The Quick Read: A lender starts with the appraised value of your home and applies the program’s maximum loan-to-value (LTV) ratio. It then subtracts your current mortgage payoff, any liens that stay, and any costs rolled into the loan. What remains is the most cash you could receive. Your credit, income, and debt-to-income (DTI) ratio can still lower that number.
Key Takeaways
- Equity is not the same as cash. The cap applies to total debt on the home, not to the cash you take out.
- Occupancy and unit count change the cap. A one-unit primary home gets the highest conventional limit.
- Payoffs and financed costs come off the top before you see a dollar.
- Your income and credit can become the limit even when your equity is large.
- The final figure is not set until the appraisal comes back and the payoff is confirmed.
What Does “Sizing” a Cash-Out Refinance Mean?
Sizing means finding the largest loan the property and the borrower can both support. Lenders check two things in parallel. The property supports a maximum loan based on value. The borrower supports a maximum loan based on income, credit, and reserves. The lower of the two wins.
Three terms get mixed up, so here is how they differ:
- Maximum loan amount: the biggest new mortgage the program allows on this property.
- Cash-out amount: the maximum loan minus everything it must pay off or cover.
- Net proceeds: what actually reaches you after costs that are paid from the loan. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Across the wholesale programs Lendmire arranges consumer loans through, the same sequence shows up on nearly every file. The program rules vary. The order of the checks does not.
The Sizing Sequence in Five Steps
1. Establish value. The lender orders an appraisal, and that value drives everything. A purchase price from years ago or an online estimate does not count.
2. Apply the program cap. Maximum loan = cap % × appraised value.
3. Subtract payoffs and liens that remain. This includes your first mortgage with interest through payoff day. A home equity line or second loan that stays open counts against the cap too.
4. Subtract financed costs. Closing costs and prepaid items rolled into the loan use up room.
5. Test the borrower. Income, credit, assets, and DTI decide whether you qualify for the amount the property allows.
The formula in plain terms: cash available = maximum loan − payoff − remaining liens counted − financed costs.
How the Math Works in Stages
Picture a one-unit home you live in, with a conventional cash-out refinance. The cap is 80% of appraised value. Say the existing first mortgage payoff equals 50% of that value, and you roll in costs equal to about 2% of value. Here is the sequence, using percentages only:
| Step | Share of appraised value |
|---|---|
| Maximum loan at the cap | 80% |
| Less first-mortgage payoff | −50% |
| Less costs rolled into the loan | −2% |
| Cash before borrower testing | 28% |
This is a modeled example, not a quote. Notice that 28% is well below the 80% many people assume they can take. The cap limits total debt. It does not describe cash.
Now add a second loan that stays on the home, worth 5% of value. It counts toward combined LTV, so the cash falls to 23%. If that second loan is paid off at closing instead, it comes out of the proceeds the same way, and the cash is the same 23%. Either way, every dollar of existing debt uses up room under the cap.
Which Ceiling Actually Binds?
The sizing question is rarely “what is the cap?” It is “which limit is lowest for this borrower?” Several can apply at once.
| Constraint | What it limits | How it shows up |
|---|---|---|
| Appraised value | The base the cap multiplies | A low appraisal shrinks the loan |
| Program and property type | The cap percentage | A duplex or second home gets a lower cap |
| Conforming limit | Loan size on conventional files | Larger loans move to jumbo programs |
| Income and DTI | Payment you can carry | Cash is trimmed until the ratio works |
| Reserves | Assets left after closing | Extra months required on some files |
| Lender overlay | A stricter lender rule | Lower than the program allows |
Overlays deserve a note. A program’s published maximum is a ceiling, not a promise. Some lenders set a tighter number than the agency does, which is one reason brokers compare several wholesale lenders on the same file.
Occupancy and Unit Count Change the Cap
The same equity gets different results depending on how the home is used. Under the Fannie Mae Eligibility Matrix, a cash-out refinance of a one-unit principal residence is capped at 80%. Two- to four-unit principal residences and one-unit second homes sit at 75%. A manufactured home that is a principal residence is capped at 65%.
In the wholesale programs Lendmire works with, the conventional cash-out figures are the same: 80% on a one-unit principal residence, 75% on two- to four-unit homes and second homes. One wholesale lane reaches 89.99% LTV with no mortgage insurance for a borrower with a 680 score and a 50% ratio on a thirty-year fixed loan, primary residence, conforming balance. That lane has its own six months of seasoning. In Texas, a cash-out on the homestead is capped by the state constitution at the agency figure, so that lane is not written there. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Income and DTI: Turning a Payment Limit into a Loan Limit
Lenders do not size to equity alone. They size to the payment you can carry. Your total monthly debts, including the new mortgage payment, are divided by your gross monthly income. That is your DTI.
The wholesale conventional programs start at a 620 decision score. The automated underwriting finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45%, with reserve and score factors from the Eligibility Matrix.
Here is the practical effect. A bigger loan means a bigger payment. If that payment pushes your DTI past what the file allows, the cash gets trimmed until the ratio works. Paying off other debts with the proceeds can help the ratio, since those payments go away at closing. That is a case where the cash-out amount and the DTI check interact.
Reserves can bind too. Under Fannie Mae’s cash-out guidance, a DU casefile with DTI above 45% requires six months of reserves. A borrower with big equity and thin savings can hit that wall.
Seasoning: The Timing Gates
Some limits have nothing to do with math. Under the same Selling Guide section, the existing first mortgage you are paying off must be at least 12 months old, measured from note date to note date. At least one borrower must have been on title for six months before the new loan disburses. A home that was listed for sale must come off the market on or before disbursement.
Exceptions exist. Delayed financing covers a home bought with all cash. Inherited and court-awarded property have their own treatment, described in an older version of the Selling Guide section. Delayed financing waives only the title wait. It is still capped and priced as cash-out.
Where the General Rule Breaks
The 80% rule is a starting point. Several situations bend it.
Limited cash-out vs. cash-out. A refinance that pays off the first mortgage, closing costs, and a purchase-money second lien, with only incidental cash back, is treated as rate-and-term. It reaches much higher leverage: 95% on a one-unit principal residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows. Take meaningful cash and the file becomes cash-out, with the lower cap. The line between the two is why a small amount of extra cash can change the whole structure.
FHA. An FHA cash-out is capped at 80% of the adjusted value. HUD lowered that cap for case numbers assigned on or after September 1, 2019, according to Consumer Finance Monitor’s summary of the HUD letter. The FHA Streamline is a different product. It is built for borrowers who already hold an FHA loan, with no appraisal and no real cash back.
VA. VA will not guaranty a refinance above 100% of the appraiser’s reasonable value, and a financed funding fee counts toward that limit, per VA Circular 26-19-05. So VA can reach higher than conventional, but lender overlays may set a lower number. The VA IRRRL is a rate-reduction streamline and has no cash-out sizing.
Jumbo. Above the conforming limit, jumbo programs take over. The wholesale jumbo lanes start at a 660 decision score, lend to $5,000,000, and carry a 50% ratio ceiling on the fixed lanes. Leverage on cash-out in this range depends on the specific lender and file.
A small rounding difference at the cap can cost real room, so the coverage math is worth walking through in prose rather than leaning on any single figure.
When the Appraisal Comes in Low
A low appraisal is a common reason a final number comes in under the estimate. The cap multiplies the lower value, and the payoff does not shrink.
Run it with the earlier example. If value drops 5%, the 80% cap drops by 4 points of the original value. The 50% payoff and 2% costs stay put. Cash falls from 28% of the original value to 24%. The effect on cash is larger, in proportion, than the effect on value. That is the leverage working against you.
Your options when this happens:
- Take a smaller amount of cash.
- Bring cash to closing to cover the shortfall.
- Ask the lender about reconsideration of value with supporting comparable sales.
- Wait and refinance later, if the purpose is not urgent.
What Comes Off the Top Before You See Cash
Think of the proceeds as a waterfall. The existing first mortgage is paid first, including interest through payoff day. Other liens that must be cleared, such as a second loan or a tax lien, come next. Then financed costs and prepaids. Pricing adjustments rise with higher leverage and lower scores.
Rolling costs in means you do not pay them out of pocket, but it shrinks the cash you receive and raises the balance you carry. Paying them separately does the reverse. Neither is wrong. They are different trades.
If your new loan lands above 80% LTV, mortgage insurance enters the picture. It is required above 80%. You can request cancellation at 80% of original value with good payment history, no subordinate liens, and no decline in value. The servicer must end it automatically at 78%, under the Homeowners Protection Act. Published typical annual premiums run 0.58% to 1.86% of the balance. That is a range, not a quote. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Why the Estimate Drifts
The number you hear early is an estimate. It changes for predictable reasons:
- The appraisal differs from your expectation.
- The payoff grows with interest accrued through closing day.
- A lien you forgot about shows up on title.
- Your credit score moves the program or the pricing adjustment.
- DTI changes because a debt balance or income figure was updated.
- A lender overlay is tighter than the program default.
Ask for a payoff statement early. Under the Loan Estimate and Closing Disclosure process, you will see the loan amount and cash to close in writing, so compare them line by line.
Should You Take the Full Amount?
Sizing tells you the ceiling. It does not tell you the right number. A CFPB guide to using home equity warns that a cash-out refinance can raise your payment, lengthen your payoff period, and replace your old loan terms with new ones. It also says no option converts 100% of equity into cash.
Lenders size to value and credit, not to your project. So work backward. Decide what you need, then compare it to what the ceiling allows.
- If the need is well below the ceiling, borrow the need. A smaller loan keeps more equity and a lower payment.
- If the need is near the ceiling, check the DTI and reserves first. That is where files stall.
- If the need exceeds the ceiling, the loan is not the problem. A smaller scope, a different program, or waiting may fit better.
- If your current loan has a low payment you like, weigh the cost of replacing it. Keeping it and borrowing another way may serve you better.
Occupancy decides leverage, and that is the short answer.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Checklist: What to Prepare Before You Ask for a Number
- Your latest mortgage statement and a payoff request.
- Balances on any home equity line or second loan.
- Recent pay stubs, W-2s, and traditional personal-income documentation, or other income documents.
- Two months of bank statements for reserves.
- A list of your monthly debts.
- Your realistic value estimate, based on recent nearby sales.
- A clear figure for what you need the cash to do.
Many borrowers compare structures before committing. Lendmire’s cash-out refinance programs let you see how the 80% conventional lane, government options, and jumbo lanes stack up for your equity and credit. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Key Terms Defined
Loan-to-value (LTV): The new loan balance divided by the appraised value of the home.
Combined LTV (CLTV): All loans secured by the home, added together, divided by the appraised value.
Debt-to-income ratio (DTI): Your total monthly debt payments divided by your gross monthly income.
Seasoning: The minimum time you must have held the loan or the title before a cash-out is allowed.
Limited cash-out refinance: A refinance that pays off the first mortgage and costs with only incidental cash back.
Reserves: Liquid assets you hold after closing, measured in months of housing payments.
Frequently Asked Questions
Can I take out all of my equity?
No. Lenders cap total debt at a percentage of value, so some equity always stays in the home. On a conventional one-unit primary home, the cap is 80%. The cash you receive is the cap minus your payoff, other liens, and financed costs.
Why is my offer lower than my own equity math?
Your math probably skipped something that uses up room. Interest through payoff day, a second loan, financed costs, and a lower appraisal all reduce the amount. Credit, DTI, or reserves may also trim it.
Does the lender care what I spend the cash on?
Generally the sizing does not depend on your project. The lender sizes to value, credit, and capacity. Purpose matters mostly for classification, such as whether the loan is treated as limited cash-out, and for your own decision about whether borrowing makes sense.
What happens if the appraisal comes in low?
The cap multiplies the lower value, so the loan and the cash both shrink, and cash falls by a larger share. You can take less cash, bring money to closing, or ask about a reconsideration of value with comparable sales.
Do closing costs come out of my cash?
Closing costs and prepaids may be rolled into the loan, which reduces the cash you receive, or paid separately, which keeps the cash higher but needs money up front.
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.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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 Cash-Out Refinance Transactions
3. Consumer Finance Monitor’s summary of the HUD letter
5. CFPB guide to using home equity
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 a Lender Counts Reserves on a Second Home Cash-Out Refinance · How to Buy Out a Spouse With a Cash-Out Refinance on One Income · Cash-Out Refinance and Stay vs Sell on a Texas Homestead
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.