How a Cash-Out Refi Works

Say your home is worth $500,000 and you owe $250,000. You have $250,000 in equity. A cash-out refi might let you take out a new loan for $400,000 (80% LTV). After paying off the old $250,000, you walk away with $150,000 cash (minus closing costs).

The whole loan is at the new rate and term. The cash is taxable-free — it's not income, it's borrowing against your own asset.

Limits and Requirements

  • Maximum LTV: 80% on primary residence Conventional. 80% on FHA cash-out (down from 85% in 2019). 90% on VA cash-out (up to 100% for some lenders).
  • Investment properties: 75% LTV typical, sometimes 70%.
  • Credit: 620+ Conventional, 580+ FHA, 580+ VA. Best pricing at 720+.
  • Seasoning: Most lenders require you to have owned the home at least 6 months before cash-out.
80%
Conv max LTV
90%
VA cash-out LTV
620+
Credit minimum
6 mo
Ownership seasoning

Smart Uses for Cash-Out

  • Home improvements that add value — kitchens, baths, additions, hurricane impact windows. Often tax-deductible.
  • High-interest debt consolidation — replacing 22% credit card APR with 7% mortgage interest can save thousands annually, IF you don't run the cards back up.
  • Down payment on an investment property — leverage one property's equity to acquire another.
  • Education — can be cheaper than student loans for parents financing children's college.
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The Smart Test

Before tapping equity, ask: "Is this for an asset that appreciates or for spending that doesn't?" If it's the second, reconsider.

Bad Uses for Cash-Out

  • Discretionary spending (vacations, weddings, cars) — you're financing a depreciating asset over 30 years at mortgage rates.
  • Speculative investments — taking equity out to buy crypto, stocks, or business ventures means your home now backs that bet.
  • Paying debt you'll re-accumulate — the #1 cash-out failure pattern. The credit cards get paid off, then maxed back out a year later, and now you have both the bigger mortgage and the credit card balance.
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The #1 Failure Pattern

Paying off credit cards with cash-out, then running the cards back up. Now you have a bigger mortgage and the credit card debt again. Don't be that borrower.

Tax Treatment

Cash-out interest is only tax-deductible to the extent the cash is used to buy, build, or substantially improve the home securing the loan. Cash used to consolidate debt, pay for college, or invest is not deductible at the federal level (post-2017 Tax Cuts and Jobs Act).

Keep documentation showing how the cash was used. If you're audited, you'll need it.

Florida-Specific Notes

Cash-out refis in Florida pay the full doc stamp + intangible tax on the new loan amount, not just the increase. On a $400,000 new loan: ~$2,200 in state taxes alone. That's a real component of the closing cost equation when you're sizing up the deal.

Sitting on a low-rate first mortgage? A HELOC may be smarter than a cash-out refi.

Compare HELOC vs Cash-Out →

Alternative: HELOC

A Home Equity Line of Credit lets you draw against equity as needed without refinancing your first mortgage. If you have a low first-mortgage rate, a HELOC may be smarter than disturbing the whole thing. (See our HELOC vs. Cash-Out article for the full comparison.)

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