This depends on whether or not the cash taken out is to pay off debts for the purposes of qualifying for the mortgage. Since paying off debt to qualify for the mortgage is not permitted, lender will most likely require you to pay off the account through the close of escrow and close the account by providing supporting documentation.
You can do a cash out refinance on both FHA Loans and Conventional loans up to 85% loan to value on a primary residence transaction. Doing a cash out refinance, does not necessarily mean you have to close accounts for the purposes of qualifying, but if the cash out raises the loan amount to the point where the liabilities exceed the income, the only way to reduce the liabilities is to consolidate them by paying them off in full and subsequently closing them. Lenders are concerned about future debt accumulation because of the possibility of the consumer putting themselves back in the same position, cash out refinance is getting them out of.
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