The Quick Read: A cash-out refinance caps your new loan as a percentage of the home’s appraised value, and that cap is the maximum loan-to-value. The cap applies to the whole new loan, not to the cash you receive. Your payoff, any other liens, and financed costs come out first, and what remains is your cash. Programs, occupancy, and property type each set their own ceiling, subject to lender guidelines and full file review.
Key Takeaways
- Maximum loan-to-value (LTV) is the largest new loan a program allows, divided by the appraised value.
- Cash to you equals the capped loan, minus your payoff, minus other liens, minus financed costs.
- A low appraisal shrinks the cap and the cash together.
- Borrowing right up to the ceiling leaves almost no cushion if values slip.
- Occupancy, unit count, seasoning, and lender overlays can all pull your ceiling below the headline number.
What Does “Testing the Maximum” Mean?
Testing the maximum means running your own numbers against a program’s ceiling before you apply. You are asking one question: if I borrow as much as this program allows, what do I net, and what am I left with?
Most owners start from the wrong end. They hear “80%” and assume they can pull out 80% of the home’s value in cash. They can’t. The 80% limits the total new mortgage. Your old loan has to be paid off from it first.
Think of it as a budget with a fixed lid. The lid is the cap times the appraised value. Everything the new loan must pay sits under that lid. Whatever is left is yours.
This is the arithmetic behind the cash-out refinance programs Lendmire arranges through wholesale lenders. A common mistake is budgeting from your own estimate of value and a headline percentage, not from the appraisal and the full list of deductions.
How Is the Maximum Loan Calculated, Step by Step?
The calculation has three steps. First, multiply the appraised value by the program’s cap to find the largest new loan. Second, subtract your current first mortgage and any other lien that must be paid at closing. Third, subtract closing costs and any fees rolled into the loan.
Here is a worked example. It uses modeled assumptions, not market data. To keep dollars out of it, call the expected appraised value 100 points. Assume the existing first mortgage is 55 points, and costs and financed fees come to 2 points.
| Step | Item | Points |
|---|---|---|
| 1 | Appraised value | 100 |
| 2 | Cap at 80% | 80 |
| 3 | Less first mortgage payoff | -55 |
| 4 | Less costs and financed fees | -2 |
| 5 | Cash to you | 23 |
Now add a second lien. Say the first mortgage is 50 points and a home equity line of 10 points must also be paid. The cap is still 80. Cash becomes 80 minus 60 minus 2, or 18 points. The second lien did not change the lid. It simply used up room under it.
If a second lien stays in place instead, it counts toward combined LTV. Combined LTV adds every loan against the home and divides by value. That can shrink or block the new loan, depending on the program and lender.
Why Do Lenders Cap Cash-Out Loans?
Lenders cap cash-out loans because leftover equity is a cushion. If prices fall or the borrower stops paying, that cushion absorbs the loss before the lender or investor takes one. Cash-out borrowers also default more often, in many lenders’ experience, than borrowers who refinance only to change the loan terms. So caps on cash-out sit below caps on other refinances.
The lower cap on cash-out is the main difference from a refinance. A rate-and-term refinance, also called a limited cash-out refinance, only pays off the current first mortgage, the closing costs, and a purchase-money second lien. It allows only incidental cash back. On a one-unit primary residence, those loans reach 95% LTV. Cash-out on the same home stops at 80% on conventional programs. Take out real cash and the lender wants you to keep more equity. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
What Is the Ceiling for Each Program?
The ceiling depends on the program, the occupancy, and the property type. Here are the figures for the loans Lendmire places, plus the government programs’ rules.
| Program | Ceiling on a cash-out |
|---|---|
| Conventional, 1-unit primary home | 80% LTV |
| Conventional, 2–4 units, second home, rental | 75% LTV |
| Wholesale conventional lane (see below) | up to 89.99% LTV |
| FHA cash-out | 80% of adjusted value |
| VA cash-out | Up to 100% of reasonable value |
| Rate-and-term, 1-unit primary home | 95% LTV (97% in some cases) |
A few notes on that table.
The 89.99% lane is a wholesale program with narrow conditions. It requires 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. It carries no mortgage insurance. In Texas, a cash-out on the homestead is capped by the state constitution at the agency figure, so this lane is not written there. Exact terms depend on lender and investor guidelines, credit profile, reserves, and property review.
FHA once allowed more. HUD Mortgagee Letter 2019-11 lowered the FHA cash-out limit from 85% to 80% of adjusted value for case numbers assigned on or after September 1, 2019.
VA sets its own ceiling. VA Circular 26-18-30 says VA no longer guaranties refinancing loans above 100% LTV. Many lenders set a lower limit of their own. That is a lender choice, not a VA rule.
Rate-and-term reaches 97% only where the existing loan is agency-owned and the first-time-buyer program allows it. FHA Streamline and VA IRRRL loans are for people who already hold FHA or VA loans. They are not cash-out routes.
Occupancy deserves one sentence. A second home or a rental property sits at the lower 75% cap on conventional cash-out, so how you use the property sets your leverage.
What Changes Your Ceiling?
Your ceiling is the program cap at best. Several things can pull it lower:
- Unit count. Fannie Mae’s eligibility matrix gives a principal residence 80% on one unit and 75% on two to four.
- Seasoning. The first mortgage you are paying off must be at least 12 months old, counted note date to note date. At least one borrower must have been on title for 6 months. Exceptions exist for delayed financing, inheritance, and legal awards.
- Credit and ratios. Wholesale conventional programs start at a 620 decision score, and the automated finding governs most files. The total ratio ceiling is 50%. Manually underwritten loans use 36% or 45% with reserve and score factors from the matrix.
- Reserves. The same matrix applies reserve requirements on cash-out loans run through Desktop Underwriter when the debt-to-income ratio exceeds 45%.
- Property type. Manufactured homes face much tighter cash-out limits, and a single-width manufactured home is not eligible for cash-out on Fannie Mae’s matrix.
- Lender overlays. A lender may set a lower cap or higher score floor than the program requires.
- Credit events. Agency waiting periods apply after a bankruptcy, foreclosure, or short sale. Chapter 7 requires four years from discharge. Foreclosure requires seven years. A short sale or deed-in-lieu requires four. Documented extenuating circumstances can shorten these.
Many owners with no mortgage assume they are not refinancing at all. Under Fannie Mae’s eligibility rules, they are.
How Much Does the Appraisal Move the Result?
The appraisal moves the result a lot, because appraised value is the denominator. A conventional cash-out requires a new appraisal. Your own estimate of value does not count, and neither does an online estimate.
Run the same borrower through three appraisal outcomes. The assumptions match the first example: a 55-point payoff, 2 points of costs, and an 80% cap. The 100-point value is what the owner expected.
| Appraisal outcome | Value | Max loan | Cash to you |
|---|---|---|---|
| As expected | 100 | 80 | 23 |
| 5% lower | 95 | 76 | 19 |
| 10% lower | 90 | 72 | 15 |
A 10% miss on value cuts the cash by about a third. The cap moved by only 8 points, but the payoff and costs did not move at all. That is why a home that looks equity-rich can net less than expected.
Appraisers lean on recent comparable sales, not on what you spent on the kitchen. Cap your expectations at what nearby, similar homes actually sold for.
Should You Borrow to the Cap?
Borrowing to the cap is a choice, not a goal. It is the most cash the program allows, and it is also the least equity you will keep.
Consider the case of someone who borrows exactly 80% and then sees values fall 10%. The loan is still 80 points. The home is now worth 90. Their LTV is about 88.9%. They have gone from a 20% cushion to about 11%. A refinance or sale in that position gets harder. The same dip would leave a lender with a smaller cushion too.
A fair way to think about it:
- At the cap: the most cash and the thinnest cushion. This suits a one-time project with a clear payoff and stable income.
- Below the cap: less cash but more room. A loan at 70% or 75% of value survives a bigger dip in prices.
- Cost of more debt: a larger loan means more interest over time. VA’s news channel says a cash-out loan increases the loan amount, and therefore the interest paid. It adds that a cash-out very rarely lowers the monthly payment.
This one is a genuine judgment call. Maximum cash helps if the money pays off higher-cost debt or funds a project that adds value. It hurts if the money covers spending the home’s value cannot support. Ask what the cash is for before you ask how much you can get.
Mortgage insurance also matters. Conventional loans above 80% LTV generally carry it. You can request cancellation 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 89.99% lane above carries none.
What Does the Process Look Like?
The sequence is the same on most files:
1. Equity test. The lender applies the cap to a value estimate, then deducts the payoff and costs.
2. Appraisal. A new appraisal sets the value.
3. Title and seasoning review. The lender confirms how long you have held title and how old the current loan is. A property listed for sale has to come off the market before the new loan funds.
4. Underwriting. Credit, income, ratios, and reserves are reviewed.
5. Disclosures. You receive a Loan Estimate, then a Closing Disclosure. Compare them line by line.
6. Closing and cancellation window. On a refinance of the home you live in, you have a short right to cancel after signing. The CFPB says cancellation must be in writing. A phone call is not enough. Funds typically disburse after the window ends.
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
Loan-to-value (LTV): the loan amount divided by the home’s appraised value, shown as a percentage.
Maximum LTV: the highest LTV a program allows for a given loan purpose, occupancy, and property type.
Combined LTV (CLTV): all loans secured by the home, added together and divided by its value.
Cash-out refinance: a new, larger mortgage that pays off the old one and gives you the difference in cash.
Limited cash-out (rate-and-term) refinance: a refinance that pays only the current first mortgage, costs, and a purchase-money second lien, with only incidental cash back.
Seasoning: the minimum time you have held title or the existing loan has been in place before a refinance is allowed.
Appraised value: the value a licensed appraiser assigns, which the lender uses as the denominator.
Where Does the General Rule Break?
The 80% rule has named exceptions. These are the ones owners most often hit:
- Recent cash buyers. Delayed financing lets a buyer who paid cash recover that money soon after purchase.
- LLC or LP title. Time held in an entity can count toward the six months if conditions are met, such as transfer into your name by the note date. Check this with your loan officer first.
The loan still has to meet the cash-out LTV rules.
- Paid-off homes. As noted, a home owned free and clear is still cash-out.
- FHA on Hawaiian Home Lands. The 80% FHA rule does not apply to Section 247 mortgages.
- State law. Some states cap cash-out on a homestead. The Texas figure above is one example, and other state rules can be stricter.
Common Mistakes
- Treating the cap as the cash. The cap is on the total loan.
- Forgetting second liens. A HELOC either gets paid from proceeds or counts toward combined LTV.
- Forgetting financed fees. Costs rolled into the loan sit under the same cap.
- Using your own value. The appraiser’s number controls.
- Assuming VA is always 100%. The VA ceiling is 100% of reasonable value, but lenders often set a lower one.
- Expecting a lower payment. A cash-out loan is larger, so a lower payment is the exception.
- Assuming a streamline gives cash. FHA Streamline and VA IRRRL are rate-and-term products.
Pre-Application Checklist
1. Pull your current mortgage statement to find the payoff balance and note date.
2. List every other lien, including HELOCs.
3. Confirm how long you have been on title.
4. Estimate value from recent nearby sales, then subtract 5% to 10% for a cautious case.
5. Run the three-step formula at your program’s cap and at a lower level.
6. Decide what the cash is for and how much you actually need.
7. Gather income documents and check your credit before the lender does.
Frequently Asked Questions
Can I take out 80% of my home’s value in cash?
No. On a one-unit primary residence, 80% is the ceiling on the total new loan. Your existing mortgage, other liens, and financed costs come out of that first. What remains is your cash, and it is often much smaller than 80% of value.
Does a paid-off home count as a cash-out refinance?
Yes. The same LTV caps and title rules apply. You hold no mortgage to pay off, so the full capped amount, less costs, becomes your cash.
What happens if the appraisal comes in low?
The cap shrinks and so does your cash. The payoff and costs stay the same, so the cash falls faster than the value does. In the example above, a 10% lower value cut cash by about a third. You can borrow less, wait, or move to a lower leverage level.
Is the maximum LTV the same for a second home or rental?
No. Conventional cash-out sits at 75% for second homes and rentals, against 80% for a one-unit primary residence. Occupancy decides the leverage, and lender overlays can trim it further.
Should I borrow right up to the maximum?
Only if the cash has a clear job and your income supports a larger balance. A loan below the cap keeps a thicker equity cushion if values slip. Mortgage insurance on loans above 80% LTV is another cost to weigh. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
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. Every figure above is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
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. HUD Mortgagee Letter 2019-11
3. Fannie Mae Eligibility Matrix
4. VA News – “You could be losing thousands”
5. CFPB
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: Can a Cash-Out Refinance Pay Off a Business Loan or Merchant Cash Advance? · How to Pay Off a Business Loan and Expand With a Cash-Out Refinance · Cash-Out Refinance Buyout vs Selling When Co-Owners Part Ways
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.