The Quick Read: A limited cash-out refinance replaces your current first mortgage and lets you take only a small amount of cash at closing. Fannie Mae caps that cash at the greater of 1% of the new loan balance or $2,000, per its October announcement of the change. The loan can also roll in closing costs and pay off a purchase-money second lien. Anything beyond that moves the file into a full cash-out refinance with tighter leverage.
Key Takeaways
- The loan pays off the first mortgage, the closing costs and a purchase-money second lien. Cash back stays small.
- On a one-unit primary residence, leverage can reach 95%, and 97% where the existing loan is agency-owned and the first-time-buyer program allows it. Mortgage insurance applies above 80%.
- Paying off a second lien that did not buy or build the home converts the file to full cash-out.
- A full cash-out refinance caps at 80% LTV on one unit and 75% on two to four units.
- All figures are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
What a Limited Cash-Out Refinance Actually Is
The governing rule is Selling Guide section B2-1.3-02. It treats the refinance as a rate-and-term transaction: you change the loan’s term, the rate type or the structure, and you do not pull out equity.
Lenders use several labels for the same thing. “Rate-and-term refinance” is the common consumer name. For Freddie, the guide’s no-cash-out section carries a similar small-cash-back idea. Treat Fannie’s numbers and Freddie’s numbers as separate.
Across the wholesale programs Lendmire places files with, this is the lane homeowners use to change a term, drop a co-borrower or move from an adjustable to a fixed rate. It is not a way to fund a kitchen remodel or pay off credit cards. Lendmire arranges these loans through wholesale lenders in 16 states, and each lender reviews the file on its own guidelines. Anyone comparing it with the full version should read about Lendmire’s cash-out refinance programs.
Key Terms Defined
- Limited cash-out refinance: A new first mortgage that pays off the old one and allows only small cash back.
- LTV: The loan balance divided by the home’s value.
- Purchase-money second lien: A second loan taken at purchase to cover part of the price.
- Subordinate lien: Any loan that sits behind the first mortgage, such as a HELOC.
- Desktop Underwriter: Fannie Mae’s automated system that issues the underwriting finding.
What It Allows and What It Doesn’t
The allowed list is short. Here is the working version.
| Item | Limited cash-out | Full cash-out |
|---|---|---|
| Pay off the first mortgage | Yes | Yes |
| Roll in closing costs | Yes | Yes |
| Pay off a purchase-money second | Yes | Yes |
| Pay off a HELOC used for other spending | No, becomes cash-out | Yes |
| Cash to borrower | Greater of 1% or $2,000 | Any amount within LTV |
| Max LTV, one unit | 95% (97% in some cases) | 80% |
Two items trip people up. First, the loan may include closing costs, which raises the new balance. That is a trade you weigh against whatever you are changing. Closing costs can add up to several percentage points of the loan, and the CFPB has said they can cancel the savings from a modest improvement. The CFPB also notes an owner’s title policy does not carry over to a new lender.
Second, cash can show up when you did not ask for it. An escrow refund, a prepaid adjustment or a rounding difference at settlement all count toward the cap. Anything over the cap pushes the file toward full cash-out pricing and leverage rules, so it is handled before closing, not after.
How the Cash-Back Cap Works
The cap is the greater of 1% of the new loan’s unpaid principal balance or $2,000. Fannie Mae’s SEL-2025-08 announcement made the change in October, and lenders could apply it right away. The old cap was the lesser of 2% or $2,000.
That swap matters. The old wording used “lesser of.” The new wording uses “greater of.” Older web pages and some investor matrices still show the former. If a page says “2% or $2,000, whichever is less,” it is out of date.
In practice, the greater-of formula means the cap is $2,000 on smaller balances and scales up as the loan grows past that 1% crossover. It is a small cushion for incidental cash. It is not a source of funds.
Leverage: 95%, 97% and Where Mortgage Insurance Lands
The Fannie Mae Eligibility Matrix sets the ceilings for standard automated underwriting on a principal residence. On a one-unit home, the baseline is 95%. It reaches 97% where the existing loan is agency-owned and the first-time-buyer program allows it.
| Loan type | Limited cash-out max | Cash-out max |
|---|---|---|
| One unit, fixed rate | 95% (97% where existing loan is agency-owned and program allows) | 80% |
| One unit, ARM | 95% | 80% |
| Two to four units | 95% | 75% |
Matrix rows carry footnotes, so the live matrix is the final word. Wholesale programs also apply their own floors on top of the agency baseline. Across the files Lendmire places, the usual starting point is a 620 decision score and a total ratio ceiling of 50% on the automated finding. Lender overlays can run stricter.
Above 80% LTV, mortgage insurance applies. You may request cancellation at 80% of the original value with good payment history, no subordinate liens and no decline in value. The servicer must end it automatically at 78%. Published annual premiums run 0.58% to 1.86% of the balance. That is a range, not a quote. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Low equity is not a barrier here. Roughly 5% equity can be enough on a one-unit primary residence, and about 3% where the existing loan is agency-owned and the program allows 97%. A full cash-out refinance needs 20% equity on one unit and 25% on two to four units.
Wondering why seasoning isn’t on the list? Fannie’s page lists no seasoning rule for limited cash-out refinances, so don’t assume one. The 12-month note rule and the six months on title belong to cash-out loans. Confirm the specifics with the lender.
Second Liens, HELOCs and the Flip to Full Cash-Out
This is where files get reclassified. Only a second lien used to buy the property, or to pay construction costs, can be paid off and still count as limited cash-out. That is stated in B2-1.3-02.
Work through it as a decision tree:
1. Was the second lien taken at purchase to finance part of the price? If yes, it can be paid off in a limited cash-out file.
2. Was it a HELOC or home equity loan used to build or finish the home? Construction costs qualify.
3. Was it used for anything else, such as debt consolidation, a car or tuition? Paying it off makes the loan a full cash-out refinance at 80% LTV on one unit. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
4. Does the second lien stay in place? The guide has a section for existing subordinate liens that remain. The new first mortgage must still meet the combined leverage limits.
Picture a homeowner with a 3% down purchase and a small second mortgage from the same closing. Paying both off is clean. Now picture a homeowner whose HELOC funded a roof, a trip and a debt payoff. The lender will want the HELOC history. A mix of uses is where a limited file gets pushed to full cash-out, so the paper trail matters. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
New second financing at the same time is also addressed. When a borrower takes new subordinate financing alongside the refinance, Fannie treats the transaction as limited cash-out if the first mortgage meets the criteria.
Who Qualifies: Title, Ownership and Edge Cases
At least one borrower on the new loan must be an owner on title at application. The exceptions are spelled out in B2-1.3-02. They cover:
- Inheritance or a legal award, such as divorce, separation or dissolution of a domestic partnership.
- A property held in a revocable trust where the borrower is the primary beneficiary.
- A borrower who is obligated on the loan but not on title.
- Property held in an LLC the borrower majority-owns or controls. Ownership moves into the individual’s name.
Buyouts. The guide has a section on refinances that buy out an owner’s interest. The person staying must qualify for the loan alone under Fannie underwriting. In a divorce, the title exception and the buyout section work together.
Fannie-owned existing loan. For the highest tier, 95.01% to 97%, the loan runs through Desktop Underwriter and the existing mortgage generally must be Fannie-owned. Desktop Underwriter may verify ownership automatically. If it cannot, the lender documents it by hand. This ties to the high-LTV and RefiNow path in the matrix, not to every limited cash-out loan.
RefiNow. The program required that fixed-rate, one-unit primary residences be run as limited cash-out refinances. High-balance loans were not permitted, and it could not combine with a HomeReady refinance. Confirm current availability before counting on it.
Manufactured homes. Single-width units are not eligible for cash-out, and limited cash-out limits run lower than site-built. Check the live manufactured housing matrix.
Construction-to-permanent. A single-closing loan is processed as a purchase or limited cash-out. A two-closing loan is processed as limited cash-out or cash-out. Renovation loans with improvements follow the purchase and limited cash-out leverage ratios.
Rental income. Income from one accessory dwelling unit can count toward qualifying, on one-unit primary residences in purchase and limited cash-out transactions.
Occupancy. Second homes and investment properties have separate rows with lower limits than a primary residence, so the occupancy decides the leverage.
First-time buyer rule. For the 97% standard product, the first-time buyer requirement is waived for limited cash-out refinances, per the FDIC’s summary of the program.
Which Loan Do You Need?
Match the goal to the loan.
| Your goal | Likely path |
|---|---|
| Change term or rate type | Limited cash-out |
| Remove an ex-spouse from the loan | Limited cash-out with buyout |
| Pay off a purchase-money second | Limited cash-out |
| Pull equity for repairs or debt | Full cash-out |
| Pay off a non-purchase HELOC | Full cash-out |
If your goal needs real cash, run the equity first. At 80% LTV on one unit, a full cash-out leaves less room than a limited loan at 95%. The tradeoff is cash against leverage and mortgage insurance. A borrower with limited equity who needs cash may be better off keeping the current loan and using a separate product. That is a decision to weigh with a loan officer.
What to Have Ready
Documents that keep a limited cash-out file clean:
1. The current mortgage statement and the original note date.
2. Title or deed evidence showing who is on title.
3. A payoff statement for any second lien, and the closing disclosure from the purchase if it was a purchase-money second.
4. HELOC history if the second lien was used for building costs.
5. Divorce decree or trust documents if the title exception applies.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Common Mistakes
- Assuming “limited” means no cash. Cash back is allowed within the cap.
- Using the old cap. The pre-change cap was “lesser of 2% or $2,000.”
- Paying off the wrong second lien. A non-purchase HELOC converts the file.
- Mixing up seasoning rules. Cash-out seasoning does not automatically apply to a limited cash-out.
- Ignoring value method. LTV is figured against the appraised or automated value, and the lender decides which applies.
Frequently Asked Questions
Can I get cash back on a limited cash-out refinance?
Yes, but only a small amount. The cap is the greater of 1% of the new loan balance or $2,000. Excess cash converts the file into a full cash-out refinance with lower leverage limits.
Do I need to be on title to refinance?
Usually yes. At least one borrower on the new loan must be an owner at application. Exceptions cover inheritance, a legal award, certain trust and LLC situations and a borrower obligated on the loan but not on title.
Can I pay off my HELOC in a limited cash-out refinance?
Only if it was used to buy the home or pay construction costs. A HELOC used for other spending turns the loan into a full cash-out refinance, capped at 80% LTV on one unit. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Does my existing loan have to be owned by Fannie Mae?
Not for every limited cash-out loan. The requirement is tied to the 95.01% to 97% tier and special programs like RefiNow. Your lender can check ownership.
How much equity do I need?
On a one-unit primary residence, about 5% equity can work, and about 3% where the existing loan is agency-owned and the program allows 97%. Two- to four-unit homes carry a 95% maximum.
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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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 SEL-2025-08 announcement
2. Fannie Mae Selling Guide B2-1.3-02
3. CFPB Director remarks on refinance closing costs
4. Fannie Mae Eligibility Matrix
5. FDIC Affordable Mortgage Lending Center: Fannie Standard 97% LTV
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Is a Conventional Cash-Out Refinance a New Mortgage? · How Much You Can Borrow With a Conventional Cash-Out Refinance? · How a Lender Processes a Conventional Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.