Cash-Out Refinance Rules 2026: How Much Can You Take Out? (Complete Guide)
💰 What Is a Cash-Out Refinance?
A cash-out refinance replaces your current mortgage with a larger loan and gives you the difference in cash. Example: You owe $200K, your home is worth $400K, you refinance for $300K and get $100K cash. In 2026, you can typically cash out up to 80% of your home's value (some loans allow 85-90%). This guide covers all the rules, limits, and requirements.
Quick Answer: How Much Can You Cash Out?
💰 Maximum Cash-Out Limits by Loan Type:
Conventional Loan
Most common
80% LTV
FHA Loan
Lower credit scores OK
80% LTV
VA Loan
Veterans only
90-100% LTV
Jumbo Loan
High-value homes
70-75% LTV
Cash-Out Calculator Example:
Scenario: $500,000 home value, $200,000 current mortgage
• Home value: $500,000
• Max LTV (80%): $500,000 × 80% = $400,000
• Current mortgage: $200,000
• Max cash-out: $400,000 - $200,000 = $200,000
✅ You can take out up to $200,000 cash!
Cash-Out Refinance Requirements 2026
1. Minimum Equity Required (20%+)
You need at least 20% equity in your home to do a cash-out refinance (some lenders require 25-30%).
Equity Calculation:
• Home value: $400,000
• Mortgage owed: $280,000
• Equity: $400,000 - $280,000 = $120,000
• Equity percentage: $120,000 ÷ $400,000 = 30% equity ✅
2. Credit Score (620+ Conventional, 580+ FHA)
Cash-out refinances have stricter credit requirements than rate-and-term refinances.
Minimum Credit Scores:
- • Conventional: 620+ (640+ for best rates)
- • FHA: 580+ (500+ with 10% equity remaining)
- • VA: 620+ (no official minimum, but lenders prefer 620+)
- • Jumbo: 700+
3. Debt-to-Income Ratio (Under 43-50%)
Your new mortgage payment (including cash-out amount) must keep your DTI under 43-50%.
DTI Example:
• Income: $8,000/month
• New mortgage payment: $2,500/month
• Other debts: $800/month
• Total debt: $3,300/month
• DTI: $3,300 ÷ $8,000 = 41.25% ✅ (under 43% limit)
4. Waiting Period (6-12 Months)
You must wait 6-12 months after buying or refinancing before you can do a cash-out refinance.
Waiting Periods by Loan Type:
- • Conventional: 6 months (some lenders require 12 months)
- • FHA: 12 months + 12 on-time payments
- • VA: 210 days (7 months) + 6 on-time payments
- • USDA: 12 months
5. Home Appraisal Required
All cash-out refinances require a full home appraisal ($400-$600 cost).
⚠️ Appraisal Risk:
If your home appraises for LESS than you expected, you'll get less cash out (or none at all). Example: You think your home is worth $500K, but it appraises at $450K. Your max cash-out drops from $200K to $160K.
💰 See How Much Cash You Can Take Out
Get a free cash-out refinance quote. Compare rates and see your max cash-out amount.
Compare Cash-Out Lenders →When Does a Cash-Out Refinance Make Sense?
✅ GOOD Reasons to Cash Out:
- • Pay off high-interest debt (credit cards at 20%+ → mortgage at 6.5%)
- • Home improvements that increase value (kitchen, bathroom, addition)
- • Emergency fund (6 months expenses in savings)
- • Investment property down payment (if cash flow positive)
- • College tuition (if cheaper than student loans)
❌ BAD Reasons to Cash Out:
- • Vacation or luxury purchases (car, boat, RV)
- • Pay off low-interest debt (student loans at 3% → mortgage at 6.5%)
- • Speculative investments (crypto, stocks, risky ventures)
- • Lifestyle inflation (bigger house, nicer car)
- • Covering monthly expenses (sign of bigger financial problem)
💡 The Math: When It Makes Financial Sense
Example: Paying Off Credit Card Debt
❌ Current Situation:
- • $50,000 credit card debt
- • 22% APR
- • $1,100/month payment
- • Total interest: $66,000
✅ After Cash-Out Refi:
- • $50,000 added to mortgage
- • 6.5% APR
- • $316/month payment
- • Total interest: $63,760
💰 Savings: $784/month + $2,240 total interest = MAKES SENSE!
Tax Implications of Cash-Out Refinance 2026
🧾 Important Tax Rules:
Cash-out refinance proceeds are NOT taxable income (you're borrowing, not earning). However, mortgage interest deductibility depends on how you use the money.
Mortgage Interest Deduction Rules:
✅ DEDUCTIBLE Uses:
- • Home improvements: Kitchen remodel, addition, new roof
- • Home repairs: HVAC replacement, foundation repair
- • Buying/building another home: Investment property, vacation home
Max deduction: Interest on up to $750,000 total mortgage debt ($375,000 if married filing separately)
❌ NOT DEDUCTIBLE Uses:
- • Paying off credit cards: Personal debt
- • Car purchase: Personal expense
- • Vacation: Personal expense
- • College tuition: Education expense (use education credits instead)
- • Business investment: Deduct as business expense, not mortgage interest
💡 Tax Strategy:
If you're using cash-out proceeds for multiple purposes, keep detailed records. Example: $100K cash-out → $60K home improvements (deductible) + $40K credit cards (not deductible). You can deduct interest on 60% of the cash-out amount.
Cash-Out Refinance vs. HELOC vs. Home Equity Loan
Comparison Table:
| Feature | Cash-Out Refi | HELOC | Home Equity Loan |
|---|---|---|---|
| How it works | Replace mortgage | Line of credit | Second mortgage |
| Interest rate | 6.5% fixed | 8.5% variable | 8.0% fixed |
| Closing costs | $3K-$6K | $0-$500 | $500-$2K |
| Max LTV | 80% | 85% | 85% |
| Best for | Large lump sum | Ongoing expenses | One-time expense |
| Tax deductible | Yes (if home use) | Yes (if home use) | Yes (if home use) |
💡 Which Should You Choose?
- • Cash-Out Refinance: Best if you also want to lower your rate or change loan terms
- • HELOC: Best for ongoing projects (multi-year renovation) or emergency fund
- • Home Equity Loan: Best for one-time expense with predictable payment
FAQ
How much can I cash out when refinancing?
Conventional/FHA: Up to 80% LTV (leave 20% equity). VA: Up to 90-100% LTV. Jumbo: Up to 70-75% LTV. Example: $500K home, $200K mortgage → max cash-out = $400K - $200K = $200K (80% LTV).
Is cash-out refinance taxable?
No. Cash-out proceeds are NOT taxable income (you're borrowing, not earning). However, mortgage interest is only tax-deductible if you use the money for home improvements. If you use it for credit cards or personal expenses, the interest is NOT deductible.
How long do I have to wait to do a cash-out refinance?
Conventional: 6 months (some lenders require 12 months). FHA: 12 months + 12 on-time payments. VA: 210 days (7 months) + 6 on-time payments. USDA: 12 months.
What are the downsides of cash-out refinance?
1. Higher payment: Larger loan = higher monthly payment. 2. Closing costs: $3K-$6K upfront. 3. Reset loan term: If you're 10 years into a 30-year mortgage, you restart at year 1. 4. Risk of foreclosure: If you can't make payments, you lose your home. 5. Less equity: Reduces your ownership stake.
💰 Ready to Cash Out Your Home Equity?
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