Cash Out Refinance Mortgage Guide

A cash-out refinance mortgage allows homeowners to tap into their home equity by replacing their existing mortgage with a larger loan and receiving the difference in cash. As of January 2026, with mortgage rates trending between 6.25% and 6.75%, cash-out refinancing remains an attractive option for homeowners who need funds for major expenses, consolidating credit card debt, or financing home improvements. The RefiGuide published this article exploring everything you need to know about cash-out refinancing in 2026.

What is a Cash Out Refinance?

A cash-out refinance is a type of mortgage refinancing that allows you to replace your existing home loan with a new mortgage for more than you currently owe.

The difference between the new loan amount and your existing mortgage balance is paid to you in cash at closing, which you can use for any purpose.

For example, if your home is valued at $400,000 and you owe $250,000 on your current mortgage, you have $150,000 in equity.

With a cash-out refinance at 80% loan-to-value (LTV), you could refinance for up to $320,000 (80% of $400,000), pay off your existing $250,000 mortgage, and receive $70,000 in cash (minus closing costs).

How Cash-Out Refinancing Works:

• You apply for a new mortgage that exceeds your current loan balance
• The lender orders an appraisal to determine your home’s current market value
• Your new loan pays off the existing mortgage
• You receive the difference in cash at closing (typically within 3-5 days)
• You begin making payments on the new, larger mortgage amount

What Types of Cash Out Refinance Programs Are Available?

Several cash-out refinance programs are available in 2026, each with unique requirements and benefits. Understanding these options helps you choose the program that best fits your financial situation.

Conventional Cash-Out Refinance

Conventional cash-out refinancing is the most common option and typically requires the strongest credit profile. These loans are not backed by government agencies and follow guidelines set by Fannie Mae and Freddie Mac. Key features include:

• Maximum LTV: 80% for primary residences, 75% for investment properties
• Minimum credit score: 620 (740+ for best rates)
• Maximum DTI ratio: 45% (lower with credit scores below 700)
• Requires 20% equity remaining after cash-out
• Available for primary residences, second homes, and investment properties

FHA Cash-Out Refinance

Federal Housing Administration (FHA) cash-out refinancing offers more flexible qualification requirements, making it ideal for borrowers with lower credit scores or less equity. FHA loans require mortgage insurance premiums but often feature lower interest rates than conventional loans.

• Maximum LTV: 80% (85% prior to 12 months of ownership)
• Minimum credit score: 580 (some lenders accept 550)
• Maximum DTI ratio: 43% (50% with compensating factors)
• Requires upfront and annual mortgage insurance premiums
• Available only for primary residences
• FHA rates average 0.10-0.15% below conventional rates

VA Cash-Out Refinance

Veterans Affairs (VA) cash-out refinancing is available exclusively to qualifying veterans, active-duty service members, and eligible surviving spouses. The VA program offers the most favorable terms of any cash-out refinance option.

• Maximum LTV: 90% (some lenders allow up to 100%)
• No minimum credit score requirement from VA (lenders typically require 620)
• No private mortgage insurance required
• Requires VA funding fee (can be financed into the loan)
• Available for primary residences only
• Can cash out up to 100% of home value with qualifying circumstances

Fannie Mae Cash-Out Refinance

Fannie Mae cash-out refinancing follows conventional loan guidelines but with specific requirements for loans they purchase or securitize. The program requires that borrowers have owned the property for at least 12 months before applying for a cash-out refinance.

• Maximum LTV: 80% for primary residences
• Minimum credit score: 620
• Maximum DTI ratio: 45%
• 12-month seasoning requirement on existing mortgage
• Reserves may be required with DTI above 45%

Non-QM Cash-Out Refinance

Non-Qualified Mortgage (Non-QM) cash-out refinancing is designed for borrowers who don’t meet traditional lending criteria, such as self-employed individuals, those with recent credit events, or borrowers with non-traditional income sources.

• Flexible documentation requirements (bank statements, asset depletion)
• Credit scores as low as 500-550 may be considered
• Higher interest rates (typically 1-3% above conventional rates)
• LTV varies by lender (typically 70-75%)
• Available for complex financial situations

DSCR Cash-Out Refinance

Debt Service Coverage Ratio (DSCR) loans are specifically designed for real estate investors refinancing rental properties. Rather than requiring personal income verification, DSCR loans qualify borrowers based on the property’s rental income.

• Qualification based on property cash flow, not personal income
• Maximum LTV: 70-80% for rental properties
• DSCR as low as 1.0 may be acceptable
• Rates typically 0.5-1% higher than conventional
• Ideal for investors with multiple properties

What is the Difference Between a Cash-Out Refinance vs Home Equity Loan?

Both cash-out refinancing and home equity loans allow you to access your home’s equity, but they work differently and suit different financial situations.

Cash-Out Refinance:

• Replaces your existing mortgage with a new, larger loan
• Results in one monthly payment
• Typically offers lower interest rates than home equity loans
• Extends the loan term (often to 30 years)
• Higher closing costs (2-5% of loan amount)
• Makes sense when refinancing into a lower interest rate

Home Equity Loan:

• Acts as a second mortgage on your home
• Results in two monthly payments (first mortgage plus home equity loan)
• Fixed interest rate on the second mortgage
• Keeps your existing first mortgage intact
• Lower closing costs than cash-out refinancing
• Ideal when your current mortgage rate is below market rates

2026 is looking like a time of growing home prices and rising interest rates, although homeowners still want to access cash out through a refinance or home equity loan. Let’s consider the pros and cons of leveraging your house with a cash out refinance.

Key Decision Factor: If your current mortgage rate is below 5-6%, a home equity loan or HELOC often makes more financial sense as it preserves your low first-mortgage rate. If current refinance rates are lower than or close to your existing rate, a cash-out refinance may be the better option.

2026 Cash-Out Refinance Market Data

Understanding current market conditions helps you make informed decisions about cash-out refinancing. Here are the key data points for January 2026:

Average Cash-Out Refinance Rates in 2026

As of January 20, 2026, cash-out refinance rates are experiencing modest declines from their 2025 peaks:

• 30-Year Fixed Cash-Out Refinance: 5% to 6.75% (national average APR: 6.63%)
• 15-Year Fixed Cash-Out Refinance: 0% to 6.25% (national average APR: 6.05%)
• Cash-out refinance rates typically run 0.25% to 0.50% higher than rate-and-term refinancing due to increased lender risk
• FHA cash-out rates average 0.10-0.15% below conventional rates
• Investment property cash-out rates run 0.5% to 1.0% higher than primary residence rates

Experts predict rates will continue trending downward through 2026, potentially reaching 6.0-6.25% by year-end as inflation moderates and Federal Reserve policy adjusts.

Average LTV for Cash-Out Refinancing

Loan-to-value (LTV) ratios determine how much equity you can access through cash-out refinancing:

• Conventional Cash-Out: Maximum 80% LTV for primary residences, 75% for investment properties
• FHA Cash-Out: Maximum 80% LTV (85% for properties owned less than 12 months)
• VA Cash-Out: Maximum 90% LTV (some lenders offer up to 100%)
• Investment Property DSCR: Maximum 70-75% LTV

Most lenders require borrowers to retain at least 20% equity in their homes after cash-out refinancing to maintain adequate cushion against market fluctuations.

Average Credit Score to Qualify for Cash-Out Refinance

Credit score requirements vary by loan program, but historical data provides insight into actual borrower profiles:

• Median Credit Score: 741 for cash-out refinance borrowers (2013-2023 CFPB data)
• Minimum Requirements by Program:
• Conventional: 620 minimum (740+ for best rates)
• FHA: 580 minimum (some lenders accept 550)
• VA: No VA minimum (lenders typically require 620)
• Non-QM: 500-550 may be considered with compensating factors

Borrowers with credit scores above 780 qualify for the most competitive rates, while those with scores between 620-680 face higher rates and stricter DTI requirements.

Top 10 Cash-Out Refinance Mortgage Lenders in 2026

Based on HMDA data analysis, customer reviews, competitive rates, and service quality, here are the top 10 cash-out refinance lenders for 2026:

Note: Customer ratings are composite scores based on Google reviews, J.D. Power rankings, and industry feedback as of January 2026. Individual experiences may vary.

Takeaways on Cash Out  Refinancing

Cash-out refinancing in 2026 offers homeowners a valuable opportunity to leverage their home equity for major financial goals. With rates stabilizing in the mid-6% range and multiple program options available, borrowers have more choices than ever to access their equity while maintaining competitive terms.

Whether you choose a conventional, FHA, VA, or alternative program depends on your credit profile, equity position, and long-term financial objectives. By understanding the differences between cash-out refinancing and home equity loans, evaluating current market conditions, and selecting a reputable lender, you can make an informed decision that supports your financial well-being.

Before proceeding with any cash-out refinance, consult with mortgage professionals, compare multiple lenders, and carefully consider how the additional debt fits into your overall financial strategy. With proper planning and the right lending partner, a cash-out refinance can be a powerful tool for achieving your financial goals in 2026 and beyond.

FAQs for Cash Out Mortgage Refinancing

What is a Cash Out Refinance Mortgage?

Homeowners have a unique opportunity to get a mortgage refinance with cash out. That means that when a borrower redoes their mortgage for a better interest rate or revised terms they can also receive money back in their loan.

Is it Wise to Refinance and Cash Out?

This can prove particularly advantageous, even after factoring in closing costs, especially when you require a substantial sum of money. Additionally, a cash-out mortgage refinance has the potential to enhance your credit profile. By utilizing the funds to eliminate existing debt, there is a possibility of observing an uptick in your credit score, chiefly if your credit utilization ratio decreases as a result.

You need to ask yourself, how much cash do you need and is it worth putting my home at risk to get extra money. Borrowing always has some risks, so you should always consult with a trusted financial advisor before committing to a mortgage refinance with cash out.  Many borrowers are asking if you have to live in your home to get approved for cash-out refinancing. There are many lending companies that offer cash out out refinances on investment properties and 2nd homes, but the interest rate may be a little higher.

Does Your Current Mortgage Rate Go Away with a Cash Out Refinance Loan?

When refinancing for cash back, you do not get to keep your old mortgage rate, For example, if you have a 3% first mortgage rate and you want to do a cash-out refinance to get an additional $50,000 cash, and the new mortgage rate is 7%, then your monthly payment goes up dramatically. This is one of the reason, borrowers consider the HELOC line of credit to get money. Compare refinance and and home equity rates for cash out.

How Long Does it Take to Get a Cash Out Refinance?

The timeline depends on factors such as property appraisal scheduling, underwriting review, and how quickly you submit required documents. The RefiGuide can connect you to trusted online lenders with digital processing tools may close faster sometimes within 2 weeks.

What is VA Cash Out Refinance?

Is it possible to pursue a 100% VA cash-out refinance? This is amazing because that means you do not need any equity if you are a qualified veteran or active in the US military armed forces. The majority of approved VA lenders will underwrite a refinance up to 100% of your loan-to-value ratio (LTV) in a VA cash out refinance. However in most cases, VA lenders will cap the borrowing limit at 90% of your home’s appraised value.

How Soon After Purchasing a Home Can You Refinance for Cash Out?

In most cases, to qualify for cash out refinancing, you must have owned your home for at least 1 year if you are claiming it as your primary residence. If you currently have a mortgage, it must be at least six months old before you can apply for an FHA cash-out refinance and all mortgage payments over the past 12 months must have been made on time. No late payments are allowed for cash-out refinances with FHA.

Tax Benefits for Cash Out Refinancing

Deductible home mortgage interest extends to loans of up to $750,000, provided the funds are employed for the acquisition, construction, or significant enhancement of your residence. This tax benefit also encompasses refinancing.

Should you decide to refinance into a larger loan and reset the term, particularly with a 30-year mortgage, it’s important to note that your monthly mortgage interest payments may increase. However, any rise in expenses might be mitigated if you secure a lower interest rate. Get the updated rules for tax deductions on cash out refinancing.

What are the alternatives to the cash out mortgage?

Home equity loan: This option enables you to borrow a lump sum from your home equity. You continue making your existing monthly mortgage payments and add a second monthly payment for the new home equity loan. This type of second mortgage for debt consolidation is most popular when interest rates rise and borrower that need cash out already have a low interest rate on their first mortgage. In 2026, before shopping cash out refinances, we suggest considering home equity loans if your first mortgage rate is below 5%.

Home Equity Loan vs. HELOC, What is the difference?

Home equity line of credit: Your available home equity can serve as a source for a revolving equity line of credit, allowing you to borrow funds as needed, repay them, and reuse the credit line. Even the best HELOCs will feature variable interest rates. Borrowers always appreciate the interest only payment option that increases the cash flow and minimizes the monthly payment.

Senior home loans: If you are a retired homeowner and have a lot of equity you may want to consider a reverse mortgage loan. These unique mortgage products are unique because the mortgage company make a payment to you every month.

How Long is the Cash Out Refinance Process?

The usual timeframe for completing a cash out refinance is typically between 1 to 2 months. (30 to 60 days). However, the duration may vary based on factors such as the size of your property, the complexity of your financial situation (salary employee vs. self employed), and the time required for it takes to get a licensed professional to complete the appraisal and inspection process.

What Credit Score Do I Need for a Cash Out Refinance?

To be eligible for to refinance with cash out, many lenders stipulate a minimum credit score of 620, and for cash-out options, however there are some lenders that will approve with a credit score of 580 if you have other compelling credentials such as more equity or a low debt to income ratio. If your credit score falls below these 580, it might be beneficial to work on improving it before applying. Technically FHA and VA will approve cash out refinances with credit scores as low as 500, but it is rare.

What Does it Cost to Get a Cash Out Refinance Loan?

There are almost always closing cost on mortgage transactions. Cash out refinance costs can be slightly higher than traditional rate and term mortgages. but not always. Generally, closing costs for a cash out refinance typically range from 2% to 4% of the new loan amount.

For instance, on a conventional refinance for cash out with a loan amount of $300,000, you might anticipate paying anywhere from $6,000 to $12,000 in closing costs. There are many lenders out there that will charge you and extra .125 or .25 to the cash out refinance rates and then reduce you closing costs to 1%. For example if you were qualified for a 5.875% rate but you were willing to pay 6%, then the lender potentially would approve you for a 1% closing cost refinance.

References

Bankrate. (2026, January 19). Current cash-out refinance rates. Retrieved from https://www.bankrate.com/mortgages/cash-out-refinance-rates/

Consumer Financial Protection Bureau. (2023). Home Mortgage Disclosure Act data 2013-2023. Federal Financial Institutions Examination Council.

Fortune. (2026, January 1). Current refi mortgage rates report. Retrieved from https://fortune.com/article/current-refi-mortgage-rates-01-01-2026/

Money. (2026, January). 6 best cash-out refinance lenders of 2026. Retrieved from https://money.com/best-cash-out-refinance-lenders/

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