The Quick Read: Your cash is the maximum new loan minus everything that loan has to pay off. The maximum new loan is the appraised value times the loan-to-value (LTV) cap for your occupancy and unit count. On a one-unit primary residence that cap is 80%. Payoffs, liens, closing costs and prepaids come out of that figure, and what is left is your cash, subject to lender guidelines and full file review.
The Formula in Plain Words
The agencies cap the size of the new loan. They do not cap the cash you receive.
- Maximum new loan = appraised value × maximum LTV
- Gross cash = maximum new loan − first mortgage payoff (including accrued interest) − any other liens that must be paid off
- Net cash = gross cash − closing costs, prepaids and escrows funded from the loan
Run it with an illustrative, round example. Say a home appraises at 100 units of value and the cap is 80%. The maximum new loan is 80 units. If the existing mortgage payoff is 50 units, gross cash is 30 units. Closing costs and prepaids then come out of that 30. The numbers here are modeled, not market data.
Freddie Mac rounds the calculated LTV up to the next whole number when it tests the ratio. In the Freddie Mac Seller/Servicer Guide, section 4203.1 gives the example of 94.01% becoming 95%. On a cash-out file, that rounding matters when you are sitting right at the cap.
Check the Gates Before You Do the Math
Seasoning and occupancy decide whether the calculation is even available. Run these first.
- Title seasoning: at least one borrower on title for six months before the note date. Exceptions exist for delayed financing, inheritance and legal awards.
- Loan seasoning: when the cash-out pays off a first mortgage, that mortgage must be at least 12 months old, note date to note date.
- Occupancy: all borrowers on a primary-residence cash-out must occupy the home.
Seasoning is where files get kicked back. A borrower who bought recently and assumes the equity is available has often skipped this check. Freddie Mac lays out the six-month and 12-month tests in Guide section 4301.5. Fannie Mae’s definition of a cash-out transaction, including the 12-month requirement on the existing first mortgage, sits in Selling Guide B2-1.3-03.
One more point. A home owned free and clear is still cash-out. A new first mortgage on a paid-off house is priced and tested as cash-out, not as a rate-and-term refinance.
Step-by-Step: Working Your Own Number
Gather the payoff statement, a realistic value and a list of every lien. Then work through six steps.
1. Start with the appraised value. The LTV test uses the appraisal, not an online estimate. A neighbor’s sale price or a home-value website is a planning figure only. Treat it as a range, then expect the appraisal to settle it.
2. Pick the cap for your occupancy and unit count. Across the wholesale programs Lendmire places files with, conventional cash-out on a one-unit principal residence caps at 80% LTV. Two- to four-unit principal residences and second homes cap at 75%. Investment property also caps at 75%, but that is outside the scope of this article. The Fannie Mae Eligibility Matrix publishes the agency caps. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
3. Multiply value by the cap. That is your maximum new loan.
4. Total every payoff. Include the first mortgage balance plus accrued interest, any second mortgage or HELOC that has to be paid off, and any delinquent property taxes. Fannie Mae flags real estate taxes more than 60 days delinquent as a condition that affects the transaction unless an escrow account is established.
5. Subtract closing costs, prepaids and escrows. These come out of the loan when you take them from proceeds. They reduce the check you receive.
6. Test the result against your qualifying ratios. The cap is a ceiling. Your credit, income and debt-to-income ratio can hold the number below it.
Per-diem interest on the payoff is the small item people miss. The payoff figure on a lender’s statement grows each day until the loan funds, so a payoff pulled early understates what comes out of the new loan. The escrow balance on the old loan comes back to you separately and does not change the loan-size math.
Worked Example: Base Case, Low Appraisal, Financed Costs
Keep one running example and change one input at a time. All figures below are illustrative units, not dollars and not market data. The existing payoff is 50 units, the expected value is 100 units, and costs and prepaids are 3 units.
| Case | Value | Max loan at 80% | Gross cash | Net cash |
|---|---|---|---|---|
| Base | 100 | 80 | 30 | 27 |
| Low appraisal | 95 | 76 | 26 | 23 |
| Costs paid out of pocket | 100 | 80 | 30 | 30 (cash paid in) |
Look at the low-appraisal row. A five-unit drop in value cut cash by four units. The appraisal moves the cash by the LTV share of the miss, because the payoff stays fixed. Every dollar of value lost is eighty cents of loan lost, and all of it comes straight out of your cash.
The third row shows the choice on costs. If you pay costs from your own funds at closing instead of from proceeds, the loan amount does not shrink to cover them, but you bring cash to the table. Either way, the loan stays at or under the cap. Costs paid from proceeds do not raise the loan above the cap, because the cap is the ceiling on the whole new loan.
Equity Is Not Cash
Equity is value minus what you owe. Borrowable cash is a smaller number, because the lender requires you to keep a share of the home’s value after the refinance. On a one-unit primary residence that retained share is 20%. So you can never reach all of your equity.
A homeowner starting with 30% equity has only about 10 points of value to work with before costs and payoffs. That is the practical meaning of “you need more than the minimum equity going in.” The CFPB’s guide to using home equity makes the same general point: lenders typically require you to keep a share of your home value as equity. Agency caps are the controlling figures for a conventional file.
What Shrinks Your Number
Several things can pull the result below the formula’s answer. Check each before you plan around a figure.
- Appraisal. A low value cuts the loan cap directly, as the table shows.
- Other liens. A second mortgage or HELOC that must be paid off raises the payoff line one for one.
- Delinquent taxes. These must be cleared, and an escrow account may be required.
- Debt-to-income. The wholesale conventional programs start at a 620 decision score, and the automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45% tiers with the reserve and score factors in the Eligibility Matrix.
- Reserves. Cash-out files run through automated underwriting with a DTI above 45% must carry minimum reserves, per the Fannie Mae Matrix notes.
- Loan limits. Agency caps apply to conforming loans only. If the formula’s loan size lands above the county conforming limit, jumbo programs set the terms, and those are a different product.
- Pricing. Cash-out loans carry loan-level price adjustments tied to LTV and credit score. They rise with higher leverage and weaker credit. Pricing is quoted per file and is not a figure this article can state.
A practical note from the file side. The most frequent surprise is a lien the borrower forgot about: a HELOC with a zero balance but an open line, or a second mortgage from a past purchase. Pull a title report early, and the payoff line stops moving.
Solving Backward: How Much Value Do You Need?
Sometimes you know the cash you want. Reverse the formula.
Required value = (payoff + other liens + costs + desired cash) ÷ LTV cap
Take the 80% cap. A homeowner who needs 20 units of cash, with a 50-unit payoff and 3 units of costs, needs 73 units of loan. Divide 73 by 0.80 and the required value is about 91 units. If the appraisal comes in lower, the target is out of reach at that cap, and the choices are a smaller draw or a different structure.
This also shows why a homeowner can be “approved” and still not get the amount they wanted. The appraisal, not the application, sets the ceiling.
Edge Cases Where the Rule Bends
- Delayed financing. A cash buyer who documents how the purchase was funded may skip the title-seasoning wait. The loan is still cash-out, so the cash-out cap, appraisal and pricing apply. The exception is described in Fannie Mae’s B2-1.3-03.
- Inherited homes and legal awards. Freddie Mac treats inheritance and a divorce decree as exceptions to the six-month title rule.
- LLC or LP ownership. Time held by an entity can count toward the six months if the borrower was majority owner or had control, and title must move into the borrower’s name by the note date.
- Manufactured housing. Fannie Mae limits single-width manufactured homes to principal-residence purchase and limited cash-out refinances. Cash-out is not available on those.
- Community Seconds. Cash-out is not permitted with them.
- Texas homestead. The state constitution caps a cash-out on the homestead at the agency figure, and the 89.99% wholesale lane described below is not written there. Lendmire’s piece Can a Texas Homestead Get a Conventional Cash-Out Refinance Early? covers that state’s seasoning questions.
One wholesale lane goes beyond the standard cap. Across the programs Lendmire places files with, it reaches 89.99% LTV with no mortgage insurance, for a primary residence with a conforming balance, a thirty-year fixed rate, a 680 score, a 50% ratio and six months of seasoning. It is narrower than the standard path and not available everywhere. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Rate-and-Term vs. Cash-Out
A limited cash-out, or rate-and-term, refinance is a different product. It reaches 95% LTV on a one-unit principal residence. The new loan pays off the existing first mortgage, the closing costs and a purchase-money second lien, with only incidental cash back. Go over that incidental limit and the loan becomes cash-out, with the lower cap and added pricing that come with it. Fannie Mae’s high LTV refinance option is for current borrowers whose LTV is too high for a standard limited cash-out. It is not a way to take cash. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
For a longer look at how the ceiling works across scenarios, see Lendmire’s piece on the maximum LTV for a conventional cash-out refinance. To compare the programs themselves, see Lendmire’s cash-out refinance programs.
Should You Take the Maximum?
Taking the full amount is rarely the best use of the formula. Weigh four things.
- What the cash is for. A repair that adds value is a different case from paying off a credit card.
- The new terms apply to the whole balance. A cash-out replaces the entire first mortgage. Compare the new payment on the whole loan with what you pay now, not just on the new money.
- Break-even. Divide closing costs by monthly savings, if there are any. If you move out before that point, the refinance cost more than it saved.
- The cushion you leave. Leverage above 80% would trigger mortgage insurance on other programs, and each extra point you borrow shrinks the equity that protects you if prices dip.
The CFPB has noted that borrowers often use cash-out proceeds to pay down other debts, and that moving non-mortgage debt onto the home can increase the risk of foreclosure. Credit scores often improve at first, then drift back down. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Common Calculation Mistakes
- Using an online value estimate instead of planning around an appraisal range.
- Applying 80% to the wrong property. Two- to four-unit homes and second homes use 75%.
- Forgetting a second mortgage or open HELOC.
- Leaving out per-diem interest and prepaids.
- Treating the cap as cash you can pocket.
- Skipping the seasoning check, so the plan fails before the appraisal.
Key Terms Defined
Loan-to-value (LTV): the new loan divided by the appraised value, shown as a percentage.
Cash-out refinance: a new first mortgage that pays off the old one and gives you the leftover as cash.
Seasoning: the required time you have held the home or the existing loan before cash-out is allowed.
Payoff: the exact amount needed to retire a loan on the funding date, including accrued interest.
Prepaids and escrows: taxes, insurance and interest collected up front at closing.
Loan-level price adjustment (LLPA): a pricing add-on tied to factors like LTV and credit score.
Frequently Asked Questions
Can I borrow all of my equity?
No. On a one-unit primary residence the cap is 80% of the appraised value for the whole new loan, so you keep at least 20% equity. Payoffs and costs then come out of that loan, which cuts your cash further.
Does the amount change by property type?
Yes. A one-unit primary residence caps at 80%. Manufactured homes face added limits, and single-width units do not qualify for cash-out under Fannie Mae’s matrix.
Do closing costs come out of my cash?
Usually, yes. Costs, prepaids and escrows funded from proceeds reduce your net. You can pay them from your own funds instead. The loan still has to sit at or under the cap either way.
Why is my approved amount lower than my estimate?
The usual causes are a lower appraisal, a lien you left out, or ratios and reserves that limit the loan below the cap. Estimates built on online values often overshoot. The appraisal sets the real ceiling, and the lender’s file review sets the rest.
Is paying off my house outright still cash-out?
Yes. A new first mortgage on a home you own free and clear is treated as cash-out under both Fannie Mae and Freddie Mac. The cash-out cap, appraisal and pricing all apply.
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. Reach the team at 828-256-2183.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. 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. Freddie Mac Guide section 4203.1
2. Freddie Mac Guide section 4301.5
3. Fannie Mae Selling Guide B2-1.3-03
4. Fannie Mae Eligibility Matrix
5. CFPB’s guide to using home equity
6. Fannie Mae (document 20786)
7. CFPB press release on cash-out refinance outcomes
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: Can a Condo Owner Get a Conventional Cash-Out Refinance? · Conventional Cash-Out Refinance Requirements for a Condo Building · Conventional Cash-Out Refinance Documentation for Each Borrower Type
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.