The Quick Read: A cash-out refinance turns the gap between your home’s value and your balance into cash, and a small balance makes that gap bigger. On a one-unit home you live in, a conventional cash-out loan can reach 80% of the home’s value. A balance of 20% of value therefore frees up about 60% of value before costs. Closing costs, other liens and the loss of your current loan all cut into what you actually keep.
Here is the part most guides skip. A cash-out refinance does not add cash to your old loan. It replaces the old loan. Your small balance, and whatever terms come with it, goes away. This guide walks through the math, the underwriting, the variations and the places the rule breaks.
What Counts as a Low First Mortgage?
There is no official cutoff. A first mortgage is “low” when the balance is a small share of what the home is worth. Lenders think in that ratio, not in dollars.
Say you owe 20% of your home’s value. You hold 80% in equity. Say you owe 60%. You hold 40%. The first homeowner has far more to work with. Equity is the number that drives everything below.
A cash-out loan is capped by a percentage of value. Your balance sits inside that cap. The smaller the balance, the more room is left over as cash. That is why a paid-down loan feels like a savings account.
Through the cash-out refinance programs Lendmire arranges with wholesale lenders, the cap depends on how you use the home. A one-unit home you live in gets the highest cap. A two- to four-unit home you live in gets less, and so does a second home. Occupancy decides the ceiling.
In the files that come through wholesale lenders, the cash figure on the first worksheet is usually higher than the cash at closing. The gap comes from costs and payoffs that borrowers forget to subtract. The sections below show where it goes.
Key Terms Defined
Loan-to-value (LTV): The loan amount divided by the home’s appraised value. An 80% LTV means the loan equals 80% of value. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Combined loan-to-value (CLTV): All loans on the home added together, divided by value. A second mortgage or home equity line counts here.
Equity: The home’s value minus what you owe against it.
Seasoning: The waiting period a lender requires before you can refinance. It is counted from your purchase or from the date of your current loan.
Limited cash-out refinance: A refinance, also called rate-and-term, that pays off your loan and costs with only a small amount of cash back.
Delayed financing: An exception that lets a recent cash buyer take cash out without waiting out the usual seasoning.
Mortgage insurance: A policy you pay for when the loan is above 80% LTV. It protects the lender, not you. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
How Is the Down Payment Calculated?
The formula has four steps.
1. Find the maximum new loan. Multiply the appraised value by the program’s maximum LTV.
2. Subtract the payoff. Your current first mortgage, and any other liens, must be paid off from the new loan.
3. Subtract costs. Closing costs and prepaid items come out of the proceeds, or get rolled into the loan, which lowers the cash.
4. What remains is your cash. That is the money you can use for a down payment.
The table below shows step one through step three, with closing costs left out. Every row assumes a one-unit principal residence at an 80% cap. The values are percentages of the home’s value, not dollars.
| Balance owed | New loan at 80% | Cash before costs |
|---|---|---|
| 20% of value | 80% of value | 60% of value |
| 40% of value | 80% of value | 40% of value |
| 60% of value | 80% of value | 20% of value |
There is also a wholesale lane that reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% total ratio, a thirty-year fixed rate, a primary residence and a conforming loan balance. It has its own six-month seasoning rule. At a 20% balance, that lane would leave about 70% of value before costs. It is not written in Texas, where the state constitution caps a homestead cash-out. All of it is subject to lender guidelines and full file review.
Appraised value is the weakest link in this math. A lower appraisal shrinks the cap and the cash with it. The balance did not change, but the cash did.
From Cash to Purchase Price
Reverse the math to see what the cash can support. Divide your cash by the down payment percentage on the next home. The result is a multiple of your current home’s value.
| Cash after costs | At 5% down | At 10% down | At 20% down |
|---|---|---|---|
| 10% of today’s value | 2.0x | 1.0x | 0.5x |
| 20% of today’s value | 4.0x | 2.0x | 1.0x |
| 40% of today’s value | 8.0x | 4.0x | 2.0x |
Read the middle row this way. Cash equal to 20% of today’s value covers a 10% down payment on a purchase equal to twice that value. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
The 5% column fits a principal residence, where the purchase loan can reach 95% LTV. A second home needs more, since purchase loans on second homes go to 90% LTV, which means 10% down. The table is arithmetic only. It ignores the next loan’s closing costs and reserves. It also ignores the bigger payment you will now carry on the refinanced home. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
That last point is the real limit. The next lender looks at your debts, including the new payment on the home you just refinanced. Cash can be plentiful while your debt-to-income ratio is the thing that says no.
How the Lender Underwrites a Cash-Out Refinance
The deal works in a set order. Each step can shrink the cash or stop the loan.
Classification. The lender decides whether your file is a limited cash-out or a true cash-out. Fannie Mae’s eligibility matrix caps a one-unit principal residence at 80% for cash-out. Two- to four-unit homes and second homes sit at 75%. Limited cash-out can reach 97% on a fixed rate, which is why the label matters.
Seasoning. The mortgage being paid off must be at least 12 months old, counted from note date to note date. You must also have been on title for at least six months, per the Fannie Mae Selling Guide. Time in a majority-owned LLC or a revocable trust may count toward the title period. A recent cash buyer may qualify through delayed financing instead.
Listing status. Fannie Mae’s guide makes a cash-out ineligible if the home is listed for sale at disbursement. That rule matters for a buy-first, sell-later plan. Listing the old home early can take this tool off the table.
Appraisal. A new appraisal sets the value, and value sets the cap.
Income, credit and ratios. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. A manually underwritten loan runs at 36% or 45%, depending on score and reserves. Jumbo loans, which sit above the conforming limit, start at a 660 score and run to a 50% ratio on the fixed lanes. Self-employed borrowers typically need fuller income documentation, and the automated finding decides how much.
Pricing and costs. Cash-out loans carry pricing adjustments tied to leverage, and closing costs apply. The costs can be paid in cash or rolled into the loan, but rolling them in lowers your net cash. Your Loan Estimate lays out the real figures.
Closing. The old first mortgage is paid off first. The lender then disburses what remains.
What Happens to the Low First Mortgage?
It disappears. The new loan pays off the old one, and the new loan’s terms apply to the whole balance, not just the cash you took. A low balance often comes with a low rate or a short remaining term. You give up both. The CFPB describes a home equity loan or line as a second mortgage you pay in addition to your first. That is the main way to keep the first loan in place.
| Factor | Cash-out refinance | Second lien (HELOC or home equity loan) |
|---|---|---|
| Your first mortgage | Replaced | Stays in place |
| What gets new terms | The whole balance | Only the new borrowing |
| Number of payments | One | Two |
| Main risk | Resets everything | A second debt on the home |
Neither path is better. If your first loan is far better than anything on offer today, keeping it and borrowing behind it may protect more value. If your first loan is ordinary and you need a large amount, one new loan may be cleaner. Lendmire’s piece HELOC vs Cash-Out Refinance When You Have a Low First Mortgage goes deeper on that choice.
One caution applies to both. Any second lien that stays on the home counts toward the combined cap. It eats into the cash a refinance could otherwise release.
Structures and Variations
Not every refinance can hand you cash. Here is how the main structures differ.
- Conventional cash-out. 80% on a one-unit home you live in, 75% on two- to four-unit homes and second homes. This is the main route to down payment cash.
- Limited cash-out (rate-and-term). Up to 95% LTV on a one-unit principal residence, or 97% where the existing loan is agency-owned and the first-time-buyer program allows. The new loan pays off the first mortgage, closing costs and any purchase-money second lien. Cash back is incidental. Mortgage insurance applies above 80%. This does not produce a down payment.
- FHA Streamline. For an existing FHA loan. It needs no appraisal and only a limited credit review. It requires a net tangible benefit, and cash back is held to a token amount. It cannot fund a down payment.
- VA IRRRL. For an existing VA loan. The VA states that you may not receive cash from the proceeds, apart from a narrow energy-efficiency exception. Not a down payment tool.
- FHA and VA cash-out. These exist as separate products. Their caps and rules differ from conventional loans. VA cash-out generally allows more leverage than conventional, though lenders often set tighter limits. A lender can confirm the exact figures.
- Jumbo. Above the conforming limit, jumbo lanes take over, with leverage to 90% and loans to $5,000,000, subject to the scores and ratios above.
If you currently hold an FHA or VA loan and want down payment cash, the streamline is the wrong door. A true cash-out is the one that works.
Where the General Rule Breaks
The 80% cap is a ceiling, not a promise. These cases push the real number lower or out of reach.
You bought recently. The 12-month and six-month clocks block a quick cash-out. The delayed financing exception helps a cash buyer who purchased in an arm’s-length deal, per Fannie Mae’s archived guide. That page is an older version, so confirm the current rule with your lender.
You plan to move out. The loan is written on the occupancy you declare. If the new purchase is meant to become your main home, tell the lender early. A cash-out on the home you plan to leave may fall under a lower cap or a different rule.
You have a second lien. The combined cap treats it as part of the total. Less room means less cash.
Your appraisal comes in low. The cap drops with the value.
You use a temporary rate buydown. Fannie Mae lists transactions with a temporary buydown as ineligible for cash-out.
The home is a single-width manufactured home. These are limited to purchase and limited cash-out.
The home is listed. A listing blocks the cash-out outright, as noted above.
The next loan needs its own approval. Cash in hand does not qualify you for the purchase loan. A larger payment on the old home can lower the next loan’s approval odds.
Should You Do It?
Use a short set of decision rules.
1. Compare the whole balance, not just the cash. Ask what the new terms do to the entire loan.
2. Count the second-lien alternative. If your first loan is strong, price both paths.
3. Add up everything that comes out of the cash. Payoff, costs, any prepaids and reserves for the next purchase.
4. Qualify for both loans. The next lender will count the refinanced home’s new payment.
5. Check the clocks. Seasoning, title time and listing status decide whether you can start.
6. Keep a cushion. The cap leaves you with equity, and that cushion is protection if values dip.
Home-secured borrowing carries a real risk. If you fall behind on payments, you could lose the home. That makes the cash a tool for a plan, not a windfall.
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.
Frequently Asked Questions
Can I use cash-out money as a down payment on another home?
Generally yes. The proceeds can be used for what you choose. The catch is the next purchase loan, which has its own approval and will weigh the larger payment on the refinanced home. The cash is the easy part. Qualifying for both loans is the harder one.
Can an FHA Streamline or VA IRRRL give me down payment cash?
No. These are rate-and-term tools for existing government loans. FHA cash back is held to a token amount, and the VA IRRRL permits no cash apart from a narrow energy exception. If you want cash from an FHA or VA home, you need a true cash-out loan.
How soon after buying can I take cash out?
Usually not right away. The loan being paid off should be at least 12 months old, and you should have been on title for six months. A recent cash purchase may qualify under delayed financing. Programs differ, so a lender can confirm which clock applies to you.
Why is the cash at closing lower than the maximum?
The maximum loan has to cover your payoff first. Closing costs and prepaid items then come out of the proceeds, or get added to the loan. Any other lien on the home also counts against the cap. What is left is the cash.
Is the cash taxable or deductible?
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Eligibility Matrix
2. Fannie Mae Selling Guide: Cash-Out Refinance Transactions
3. CFPB: Home Equity Loan vs. HELOC
4. VA Interest Rate Reduction Refinance Loan
5. Fannie Mae Selling Guide, archived version: Cash-Out Refinance Transactions
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much More a Cash-Out Refinance Releases Behind a Low First Mortgage · How Much a Cash-Out Refinance Raises the Payment and Your DTI · How Much a Cash-Out Refi vs Second Lien Releases With a Low First
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.