The Quick Read: A conventional cash-out refinance replaces your current first mortgage with a new, larger one and pays you the difference in cash. On a one-unit home you live in, the new loan generally tops out at 80% of the appraised value. Two-to-four-unit homes, second homes, and investment properties top out at 75%. The tradeoff is simple: you get cash, but the new loan’s terms apply to your entire balance.
What Is a Conventional Cash-Out Refinance?
It is a new first mortgage that pays off the old one and hands you the leftover equity. Fannie Mae’s Selling Guide on cash-out refinance transactions says the new loan can also go on a home you own free and clear. The money can pay off the old first mortgage, closing costs, and other liens. It can also go to any purpose you choose.
“Conventional” means the loan follows Fannie Mae or Freddie Mac guidelines and carries no FHA or VA backing. “Cash-out” is the label for any refinance that puts more than a small incidental amount in your pocket. That label matters. It moves the loan into a stricter box than a plain rate-and-term refinance.
A rate-and-term refinance (the lender calls it “limited cash-out”) only pays off the first mortgage, closing costs, and a purchase-money second lien. Across the wholesale programs Lendmire places files with, that lane reaches 95% LTV on a one-unit primary home. Cash-out stops at 80%. Same house, same borrower, a very different ceiling. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
LTV, by the way, means loan-to-value: the loan amount divided by the home’s appraised value.
Key Terms Defined
- Cash-out refinance: a new first mortgage larger than your payoff, with the difference paid to you.
- LTV (loan-to-value): the new loan divided by the appraised value, shown as a percentage.
- Seasoning: the waiting period a loan or ownership must meet before you can refinance.
- DTI (debt-to-income ratio): your total monthly debts divided by your gross monthly income.
- Reserves: savings left after closing, counted in months of housing payments.
- LLPA (loan-level price adjustment): an agency risk charge based on factors like LTV and credit score, usually folded into pricing.
- Rescission: your right to cancel certain refinances within a set window after signing.
How Much Equity Can You Actually Reach?
You can reach up to 80% of the appraised value on a one-unit primary home, minus what you owe. The Fannie Mae Eligibility Matrix sets caps by occupancy and unit count. That is the ceiling, and it is lower than most homeowners expect.
| Property you refinance | Cash-out LTV cap |
|---|---|
| Primary home, 1 unit | 80% |
| Primary home, 2–4 units | 75% |
| Second home | 75% |
| Investment property | 75% |
These are the figures across the wholesale programs Lendmire works with, subject to lender guidelines and full file review. Occupancy decides leverage. That is all this article will say about second homes and rentals.
The math is plain. Maximum loan equals appraised value times the allowed LTV. Take your payoff, closing costs, and any liens out of that, and what remains is your cash.
Run it with round percentages. Say the home appraises at some value and your current balance is 50% of that value. An 80% cash-out loan leaves a 30%-of-value gap. Closing costs and any liens come out of that 30% before you see a dime. Say the appraisal comes in 5% lower. The cap shrinks with it, and the cash shrinks faster than the value, because the balance you owe does not move. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
The LTV also counts any second lien or HELOC. The matrix writes the limit as LTV, CLTV, and HCLTV, so a second mortgage sitting behind the first counts against you.
How the Loan Is Underwritten, Step by Step
Underwriting is the lender’s review of your file against agency rules. Here is the order it usually runs in.
1. Confirm it is truly cash-out. Taking cash beyond the small incidental amount, or paying off a non-purchase-money second lien, makes it cash-out. A purchase-money second does not.
2. Check the seasoning clocks. The first mortgage you are paying off must be at least 12 months old, measured note date to note date. At least one borrower must also have been on title for 6 months. Freddie Mac’s Guide Section 4301.5 spells out the title clock for its loans.
3. Run application, income, assets, and credit. Most files run through an automated underwriting system. Some go to manual review. You document income, reserves, the current mortgage, and any liens.
4. Test your DTI. The automated ceiling is a 50% total ratio. Manually underwritten loans are held to 36%, or 45% when the Eligibility Matrix score and reserve factors are met.
5. Order the appraisal. The appraised value is the bottom of the LTV fraction, so it directly sets your maximum loan. Some eligible one-unit files get an appraisal waiver. That is a lender and automated-system decision, not something to count on.
6. Re-check before closing. New debt or lost income can force a re-underwrite. If recalculated DTI lands above the limit, the loan cannot be sold to Fannie Mae.
7. Close, then wait out the cancel window. More on that below.
Credit scores matter too. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, and the exact score you need depends on your LTV, DTI, and reserves. Higher leverage plus a higher ratio usually means a stricter score and reserve test.
Here is one practitioner observation. Many cash-out files stall on DTI, not credit. A borrower plans to pay off cards at closing and assumes the ratio will take care of itself. It often does, since revolving balances paid at or before closing generally need no payment counted. But the new, larger mortgage payment can eat the improvement. Run the ratio with the new payment before you commit to the plan.
Does Cash-Out Raise Your DTI Limit?
Sometimes it does. The Fannie Mae Selling Guide on DTI sets the automated maximum at 50%. The guide also flags cash-out refinances as a place where the automated maximum may come in lower. The Eligibility Matrix adds that reserves apply to automated cash-out files with DTI above 45%.
So 50% is a ceiling, not a promise. A borrower at 48% should expect closer scrutiny, more reserves, or both.
The Structures and Variations
Conventional cash-out is not one product. Occupancy, loan size, and wrapper change the picture.
Standard agency cash-out. The default: a conforming balance, a primary home, 80% LTV at most. Mortgage insurance is required above 80% LTV, so a standard agency cash-out sits right at the line where it would begin. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Higher-leverage wholesale lane. One lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio ceiling, a 30-year fixed rate, a primary residence, a conforming balance, and its own 6 months of seasoning. It is not written for Texas homesteads, where the state constitution caps cash-out at the agency figure. Eligibility depends on the lender and your full file.
Student loan cash-out. Fannie Mae waives the cash-out pricing adjustment when proceeds pay off student loans and the delivery requirements are met. That is a pricing feature, not a leverage change.
Loans above the conforming limit. A cash-out must still fit the county’s conforming limit, or it becomes a jumbo loan. Limits vary by county and change as the FHFA updates them. Jumbo lanes have their own rules.
Manufactured homes. Cash-out on a principal-residence manufactured home caps at 65%. Single-width manufactured homes are limited to purchase and limited cash-out only.
Lendmire’s cash-out refinance programs page lays out how these lanes compare across wholesale lenders.
Where the General Rule Breaks
Rules that look clean on paper have exceptions. These are the ones that come up on real files.
Delayed financing. You bought with cash and want your money back now. Normally the 6-month title clock blocks you. Fannie Mae’s delayed financing exception lets a cash buyer refinance sooner. It requires an arm’s-length purchase and documented sources of funds. Extra settlement-statement rules apply if the purchase was funded with an unsecured or other-property-secured loan. Because guidelines change, confirm the current wording in the Fannie Mae Selling Guide before relying on it.
Inheritance and legal awards. These also carry exceptions to the title-time rule.
Different clocks at different agencies. Freddie Mac measures its 6 months to the note date. Fannie Mae measures to the disbursement date. Same idea, slightly different finish line. Lenders can also add their own overlays, so the same borrower can see different answers at different lenders.
Features that can disqualify a cash-out. Loans with a temporary interest-rate buydown, certain energy-renovation products, and payoff of an installment land contract have all been excluded in past versions of the guide. Certain PACE-lien situations are also restricted. Current wording may differ, so ask before you assume.
Delinquent property taxes. Taxes more than 60 days past due can be rolled into the new loan. An escrow account is generally required.
Products that are not cash-out at all. HomeReady and RefiNow are limited cash-out products. Cash-out refinances also cannot be combined with Community Seconds. The high-LTV refinance route is suspended, so it is not a fallback.
Listed for sale. A home on the market is a red flag for cash-out. Confirm the current guide text with your lender before assuming it is allowed.
What the Cash-Out Does to Your Monthly Picture
You swap a smaller loan for a larger one. That usually raises your payment, and it often stretches the payoff, since cash-out loans are commonly repaid over 30 years. The CFPB’s Older Americans Housing Guide says as much. It also says lenders typically want you to keep 10% to 20% of the home’s value as equity.
The bigger shock for many people is the existing rate. The new loan’s rate applies to the whole balance. If you hold a cheap first mortgage, you lose it. A HELOC or home equity loan leaves that first mortgage alone and borrows only what you need. Whether that wins depends on how much cash you need, how long you will keep the home, and what the second-lien terms look like. A cash-out is a fine tool. It is just not always a more affordable one.
Closing costs come out of the deal too. They include origination, appraisal, and title charges, and they are often paid from the cash-out itself. Treat them as a real subtraction from the figure you are chasing. LLPAs are baked into pricing. They rarely show up as a line item, so compare the full Loan Estimate between lenders rather than any single number.
Mortgage insurance matters only above 80% LTV. It cancels on request at 80% of the original value, with good payment history, no subordinate liens, and no drop in value. The servicer must end it automatically at 78%. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Risk is the part nobody puts in the brochure. A CFPB mortgage market report notes that cash-out refinances can raise foreclosure risk. They usually carry higher balances and payments. Paying off credit cards converts unsecured debt into debt secured by your home. The CFPB has also studied what borrowers do with their balances afterward. Paying off cards does not guarantee they stay paid off.
What Happens After You Sign
You get a Loan Estimate early and a Closing Disclosure before signing. Compare Loan Estimates between lenders. The “Estimated Cash to Close” line is where the arithmetic lands.
On a refinance of your principal home, you generally have three business days to cancel for any reason. The CFPB explains this right of rescission. Funds are generally released after that window closes. Cash does not arrive at the signing table.
Rescinding does not wipe out your old loan. That one stays, and you keep paying it. Waiving the window is allowed only for a bona fide personal financial emergency, through a handwritten, dated statement signed by all owners.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Making the Decision
Start with the purpose. Matching the loan to the job is most of the work.
| If your situation looks like… | Consider… |
|---|---|
| Large cash need, current first-mortgage terms are not worth keeping | Cash-out refinance |
| Small cash need, low-cost first mortgage you want to keep | HELOC or home equity loan |
| No cash need, just a better structure | Rate-and-term refinance |
| Need above the county conforming limit | Jumbo lane |
Then check four things. First, does your equity survive the 80% cap after the payoff and closing costs? Second, does your DTI hold after the new payment? Third, do the seasoning clocks clear? Fourth, how long will you stay? A short holding period makes it harder for a larger loan with closing costs to pay for itself.
The honest “who should not” list: borrowers whose cash need is small, borrowers who would lose a cheap first mortgage, borrowers already stretched on DTI, and anyone planning to run the cards back up. For a look at how equity-tapping works when the property is a rental, Lendmire’s piece on tapping investment property equity covers it. Occupancy sets the leverage, and that is the whole difference here.
Before you apply, gather your last two pay stubs or income documents, your current mortgage statement, a list of any liens, and asset statements for reserves. Do not open new credit during the process. A new car loan mid-file is the classic way to force a re-underwrite.
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
Is a cash-out refinance a second mortgage?
No. It replaces your first mortgage with a new, larger first mortgage. A second mortgage, like a HELOC or home equity loan, sits behind the first and leaves it in place. That distinction is the whole reason cash-out changes your rate on the entire balance.
How soon after buying can I do a cash-out refinance?
Usually after at least 6 months on title, and the loan being paid off must be at least 12 months old. Exceptions exist, such as delayed financing for cash buyers. Agencies measure the clocks slightly differently, and lenders may add their own overlays, so confirm against your lender’s current rules.
Why is my maximum lower than my equity?
Because the cap applies to total value, not to what you own. On a one-unit primary home the cap is 80% of appraised value. Lenders also typically want you to keep 10% to 20% equity. The payoff, closing costs, and liens all come out before you see cash.
Can paying off credit cards with the cash hurt me?
It can. You turn unsecured debt into debt secured by your home. Missed payments on a mortgage carry foreclosure risk that card debt does not. The CFPB has also studied post-refinance behavior and found paydown is not guaranteed to stick.
Does the cash show up at closing?
No. You generally have three business days to cancel a refinance on your principal home, and funds are generally released after that window closes. Rescinding does not cancel your old loan, which you still owe.
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 Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
2. Fannie Mae Eligibility Matrix
3. Freddie Mac Guide Section 4301.5
4. Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios
5. Fannie Mae Eligibility Matrix (media version)
6. CFPB’s Older Americans Housing Guide
8. CFPB Ask: right of rescission
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Conventional Cash-Out Refinance Documentation for Each Borrower Type · Can a Condo Owner Get a Conventional Cash-Out Refinance? · Conventional Cash-Out Refinance Requirements for a Condo Building
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
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.