underwriting rather than a middleman’s rate sheet. Start with a quick quote and tell us how much cash you need and what your current rate is. Ten minutes of math up front routinely saves borrowers thousands over the life of the loan.

Cash-Out Refinance: your questions, answered

How much cash can I actually get from a cash-out refinance?

Most conventional and FHA cash-out loans cap at 80% of your home's appraised value, and VA can go higher. Take 80% of the appraisal, subtract your current payoff and closing costs, and what's left is your cash. On a $400,000 home with a $250,000 balance, that's roughly $70,000 before costs.

Is the cash from a cash-out refinance taxable?

No. It's borrowed money, not income, so the IRS doesn't tax the proceeds. Whether the interest is deductible depends on how you use the funds; interest on the portion used to substantially improve the home is generally deductible, while cash used for other purposes generally isn't. Confirm your situation with a tax professional.

Cash-out refinance or HELOC: how do I choose?

If your current mortgage rate is higher than today's market, a cash-out refinance can improve the whole loan while freeing up cash. If your current rate is low, a HELOC usually wins because it leaves that first mortgage untouched and you only pay interest on what you draw. The size and timing of your cash need matters too: lump sum favors cash-out, ongoing draws favor a HELOC.

How long do I have to own my home before doing a cash-out refinance?

Conventional loans typically require 12 months of ownership before a cash-out refinance, with limited exceptions such as inherited properties or the delayed-financing rule for homes bought with cash. FHA typically requires 12 months of on-time payments as well. VA seasoning is typically 210 days from your first payment.

Do cash-out refinances have higher rates than regular refinances?

Typically yes, by a modest margin. Lenders price in the extra risk of a larger loan against the same house, and pricing adjusts with your credit score and loan-to-value. That's one reason to compare a cash-out refinance against a HELOC or home equity loan before committing.

Can I do a cash-out refinance on a rental property?

Yes, though the limits tighten. Investment-property cash-out typically caps around 70%–75% loan-to-value and prices higher than a primary residence. Many real estate investors use cash-out refinances to pull capital out of one property to buy the next. The property's rental income can often help you qualify.