The Quick Read: You keep at least 20% of your home’s value on a one-unit primary residence, because the loan tops out at 80% of value. On a two- to four-unit primary residence, a second home, or investment property, the cap drops to 75%, so you keep 25%. That cap counts every lien on the home, and the appraisal sets the value it is measured against.
Key Takeaways
- The retained equity is the inverse of the maximum loan-to-value (LTV). An 80% cap means 20% stays in the home.
- All liens count toward the cap, including a second mortgage and the full line on a home equity line of credit (HELOC).
- You need more than the minimum going in. If you sit right at 80%, there is no cash left to take.
- Seasoning rules apply: the loan being paid off must be 12 months old, and a borrower must have been on title for 6 months.
- The appraisal drives the number. A low value shrinks the maximum loan directly.
What Does “Keeping Equity” Mean on a Cash-Out Refinance?
Equity is what your home is worth minus everything secured against it. LTV is the new loan divided by value. A cash-out refinance replaces your current first mortgage with a larger one and hands you the difference in cash, after payoffs and costs.
The guideline limit works on LTV, not on your equity. So the question “how much can I borrow?” and the question “how much must I keep?” are the same question asked from two ends. Cap the loan at 80% of value and 20% stays put.
Compare that with a limited cash-out (rate-and-term) refinance. That loan pays off the existing first mortgage and closing costs with only incidental cash back, and it reaches much higher leverage: 95% on a one-unit primary residence under the programs Lendmire places. Cash-out gets a lower cap because the lender takes on more risk when you pull equity out.
What Is the Retained-Equity Rule by Property Type?
The cap depends on occupancy and unit count. The Fannie Mae Eligibility Matrix lists 80% for a one-unit principal residence and 75% for two to four units. Freddie Mac’s Seller/Servicer Guide, Section 4203.1 sets the same 80% and 75% for principal residences, whether the loan is run through automated underwriting or underwritten manually.
Across the wholesale programs Lendmire places files with, the cash-out limits line up like this:
| Property | Max LTV | Equity you keep |
|---|---|---|
| One-unit primary residence | 80% | 20% |
| Two- to four-unit primary residence | 75% | 25% |
| Second home | 75% | 25% |
| Investment property | 75% | 25% |
Occupancy decides the leverage. The table above shows how the maximum loan-to-value changes for second homes and rentals, and the rest of this piece stays on the home you live in.
The limits are agency ceilings. A given lender can add stricter overlays on top, and that is the one place lenders differ. The ceiling itself does not move from lender to lender for loans sold to the agencies. The 80% figure has also been stable for roughly a decade, and the FHFA Office of Inspector General notes that both agencies generally limit cash-out refinances to 80% LTV.
Check the live matrix before you plan around any figure. Limits can change.
How Does the Loan Get Underwritten, Step by Step?
Here is the sequence a cash-out file follows.
1. Confirm it is cash-out. Paying off the existing first mortgage and financing closing costs, points and prepaids is the baseline. If the loan puts more cash in your hands than the limited cash-out thresholds allow, it is cash-out and carries the lower cap.
2. Set the value. On a refinance, value is the current appraised value. Not your estimate. Not an online figure. This matters because every dollar the appraisal misses comes straight off the maximum loan.
3. Run the LTV. Divide the loan by value. The agencies truncate to two decimals and then round up to the next whole percent, so 80.01% is treated as 81%. Financed mortgage insurance, where it applies, is added to the loan amount first. Freddie Mac applies the same round-up convention.
4. Count the other liens. Combined LTV (CLTV) adds the first mortgage, the drawn HELOC balance and unpaid closed-end seconds. Home equity combined LTV (HCLTV) counts the full HELOC credit line, drawn or not. The cap applies to LTV, CLTV and HCLTV together. A large unused HELOC can quietly shrink your available cash.
5. Check seasoning and ownership. Under Fannie Mae Selling Guide B2-1.3-03, the first mortgage being paid off must be at least 12 months old, measured 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 be off the market by disbursement.
6. Check ratios and reserves. The wholesale conventional programs generally start at a 620 decision score, and the automated finding governs most files, with a total ratio ceiling of 50%. On files run through Fannie Mae’s automated system, a debt-to-income ratio above 45% on a cash-out refinance triggers six months of reserves.
7. Net out the cash. Cash to you is the maximum loan, minus the payoff of the first mortgage and other required liens, minus financed costs. It is not “20% of value.”
Why Do You Need More Than the Minimum Going In?
Because the cap is on the loan, not on what you may withdraw. Picture a one-unit primary residence worth a round 100 units of value. The 80% cap means the new loan can reach 80 units. If your current mortgage already sits at 70 units, the room is 10 units, and closing costs come out of that before you see cash. If your balance is at 80 units, there is nothing to take.
Now flip it around. Say you want a meaningful chunk of cash and you owe 60% of value. The cap leaves 20 points of value as the gross ceiling. Payoffs of other liens and financed costs reduce it. Working backward from the cash you want, you can see the value and balance you need before applying.
A near-the-line file has little margin. Closing costs financed into the balance push LTV up. A small appraisal miss pushes it up again. Files that pencil at 79% on an estimate can land past the cap on the appraised value.
What Reduces Your Cash Before You Keep Any Equity?
Four things come out ahead of you.
- Your first mortgage payoff. Always the largest item.
- Other required liens. A second mortgage or a HELOC that must be paid off or counted. The agencies require lenders to count all subordinate liens, including business loans such as SBA loans secured by the home. An undisclosed second lien found in review requires documentation from you or the creditor.
- Financed closing costs, points and prepaids. These can be rolled into the loan, but they raise LTV and cut your cash dollar for dollar.
- Financed mortgage insurance. Where it applies, it is added to the loan amount for the LTV test.
Settlement reconciliation is where borrowers get surprised. The estimate on day one and the final cash on the Closing Disclosure differ because payoff figures include per-day interest and the lien search sometimes turns up an item nobody mentioned.
What Happens If the Appraisal Comes In Low?
The maximum loan drops with it. Value is the appraised figure, so a lower number shrinks the cap and the cash together, and it raises the equity share your existing balance represents.
Run it with percentages. Say you assumed the home was worth 100 units and your balance is 65 units. At 80% you expected a ceiling of 80 units. A low appraisal at 95 units gives a ceiling of 76 units. The room shrinks from 15 units to 11, and costs still come out first. Same home, same balance, noticeably less cash.
When this happens, there are four moves. Ask for a reconsideration with recent nearby sales and documented condition or upgrade support. Reduce the cash amount you requested. Wait and pay the balance down. Or switch to a no-cash-out structure if your goal was only a better loan.
Where Does the General Rule Break?
A few named exceptions change the picture.
Delayed financing. It waives the six-month title wait for a cash purchase. The original purchase must be arm’s length and you must meet eligibility requirements. It is still treated as cash-out, so the LTV limit still applies. Check the live Selling Guide text for how the new loan amount is limited.
Trust ownership. Time held in a revocable living trust can count toward the six months if you are the trust’s primary beneficiary.
Paid-off homes. A new first mortgage on a home with no lien is treated as cash-out, not as a purchase-style loan.
Limited cash-out. Pulling out only incidental cash is a different category with much higher caps. Take too much cash back and the loan reprices as cash-out.
The 89.99% wholesale lane. One lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence and a conforming balance, with its own six months of seasoning. It is a narrow structure, not the norm, and it is not written in Texas. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Texas homesteads. Cash-out on a Texas homestead is capped by the state constitution at the agency figure, so extra leverage options do not apply there.
Community Seconds. Cash-out refinances are not permitted with this subordinate financing.
Other programs. FHA, VA and jumbo loans sit outside the conventional conforming rule. They are different programs with different limits.
How Does Mortgage Insurance Fit In?
On a cash-out refinance capped at 80%, standard mortgage insurance usually does not enter, because insurance applies above 80% LTV. Where a loan does carry it, the borrower may 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%. Typical published annual premiums run from 0.58% to 1.86% of the balance, a range and not a quote.
What Should You Weigh Before Pulling Equity Out?
The CFPB’s consumer guide on using home equity says a cash-out refinance replaces your current loan, so your terms change, the new larger loan can raise your monthly payment, and it can lengthen your payoff time. It also says no option lets you convert 100% of your equity to cash.
That second point is the whole subject of this article. The retained 20% is the structural reason.
In practice the decision looks like this:
| Situation | Likely move |
|---|---|
| Plenty of room under the cap | Cash-out is workable |
| Right at or past the cap | Wait, reduce cash, or consider other products |
| Only need to fix terms | Rate-and-term refinance |
| Existing HELOC is large | Check HCLTV before applying |
| Existing loan under 12 months old | Seasoning blocks cash-out |
Using mortgage debt to pay off other debt trades short-term debt for a longer, secured one. Borrowers often use proceeds for credit card and auto balances, and the exchange makes sense when the cost of the new debt is lower than the cost of what it replaces. It also puts the home behind that debt. 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
- LTV: The loan amount divided by the home’s value, expressed as a percentage.
- CLTV: LTV that adds the first mortgage, drawn HELOC balance and unpaid closed-end seconds together.
- HCLTV: CLTV that counts the full HELOC credit line, drawn or not.
- Seasoning: The minimum age of the loan being paid off, and the minimum time you have been on title.
- Limited cash-out refinance: A refinance that pays off the first mortgage and costs with only incidental cash back, at higher leverage than cash-out.
- Delayed financing: An exception that lets a cash buyer take cash-out sooner than the six-month title wait.
Frequently Asked Questions
Is the 20% I keep the same on every conventional cash-out refinance?
No. It is 20% on a one-unit primary residence and 25% on a two- to four-unit primary residence. Second homes and investment property also keep 25%. Program parameters are subject to lender guidelines and full file review.
Does an unused HELOC count against my cash-out limit?
Yes, for the home equity combined LTV test, the full credit line counts even if you have drawn nothing. Drawn balances count toward CLTV. Either way, a large line can shrink the cash available, so close it or plan around it before you apply.
Can I cash out right after buying my home?
Usually not. At least one borrower must be on title for six months before the new loan disburses. Delayed financing is the exception for cash purchases, but the loan is still cash-out and the 80% cap still applies. Separately, any first mortgage being paid off must be 12 months old.
Does each lender set its own equity requirement?
The agency limits are the ceiling for loans sold to Fannie Mae or Freddie Mac. Lenders can add stricter overlays, and that is where they differ. Nothing lets a lender go above the agency cap on a standard conventional loan.
Is a cash-out refinance the same as a rate-and-term refinance?
No. Rate-and-term, also called limited cash-out, caps cash back at an incidental amount and reaches 95% LTV on a one-unit primary residence under the programs Lendmire places. Cash-out gives you real proceeds and carries the lower 80% cap. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
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. Lendmire’s cash-out refinance programs are arranged through wholesale lenders. Nothing here is a commitment to lend.
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. Fannie Mae Eligibility Matrix
2. Freddie Mac Seller/Servicer Guide, Section 4203.1
3. FHFA Office of Inspector General, Recent Trends in Enterprise Cash-Out Refinances
4. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
5. CFPB, Using Your Home Equity guide
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 Requirements for a Condo Building · Should You Keep a Renovation Cash-Out Refinance Under Conforming? · Can a Condo Owner Get a Conventional Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.