Conventional lenders generally cap a cash-out refi at 80 % of your home’s appraised value for a one-unit primary residence—so if the place is worth $500,000, your new loan can’t exceed $400,000, and you pocket whatever is left after paying off the old mortgage and closing costs. Some loan programs (second homes, multi-unit or investment properties) tighten that ceiling to 70 – 75 %. FHA and VA cash-out options exist but come with their own insurance or funding-fee math. Always confirm the exact limit with your lender, because overlays can move that line up or down a few points.
Expect to pay a modest premium for the privilege of tapping equity: recent quote sheets show cash-out rates running about 0.25 – 0.50 percentage points above a plain rate-and-term refi on the same day. Lenders price in the extra risk of a larger balance and thinner equity cushion, and Fannie/Freddie add “credit-fee” surcharges that flow straight into the rate. Shopping multiple lenders and keeping your LTV below 60 % can shave that spread, but it rarely disappears entirely.
You start exactly like any refi—pull quotes, lock a rate and submit pay stubs, W-2s and bank statements—but there’s one extra wrinkle: the lender orders a new appraisal to confirm both value and equity. Once the property checks out, underwriting signs off, you review final numbers (Loan Estimate, Closing Disclosure), and you close—usually 30-45 days from application. After a three-business-day right-of-rescission, the wire hits your account and the old loan is paid in full.
Conventional guidelines ask for (i) max 80 % LTV, (ii) a minimum 620 credit score, (iii) a stable income with a lender-approved debt-to-income ratio, typically ≤ 45 %, and (iv) a clean 12-month payment history on the existing mortgage. You’ll also need enough equity left after the draw to satisfy automated underwriting and, in most states, at least six months’ “seasoning” since your last loan. Jumbo, FHA or VA cash-out loans tweak the mix, but every program still hinges on equity, credit and verifiable income.
A cash-out refi converts idle home equity into one of the cheapest sources of lump-sum liquidity—often at a rate well below credit cards or personal loans—while leaving you with a single payment that may still be fixed for up to 30 years. Used wisely (think high-interest debt consolidation or value-adding renovations), the move can improve monthly cash flow, boost resale value, and, for renovation spending, keep mortgage-interest deductibility intact under current IRS rules.
You’re resetting the clock on your mortgage, enlarging the balance and paying closing costs that run 3 – 6 % of the new loan, so interest-cost savings disappear unless the new rate is meaningfully lower. The higher balance pushes your LTV up, which can trigger private-mortgage-insurance or leave less cushion in a market downturn. Finally, because cash-out rates price above standard refis, you give up a slice of the cheap-debt advantage you might have enjoyed by simply keeping your existing low-rate first mortgage intact.
Because a cash-out refi creates a larger loan and a riskier profile, every percentage-based charge gets multiplied and a few extra surcharges kick in. Origination, appraisal, title insurance and state recording taxes all scale with the new (higher) balance, and Fannie Mae/Freddie Mac layer on special loan-level price adjustments (LLPAs) for cash-out transactions, which lenders usually pass through as added points or a higher rate. Throw in optional discount points and the escrow you’ll pre-fund for taxes and insurance, and it’s easy to land in the 2 – 6 % range that industry guides quote for cash-out closing costs—Bankrate and U.S. Bank peg the band at 2-5/6 %, while Mortgage-Reports notes origination alone often runs 1-1.5 % of the loan amount. The upshot: the more equity you tap (and the smaller the loan balance you start with), the bigger those percentages feel. Shop lender fees aggressively, compare title quotes, and weigh whether paying points upfront actually beats a slightly higher rate over time.