The Quick Read: The check you receive is the new loan amount, minus the payoff of your current first mortgage, minus any other liens paid at closing, minus the closing costs and prepaids you don’t roll into the loan. The leverage cap limits the new loan, not your equity. Your equity is the ceiling on what the program could reach, and the paperwork decides how much of it lands in your account.
What Is a Conventional Cash-Out Refinance?
A conventional cash-out refinance replaces your current mortgage with a new, larger one backed by Fannie Mae or Freddie Mac guidelines. You keep the same home. The new loan pays off the old one, and the leftover money comes to you.
Fannie Mae’s Selling Guide defines it two ways. The new first mortgage pays off the existing mortgage on the same property. Or it puts a new mortgage on a home you own free and clear. A home with no mortgage still counts as cash-out. Freddie Mac’s Guide places no specific restriction on how you use the proceeds, and Fannie Mae allows equity to be taken out for any purpose.
Lendmire’s cash-out refinance programs follow this structure. Lendmire is a mortgage broker. It arranges these loans through wholesale lenders, and every figure here is subject to lender guidelines and full file review. Nothing is a commitment to lend.
Key Terms Defined
- Cash released: the money paid to you at closing after everything else is settled. Some people call it net proceeds.
- Payoff: the amount needed to retire your current first mortgage and any other lien the new loan clears. It includes interest accrued up to the payoff date.
- LTV (loan-to-value): the new loan balance divided by the appraised value. Any second lien that stays in place counts toward combined LTV.
- Prepaids and escrow deposits: up-front money for items like homeowners insurance and property taxes. They are set aside at closing, not spent on fees.
- Seasoning: how long you have owned the home or held the current loan before cash-out is allowed.
The Formula, Step by Step
Here is how the number is built on a real file.
1. The appraisal sets the value. Everything starts with the appraised value, not what you think the home is worth or what a website estimates.
2. The cap sets the maximum new loan. Across the wholesale conventional programs we place files with, a one-unit principal residence caps at 80% LTV. Two- to four-unit principal residences, second homes and investment property cap at 75%. Those figures are subject to lender guidelines. Any second lien you keep counts against the same cap.
3. The payoff comes off the top. The lender orders a payoff statement for your current first mortgage. That balance, plus accrued interest, is the first deduction.
4. Other liens come off next. A HELOC or second mortgage paid at closing reduces your cash. Fannie Mae allows cash-out proceeds to clear subordinate liens of any age.
5. Costs and prepaids come off last. Fees, title charges, recording, prepaids and escrow deposits either reduce the check or get added to the loan balance.
6. What remains is your check.
Say you own a home worth a round number and want the maximum. At an 80% cap on a one-unit home you live in, the new loan can reach four-fifths of value. Suppose your payoff is half of value and costs run a small slice. The check is whatever is left of that four-fifths after both. Work it in percentages of value and the math holds at any price. The 80% is a ceiling on the new loan, not a promise of 80% of your equity.
What Comes Out Before You Get Paid
Think of the closing as a ledger. Each line reduces the check, or raises the loan balance if you finance it.
| Line item | What it is | Effect on cash |
|---|---|---|
| First-mortgage payoff | Balance plus accrued interest | Largest deduction |
| Second lien or HELOC | Paid if you choose or the lender requires | Reduces cash |
| Lender and third-party fees | Appraisal, credit, processing, title | Reduces cash or adds to loan |
| Prepaids | Insurance and tax setup | Reduces cash |
| Escrow deposit | Starting reserve for your new escrow | Reduces cash |
| Delinquent taxes | If past due and paid through closing | Reduces cash |
Two notes from the file side. First, accrued interest on the old loan makes the payoff larger than the balance on your last statement. Second, your old servicer refunds the old escrow balance as a separate check after payoff, usually some weeks later. That money is yours, but it does not arrive at the closing table, so don’t count it in the figure you plan around.
Delinquent taxes deserve a flag. Fannie Mae allows taxes more than 60 days past due to be paid through the new loan, but an escrow account must then be set up, subject to applicable law.
Costs From Proceeds or Financed Into the Loan?
You can pay costs out of the proceeds, or roll them into the loan. Both reach the same destination, but they get there differently.
| Approach | Effect on loan | Effect on check |
|---|---|---|
| Costs paid from proceeds | Loan stays at the cap | Check is smaller |
| Costs financed into the loan | Balance rises, uses cap room | Check is larger, equity left shrinks |
| Costs paid out of pocket | Loan unchanged | Check is untouched, you bring cash |
The leverage cap is the constraint. If the loan is already at the cap, financing costs has no room to work. The costs then have to come from the proceeds or from you. The CFPB’s guide to the Loan Estimate and Closing Disclosure shows this netting. In its example, a $100,000 loan with $80,000 of payoffs and $10,000 of closing costs finances $10,000 of costs. With $95,000 of payoffs, the financed costs fall to $5,000. The larger the payoff, the less room there is for costs.
Why the Check Is Smaller Than the Headline Number
This is the most common misread we see. A borrower runs a quick estimate, multiplies value by 80%, subtracts the old balance, and treats the answer as a check. That figure is gross. It ignores per-diem interest, second liens, fees, prepaids and escrow deposits.
Appraisal movement hits harder than most people expect. Your payoff doesn’t change when the appraisal comes in light. So a modest miss on value shrinks the maximum loan, and the entire shortfall comes out of your cash. A small percentage miss on value can be a much larger percentage of your check.
Pricing is another reason. Loan-level price adjustments are risk-based pricing set by loan purpose, credit score and LTV. Cash-out has its own grid. They are built into the pricing rather than listed as a fee, so you won’t see them as a line item on the ledger above. Fannie Mae’s lender letter LL-2022-05 covers the FHFA-directed changes to cash-out pricing. Your lender explains how pricing shows up on your file.
How the Number Changes by Property Use
Occupancy sets the cap. The same home, the same payoff and the same costs produce different checks depending on how you use it.
| Property use | Typical cash-out cap |
|---|---|
| One-unit principal residence | 80% |
| Two- to four-unit principal residence | 75% |
| Second home | 75% |
| Investment property | 75% |
Those caps match the Fannie Mae Eligibility Matrix and the wholesale programs Lendmire works with, subject to lender guidelines. The one-unit home you live in gets the highest ceiling. Move to a duplex you live in and the ceiling drops five points, which can cut the check by more than five percent because payoff and costs stay fixed.
Freddie Mac sets its own limits in Guide section 4203.1. Freddie Mac also rounds LTV ratios up to the next whole number, which can matter on a file sitting right at the cap.
One more variation. Manufactured homes can face a reduced cap on cash-out, with single-width homes treated more tightly. If that’s your property, ask for the specific limit before you plan around any figure.
What Can Shrink or Block the Check
Equity doesn’t guarantee a check. Several gates can cut it, or stop it altogether.
Seasoning. The first mortgage being paid off must be at least 12 months old, measured note date to note date. At least one borrower must have been on title for 6 months. Files that assume these away get kicked back. Exceptions exist for delayed financing, inheritance and legal awards. Delayed financing lets a cash buyer pull equity inside the six-month window, but only when the original purchase was arm’s-length and documented.
Credit. The wholesale conventional programs start at a 620 decision score. One wholesale lane reaches 89.99% LTV with no mortgage insurance at a 680 score. It has a 50% ratio and its own six months of seasoning, on a thirty-year fixed primary residence with a conforming balance. That lane isn’t written on a Texas homestead cash-out, where the state constitution caps the loan at the agency figure. Some states have special home-equity rules like this. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Debt-to-income and reserves. The automated finding governs most files, with a total ratio ceiling of 50%. The Eligibility Matrix attaches minimum reserves to automated files with DTI above 45% on cash-out. Reserves documentation is where files stall: statements that don’t cover the required months, or funds that can’t be sourced.
Structures that are ineligible. Fannie Mae excludes a few structures from cash-out, including loans with a temporary interest-rate buydown, HomeStyle Energy transactions and installment land contract payoffs. A borrower with enough equity to pay off a PACE loan who chooses not to is also ineligible for cash-out.
Credit events. Waiting periods follow agency rules: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
Cash-Out vs. Limited Cash-Out
A limited cash-out refinance, sometimes called rate-and-term, pays off the first mortgage, the closing costs and a purchase-money second lien, with only incidental cash back. It reaches 95% LTV on a one-unit principal residence. That’s more leverage than cash-out gets, because the program isn’t built to release equity. If the goal is a different loan structure rather than cash, this is the lane to compare. Fannie Mae’s limited cash-out page covers the cash-back limits. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
A special case sits beside both. Freddie Mac’s special-purpose cash-out is limited to buying out a co-owner’s equity.
Where to Find the Number on Your Documents
Your Loan Estimate shows “Estimated Cash to Close.” It is the sum of the loan amount, total closing costs, and payoffs and payments. A check box shows whether you bring money or receive it. The “Estimated Payoffs and Payments” line captures third-party payoffs, such as liens secured by the property, not already counted elsewhere.
Your Closing Disclosure is the final version. Compare it against the estimate before you sign. The CFPB’s closing disclosure page says to ask the lender to explain significant changes in closing costs. Settlement reconciliation is the step where per-diem interest, final payoff figures and fee changes get matched to the estimate. If the final check differs from the first one, the difference sits in one of these lines.
When the Money Arrives
On a principal-residence refinance, you have three business days to cancel after signing. The CFPB explains the right of rescission. It can be waived only for a bona fide personal financial emergency. Funds are typically disbursed after the window closes. Plan for the check to land after that period, not at the signing table.
Is the Check Worth It?
Run a short test before you commit.
- Net, not gross. Use the figure after payoff, liens and costs, not the headline cap.
- The whole balance resets. The new loan replaces the old one. You take on a larger balance and a new term, and the new pricing applies to all of it, not just the cash you pulled.
- Mortgage insurance. Above 80% LTV on other conventional loans it is required. On a standard cash-out at the 80% cap it doesn’t apply, but if you reach a higher-leverage lane, understand the cancellation rules. You can request cancellation at 80% of original value, and the servicer must end it at 78%.
- The purpose. If the money pays off higher-cost debt, check that the payoff list includes everything. Fannie Mae waives the cash-out pricing adjustment when proceeds pay off eligible student loans. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. If you also own rental property, Lendmire’s piece How Much Cash an Investor Cash-Out Refinance Releases After Costs covers that separate lane.
Frequently Asked Questions
How much cash will I actually receive from a conventional cash-out?
The new loan, minus your first-mortgage payoff, minus other liens, minus the costs and prepaids you don’t finance. On a one-unit home you live in, the new loan can reach 80% of appraised value, subject to lender guidelines. Your check is what remains of that after the payoff and costs.
Does 80% LTV mean I get 80% of my equity?
No. The cap applies to the total new loan. Your old payoff, any lien payoffs and the costs all come off the top of that maximum. Equity above the cap stays in the home. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Can I do a cash-out right after buying or refinancing?
Generally not. The first mortgage being paid off must be at least 12 months old, and a borrower must have been on title for 6 months. Delayed financing, inheritance and legal-award exceptions exist, each with documentation requirements.
Are closing costs taken from my check or added to the loan?
Either, and sometimes both. If the loan is at the cap, costs have to come from proceeds or from you. If there’s room under the cap, costs can be financed, which raises the balance and leaves a larger check but less equity in the home.
Is cash-out still cash-out if I own the home free and clear?
Yes. A new mortgage on a home with no existing loan is processed as a cash-out refinance, with the same loan purpose rules and leverage cap.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see conventional loan programs.
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References
1. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
2. Freddie Mac Guide section 4301.5
3. CFPB TILA-RESPA Integrated Disclosure Guide to the Loan Estimate and Closing Disclosure
4. Fannie Mae’s lender letter LL-2022-05
5. Fannie Mae Eligibility Matrix
7. Fannie Mae Limited Cash-Out B2-1.3-02
9. The CFPB’s closing disclosure page
10. CFPB, Can I ever waive my right to rescind on my mortgage loan?
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much Each Cash-Out Refinance Leaves When You Are Scaling · Cash-out Refinance Appraisal: How The Value Sets The Check You Walk Away With · Can Every Closing Cost Be Financed Into a Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.