A cash-out refinance pays off your current mortgage with a new, larger loan and hands you the difference at closing. The new loan is based on today's appraised value, so the equity you've built through payments and rising prices becomes money you can use.
Buyers rarely need this the day they close. It matters a few years in, when the roof needs replacing before hurricane season, credit cards have crept up, or a child starts college. Equity gives a homeowner options a renter doesn't have.
How much each program lets you borrow
| Program | Most you can borrow | Timing rule |
|---|---|---|
| FHA | 80% of the appraised value | Owned and lived in the home 12 months |
| Conventional, single-family home you live in | 80% of the appraised value | 6 months on title; existing first mortgage at least 12 months old |
| Conventional, 2 to 4 units you live in | 75% of the appraised value | Same as above |
| VA | Up to 100% of the value, with the funding fee inside that cap; many lenders set a lower cap | 6 payments and 210 days when paying off a VA loan; lenders may add more |
The VA funding fee on a cash-out refinance is 2.15% the first time you use VA and 3.3% after that, waived for veterans receiving VA disability compensation. VA cash-out can also refinance a non-VA loan into a VA loan.
Every cash-out loan is fully underwritten: an appraisal, your income, your credit and your debt-to-income ratio.
A worked example on a $380,000 home
A homeowner bought with FHA a few years ago. The home now appraises at $380,000, and the mortgage balance is $220,000.
- Largest FHA or Conventional cash-out loan: 80% × $380,000 = $304,000
- Cash before closing costs: $304,000 − $220,000 = $84,000
- Equity left in the home: $380,000 − $304,000 = $76,000
- Principal and interest on $304,000 at a 5.75% rate: $1,774.06 a month
Suppose $30,000 of that cash pays off credit cards that cost $900 a month in minimum payments. The cards' payments disappear from the budget, the remaining $54,000 before costs can go to a new roof or savings, and the homeowner's debt-to-income ratio usually improves.
Building toward a cash-out option
Equity grows two ways: your payments shrink the balance, and the home's value can rise. Florida's homestead exemption also caps how fast your assessed value climbs, which helps keep property taxes steady as the value rises. Keep your payments on time and your credit in shape, since the refinance is approved on your credit at that time.
To see how a larger loan changes your payment, try the mortgage payment calculator. If you're buying now and want to know how fast your equity could build, call AAA Capital Funding at 888-601-8344.