The Quick Read: Cash-out refinance mortgage insurance rules turn on the new loan’s loan-to-value ratio, not on how small your current balance is. A conventional cash-out on a one-unit primary home caps at 80% LTV, and mortgage insurance applies above 80%, so a conventional cash-out generally carries none. FHA and VA work differently: FHA charges mortgage insurance premiums, and VA charges a funding fee instead. A low first mortgage helps only by leaving room under the cap, subject to lender guidelines and full file review.
Why a Low First Mortgage Changes Less Than You’d Expect
A small existing balance does not reduce or remove mortgage insurance on its own. The new loan replaces the old one. Its size is the old payoff, plus closing costs, plus the cash you take. Divide that total by the appraised value and you have the new LTV. That number drives everything.
Here is what the low balance does give you: room. Say you owe about 30% of the home’s value. You can take a meaningful amount of cash and still land under the 80% cap. Someone who owes 70% has far less room. Same rules, different headroom.
The low balance does not help with seasoning, debt-to-income, occupancy or appraisal. Those all apply regardless. (This is the misconception that trips up the most files: “I owe almost nothing, so approval is automatic.” It isn’t.)
How the Loan Is Underwritten, Step by Step
Across the wholesale programs Lendmire places consumer files with, a cash-out refinance follows the same sequence.
1. Set the new loan amount. Existing first-mortgage payoff, plus closing costs, plus any liens being paid off, plus the cash requested.
2. Divide by appraised value. Cash-out needs a full appraisal. The result is the new LTV.
3. Compare to the cap. Conventional cash-out is 80% LTV on a one-unit principal residence and 75% on two- to four-unit principal residences, second homes and investment property, per the Fannie Mae Eligibility Matrix. That matches what the wholesale programs apply. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
4. Find the insurance trigger. Conventional: mortgage insurance applies above 80% LTV. Since the cash-out cap is 80%, the standard cash-out lane carries none. FHA and VA have their own structures, covered below. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
5. Check seasoning and occupancy. 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 six months. The Fannie Mae Selling Guide sets out the cash-out rules, including exceptions for inherited or legally awarded property and for delayed financing after a cash purchase.
6. Verify income, assets and ratios. Income and asset documents, the payoff statement and title history go in the file. Where the DTI runs above 45% on an automated finding, the Selling Guide calls for six months of reserves.
7. Pricing adjustments. Conventional cash-out loans carry loan-level price adjustments that vary with LTV and credit score. They are not mortgage insurance. They show up on the Loan Estimate and Closing Disclosure.
Mortgage Insurance by Loan Type
| Factor | Conventional | FHA | VA |
|---|---|---|---|
| Cash-out cap | 80% LTV, one unit | 80% of adjusted value | Lender-dependent |
| Insurance type | PMI above 80% only | Upfront plus annual premium | Funding fee, no monthly MI |
| Cash-out trigger | None at or under 80% | Always charged | Fee on loan amount |
| Financed? | N/A | Upfront usually financed | Fee can be financed |
On FHA, HUD Mortgagee Letter 2019-11 lowered the cash-out cap to 80% of adjusted value. Premiums apply to the whole new loan, not just the cash taken out. HUD’s Handbook 4000.1 holds the current premium schedule, so check it rather than relying on an old figure.
On VA, the funding fee replaces monthly mortgage insurance. VA News lists 2.15% for a first-use cash-out and 3.3% after first use, with some veterans exempt. Cash-out needs full underwriting and an appraisal.
Where the Rule Breaks: Edge Cases
The general rule is “conventional cash-out at 80% or less, no PMI.” Here is where files step outside it. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
A wholesale lane up to 89.99% LTV. Across the wholesale programs, one conventional lane reaches 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence, a conforming balance and its own six months of seasoning. Not every file fits, and it is not written in Texas, where the state constitution caps a homestead cash-out at the agency figure. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Limited cash-out is not cash-out. A rate-and-term refinance reaches 95% LTV on a one-unit primary home, with mortgage insurance above 80%. Cash back is incidental. Fannie Mae’s SEL-2025-08 caps it at the greater of 1% of the new loan balance or $2,000. Take more, or pay off a second lien that wasn’t used to buy the home, and it reprices as cash-out. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Existing FHA loan. A Streamline needs no appraisal, but HUD limits cash back to $500 and does not allow closing costs to be rolled into the loan. A true cash-out on an FHA loan means a full appraisal and the 80% cap. The two are not interchangeable.
Existing VA loan. An IRRRL is VA-to-VA with a 0.5% funding fee unless exempt, and it allows no real cash-out.
Occupancy and property type. Second homes and rentals sit at 75%. Manufactured housing carries much lower cash-out caps than site-built homes. An owner-occupied one-unit home is the best-case path.
Insurance coming back. If you dropped PMI on the old loan, a new loan above 80% LTV would bring it back, because the new appraisal resets the test. On a cash-out at the 80% cap, that rarely arises. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Will a Low Balance Help With the Insurance Question?
Run it in percentages. Picture a homeowner whose first mortgage sits around 25% of the home’s value and who wants cash equal to another 25%. The new loan lands near 50% LTV, with closing costs on top. That is far below 80%, so conventional mortgage insurance does not apply. The question there is whether the extra borrowing is worth it, not insurance. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Now picture a homeowner who owes about 55% and wants cash equal to 30%. The new loan lands near 85%, over the cap. A conventional cash-out will not stretch that far, so the cash request has to shrink, or the wholesale 89.99% lane has to fit the file. FHA stops at 80% too.
The lesson: on a cash-out, the cap, not the insurance line, is what limits you.
How Long Insurance Lasts After Closing
Conventional PMI, where it exists, comes off on a fixed schedule under the Homeowners Protection Act. You may ask to cancel at 80% of the original value, with good payment history, no subordinate liens and no decline in value. The servicer must terminate it automatically at 78%. The CFPB explains the cancellation request. It also says FHA and VA insurance questions go to your servicer, because the Act covers private insurance only.
For a new cash-out loan, “original value” is the new appraisal. The clock restarts with the new loan.
What a Lender Looks For
- Primary-residence occupancy, with all borrowers living in the home.
- Six months on title and a first mortgage at least 12 months old, unless an exception applies.
- A credit score at the program floor.
- A total ratio inside the program ceiling, often up to 50% on an automated finding.
- A listed home taken off the market on or before disbursement.
- A full appraisal, payoff statement and clear title.
Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review.
Common Mistakes
- Assuming a cash-out always means PMI. At or under 80% conventional, it generally doesn’t.
- Quoting the old FHA 85% cap. It is 80%.
- Expecting the 80%/78% cancellation rule to apply to FHA or VA.
- Treating a Streamline as a source of cash.
- Counting only the cash requested and forgetting that closing costs and payoffs raise the new LTV.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
LTV (loan-to-value): the new loan amount divided by the home’s appraised value.
PMI (private mortgage insurance): insurance on a conventional loan above 80% LTV that protects the lender. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
MIP (mortgage insurance premium): the FHA insurance charge, with an upfront part and an annual part.
Funding fee: the VA charge that takes the place of monthly mortgage insurance.
Seasoning: the minimum time you have held title or the existing loan has been in place.
Limited cash-out refinance: a rate-and-term refinance with only incidental cash back.
Making the Call
Start with the cap. Add your payoff, closing costs and desired cash, divide by a realistic value, and compare to 80%. If the answer is comfortably under, conventional is usually the cleanest path with no PMI. If you already hold an FHA or VA loan, compare a streamline against a cash-out before assuming either. If you only need a small amount, the cost of repricing a good existing first mortgage deserves a hard look. Lendmire’s cash-out refinance programs page lays out how the equity limits work by program.
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. All figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does a cash-out refinance require mortgage insurance?
Not on a standard conventional cash-out. The cap is 80% LTV and conventional PMI applies above 80%, so these loans generally carry none. FHA charges premiums on any cash-out, and VA charges a funding fee instead of monthly insurance.
If I owe very little, can I skip the appraisal or the seasoning rules?
No. A cash-out needs a full appraisal and the seasoning tests regardless of balance. The first mortgage generally must be 12 months old and a borrower on title for six months, with exceptions for inheritance, legal awards and delayed financing.
Can I cancel the insurance later?
Conventional PMI can be cancelled on request at 80% of the original value and ends automatically at 78%. FHA and VA insurance questions go to your servicer, since the federal cancellation law covers private insurance only.
What is the difference between limited cash-out and cash-out?
Limited cash-out refinances pay off the existing first mortgage and closing costs, with cash back capped at the greater of 1% of the new balance or $2,000. Anything beyond that is priced and capped as cash-out, at 80% LTV on a one-unit primary home. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Does an FHA Streamline let me take cash out?
Barely. HUD limits cash back to $500, and the existing loan must already be FHA-insured and current. A real cash-out on FHA requires a full appraisal and the 80% cap.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency 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 B2-1.3-03
3. HUD Mortgagee Letter 2019-11
4. VA News
6. CFPB: When can I remove PMI?
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: Texas Cash-Out Refinance Rules When You Have a Low First Mortgage · How Much Down Payment a Cash-Out Refinance Gives on a Low First Mortgage · How to Document a Cash-Out Refinance Down Payment With a Low First Lien
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.