Yes, you can take out a mortgage on a house you already own, whether it is paid off or still carries a balance. Lenders let you borrow against your home equity — the gap between what the property is worth and what you still owe — through three main products: a cash-out refinance, a home equity loan, or a home equity line of credit. Which one fits depends on whether you want a lump sum, ongoing access to funds, or to replace your existing mortgage entirely.
The Three Ways to Borrow
Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new, larger loan. The old balance gets paid off, and you pocket the difference at closing. You end up with one loan at a new rate and a new repayment schedule set by current market conditions. If the house is paid off, lenders still call this a cash-out refinance; the entire loan comes to you as cash minus closing costs.
Home Equity Loan
A home equity loan is a separate second mortgage that pays out a fixed lump sum at closing. Your first mortgage stays in place, and you make payments on both. Rates are usually fixed, so the monthly payment is predictable. Once the money is disbursed, you cannot redraw against it as you pay down the balance. On a paid-off home, this loan sits in first-lien position, which often earns a better rate.
Home Equity Line of Credit
A HELOC works like a credit card secured by your house. You get a credit limit and draw what you need during a draw period that typically lasts about ten years. After that, the line enters a repayment phase of roughly 10 to 20 years, and you can no longer borrow against it.
Most HELOCs carry variable rates. The rate equals a fixed margin the lender sets at closing plus an index that moves with the market, most commonly the prime rate.1Consumer Financial Protection Bureau. For an Adjustable-Rate Mortgage ARM What Are the Index and Margin and How Do They Work The margin is locked; the index moves. Some lenders now offer fixed-rate HELOCs or let you convert part of a balance to a fixed rate during the draw period.
What Lenders Require to Approve You
Enough Equity Left After the Loan
Lenders want meaningful equity remaining after you borrow. On a cash-out refinance of a primary residence, the standard maximum loan-to-value ratio is 80 percent, meaning at least 20 percent equity has to stay in the home.2Freddie Mac. Maximum LTV TLTV HTLTV Ratio Requirements for Conforming and Super Conforming Mortgages If you keep the first mortgage and stack a home equity loan or HELOC on top, lenders look at the combined loan-to-value ratio across all liens. That combined figure can reach 90 percent on a primary residence under standard guidelines, or 105 percent under certain community lending programs.3Fannie Mae. Eligibility Matrix Second homes and investment properties get tighter LTV caps and higher rates.
Credit Score
Fannie Mae removed its longtime 620 minimum credit score for loans run through its automated underwriting system in late 2025.4Fannie Mae. Selling Guide Announcement SEL-2025-09 That does not mean any score gets approved. The system still weighs credit heavily, and individual lenders often set their own minimums above the agency floor. Score also drives price: a higher score usually earns a lower rate.
Debt-to-Income
Your debt-to-income ratio compares total monthly debt payments to gross monthly income. Federal qualified-mortgage rules no longer impose a hard DTI ceiling; since 2021 the standard uses a price-based test that compares the loan’s APR to average market benchmarks.5Federal Register. Qualified Mortgage Definition Under the Truth in Lending Act Regulation Z General QM Loan Definition In practice, most lenders still want DTI in the low-to-mid 40s, with room to stretch if you have strong credit or cash reserves.
Cash Reserves
Lenders want to see liquid assets on hand after closing. A cash-out refinance with a DTI above 45 percent requires six months of reserves. Second homes require two months and investment properties require six. A straightforward primary-residence file run through Fannie Mae’s automated system may carry no minimum reserve requirement at all.6Fannie Mae. Minimum Reserve Requirements If you own several financed properties, reserves are calculated as a percentage of the combined outstanding balances.
What It Costs and How Long It Takes
Plan on closing costs of roughly 2 to 5 percent of the loan amount. They cover the appraisal, title search, lender’s title insurance, recording, and origination. Lender’s title insurance is generally required on any mortgage and protects the lender if a title defect surfaces later.7Consumer Financial Protection Bureau. What Is Lenders Title Insurance Some lenders will roll costs into the loan balance, which spares you cash at closing but grows the debt.
The appraisal drives everything, because every LTV calculation uses that number. A cash-out refinance typically runs 30 to 45 days from application to funding. Clean HELOC files can sometimes close in as little as two weeks.
Expect to hand over standard documentation: recent pay stubs or 1099s, two years of federal tax returns, two to three months of bank and investment statements, a homeowners insurance declarations page, and proof of ownership. Underwriters cross-check every figure against the supporting documents, so small discrepancies can stall the file.
You Have Three Days to Cancel
Any loan that puts a new lien on your primary residence — a home equity loan, a HELOC, or a cash-out refinance — comes with a federal right of rescission. You have until midnight of the third business day after closing to cancel with no penalty.8eCFR. 12 CFR 1026.23 – Right of Rescission Business days include Saturdays but exclude Sundays and federal holidays. The lender cannot release funds until that window closes.
Note the boundary: rescission applies to primary residences. It does not apply to loans on second homes or investment properties, or to a purchase-money mortgage on the home you are buying.
Interest May Not Be Tax-Deductible
This trips up a lot of homeowners. Whether you can deduct interest on a home equity loan or HELOC depends on what you spend the money on, not the name of the loan.
Interest is deductible only when the funds are used to buy, build, or substantially improve the home securing the loan. Renovate the kitchen or add a second story, and the interest qualifies. Pay off credit cards, take a vacation, or cover tuition, and it does not.9Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction The One Big Beautiful Bill Act made this restriction permanent.
Even qualifying interest is capped. You can deduct interest on up to $750,000 of total acquisition debt, or $375,000 if married filing separately, across all mortgages on your primary and secondary homes.9Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction A $1 million cap still applies to mortgage debt taken on before December 16, 2017.10Office of the Law Revision Counsel. 26 USC 163 – Interest If you already carry a $600,000 first mortgage, only another $150,000 of borrowing produces deductible interest, no matter how much larger the equity loan is.
What You’re Putting at Risk
Borrowing against your home is borrowing against the roof over your head. Default on any mortgage, first or second, and the lender can start foreclosure. A home equity loan or HELOC lender can foreclose even if you are current on the first mortgage, because each loan is independently secured by the property. Second-lien holders often try other collection tactics first, since foreclosure only pays them if the sale covers the first mortgage with something left over. But the right is real, and lenders do use it.
If a foreclosure sale falls short of what you owe, states that allow deficiency judgments let the lender pursue you for the balance. You can lose the house and still owe money.
HELOCs carry an extra risk that home equity loans do not: the lender can freeze or cut your credit line if the home’s value drops sharply, your finances weaken, or you miss payments. Federal rules require written notice within three business days of a freeze, which is small comfort if you were relying on those funds for a project already underway.
Variable-rate HELOCs also expose you to rising payments. A comfortable rate today can be a strain two or three years in. And if property values fall after you borrow, you can end up owing more than the home is worth, which limits your ability to sell or refinance until values recover.