The home’s current value
An appraisal sets the value, and the new loan can be only a set share of it. The share is lower for second homes, rentals and homes with more than one unit, and some programs also cap the cash you receive.
Cash-out refinance
Turn your home equity into cash with a cash-out refinance.
One new, larger mortgage in place of the old one, with the difference paid to you at closing. Here is how it works, what lenders look at, and how it compares with a home equity line or a second mortgage.
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Fidelity Residential · NMLS #103098 · Equal Housing Lender
- Direct, licensed lenderNMLS #103098. Check our licences on NMLS Consumer Access.
- A licensed loan officerA real person reviews your file and answers your questions.
- Cash-out or a second loanWe can set a cash-out refinance beside a home equity line or a second mortgage.
- Apply online or by phoneStart a quote, apply online or call 732-686-9999.
The basics
How a cash-out refinance works
Replaces your mortgage with a new, larger one and pays you the difference in cash; it can also place a new mortgage on a home you own free and clear. The cash may be used for anything, such as paying off credit cards or student loans, home improvements or tuition. The new loan is limited to a share of the home’s current value, so some equity stays in the home.
At closing, the new loan pays off the old mortgage and any other debts you choose to clear. Closing costs can be paid from it too, and the rest comes to you. On your main home, a federal right to cancel applies before the money is released.
Because the new loan is larger and secured by your home, weigh the total cost over the life of the loan, not just the cash you receive or the monthly payment.
What people use the cash for
- Home improvements and repairs
- Paying off debts such as credit cards, student loans or a home equity line
- Tuition and other large costs
- Buying another property
What matters
What lenders look at
Each program sets its own limits. These are the questions every cash-out refinance answers.
How long you have owned it
Most programs want you on title for some months, and the mortgage being paid off to have been in place for a while. There are exceptions for an inherited home, one received in a divorce and a home recently bought with cash.
Credit, income and debts
Credit is pulled and income is documented, with pay stubs and tax returns or, in some programs, bank statements or assets. The new payment is counted with your other debts, and some loans ask for savings left after closing.
Selling soon? If your home is listed for sale, most programs need the listing withdrawn before closing, and some want it off the market for a while first. Tell your loan officer at the start.
Compare
Cash-out refinance or a second loan
A cash-out refinance replaces your mortgage; a home equity line of credit or a fixed-rate second mortgage sits behind it and leaves your first mortgage in place.
| Question | Cash-out refinance | Home equity line of credit | Fixed-rate second mortgage |
|---|---|---|---|
| Your first mortgage | Paid off and replaced by one new, larger loan | Stays as it is | Stays exactly as it is |
| How you get the money | Once, at closing | As you need it during a draw period, up to a set limit; many programs ask you to draw part of the line at closing | One lump sum at closing |
| The rate | Fixed or adjustable, depending on the loan you choose | Variable, so the payment can change | Fixed; it does not change |
| Often chosen when | You want one loan and one payment, or want to change the terms of your first mortgage as well | You need money over time and want to keep your first mortgage | You want a set amount and a set payment and want to keep your first mortgage |
Cash-out refinance
One new, larger mortgage in place of the old one, with the difference paid to you at closing.
Home equity line of credit
A line up to a set limit that you draw on as you need it during a draw period, then repay. The rate is variable, so the payment can change, and many programs ask you to draw part of the line at closing. Your first mortgage stays as it is.
Ask about a home equity lineFixed-rate second mortgage
One lump sum at closing, repaid in equal monthly payments at a rate that does not change. Your first mortgage stays exactly as it is.
Ask about a second mortgage
Your options
Cash-out programs and special cases
Conventional, FHA and VA loans all offer a cash-out refinance on the home you live in. Some situations have their own rules.
FHA cash-out refinance
Replaces your mortgage, or places one on a home you own free and clear, when the home is your main residence and you have lived in it for a set time. FHA mortgage insurance applies, as on every FHA loan.
FHA loansVA cash-out refinance
Replace a VA loan or any other mortgage with a new VA loan and take cash for any purpose. You must live in the home. VA’s rules allow borrowing up to the home’s value; the limit for your loan depends on the program.
VA loansA home you own free and clear
A cash-out refinance can place a new mortgage on a home with no loan on it. The same limits on value, credit and income apply.
A home you recently bought with cash
A rule called delayed financing can let you refinance soon after buying and take back up to what you documented paying, when the purchase was at arm’s length, the home has no other liens and you can show where the money came from.
Inherited homes and co-owner buy-outs
An inherited home, or one received in a divorce, does not need the usual time on title. A refinance can also pay out a co-owner’s share, for example after a divorce.
Self-employed or other income
Some programs offer cash-out to borrowers who document income with bank statements or assets instead of tax returns. They have their own rules; ask a loan officer whether one fits.
Alternative documentation loans
Real estate investors
Cash out of a rental property
A conventional loan can refinance a rental property with cash out, underwritten on your income like any conventional loan.
Investors can also take cash out through a DSCR loan, which is underwritten on the property’s rent compared with its monthly payment, including taxes, insurance and any association dues, rather than on your personal income. Credit, assets and the appraisal are still checked.
A DSCR loan is a business-purpose loan for investment property only. You sign a statement that the loan is for business purposes and that no one on the loan will live in the property, and the lender asks how the cash will be used.
What a DSCR cash-out looks at
- The rent, from the lease or the appraiser’s rent schedule
- The full monthly payment, with taxes, insurance and dues
- Your credit and your payment history on your properties
- Savings after closing, and landlord experience in most programs
Business purpose investor loans are for investment property only.
How it works
The steps to a cash-out refinance
Talk about the cash you need
Tell a loan officer how much cash you want and why. The loan officer estimates the home’s value and checks it against the program’s limits.
Apply, credit and income
You apply and allow a credit report. Income is documented with pay stubs and tax returns, or with bank statements, assets or rental income for some programs.
Title and appraisal
Title is checked for who owns the home, for how long, any liens and any recent listing for sale. An appraisal sets the current value; some conventional loans get a waiver.
Underwriting and closing
An underwriter confirms the loan fits the program. At closing the old mortgage and any debts being paid off are paid from the new loan, and the rest comes to you.
Documents
What documents you need
The underwriting findings list exactly what your loan needs. Most homeowners can start with these.
- Your latest mortgage statement for every loan on the home
- Recent pay stubs and your W-2 forms
- Tax returns, or for some programs bank statements, asset statements or rental income instead
- Statements for any debts you want to pay off with the new loan
- Your homeowners insurance policy page
- Photo identification for everyone on the loan
Questions
Common questions about cash-out refinances
How much cash can I take out?
It depends on the home’s current value, what you owe, the program and your credit. Each program lets you borrow up to a set share of the home’s value, so some equity stays in the home, and some programs also cap the cash you receive. A loan officer can work out the figure for your home.
How soon after buying can I take cash out?
Most programs want you to have owned the home for some months, and the mortgage being paid off to have been in place for a while. There are exceptions for an inherited home, one received in a divorce, and a home you recently bought with cash.
Can I use a cash-out refinance to pay off debt?
Yes. Credit cards, student loans and other debts can be paid off at closing, leaving one loan to pay. Because the debts move into a longer loan secured by your home, compare the total cost, not just the monthly payment.
Should I choose a cash-out refinance or a home equity line?
It depends on the mortgage you have now and how you will use the money. If you want to keep your first mortgage as it is, a home equity line or a fixed-rate second mortgage leaves it in place. If you want one loan, or want to change your first mortgage anyway, a cash-out refinance may fit better. A loan officer can lay the options side by side.
Will I need an appraisal?
Usually, yes. The appraisal sets the value the loan is based on. On some conventional loans the automated underwriting system offers a waiver.
Do you lend in my state?
Fidelity Residential is licensed in many states. The full, current list is on NMLS Consumer Access (opens in a new tab), or call us at 732-686-9999.
Ready to talk about your home equity?
Get a quote, apply online, or talk it through with a licensed loan officer.
This page is general information, not a commitment to lend. Programs, terms and eligibility depend on credit, income, property and underwriting review and are subject to change without notice.