The Quick Read: Only part of your equity comes out, and the cap is set by the program, not by what you own. A conventional cash-out refinance on a one-unit primary residence is capped at 80% of the appraised value. Payoffs, financed costs and prepaids then come out of that, so the cash that reaches you is smaller than the cap alone suggests. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
The phrase “equity comes out” gets used loosely. Equity is what the home is worth minus every lien on it. Accessible equity is a different number. It is what the program lets the new loan reach, minus what has to be paid off first. The two are rarely the same.
What Does “Equity Comes Out” Mean in a Cash-Out Refinance?
A cash-out refinance replaces your current mortgage with a larger one. The new loan pays off the old first mortgage, covers any costs that are financed into it, and sends the remainder to you. The old loan is gone. The new loan carries new terms from the first payment.
Lendmire’s cash-out refinance programs are arranged through wholesale lenders, and the mechanics below match how those files are built. Lendmire is a mortgage broker licensed for consumer lending in 16 states. It arranges the loan. A wholesale lender reviews it and decides.
Two things set your number: the value the appraiser reaches, and the cap the program puts on the new loan. Everything else is subtraction.
The Formula: How Cash Out Is Calculated
The cash you receive follows a short sequence. Each step can shrink the result.
1. Start with appraised value. A new appraisal sets it. Your own estimate, an online value or an agent’s opinion does not set the number.
2. Apply the program cap. On a conventional one-unit primary residence, the cap is 80% of that value. On two- to four-unit primary residences, second homes and investment property, it is 75%. The Fannie Mae Eligibility Matrix is where the agency publishes its leverage limits, which differ by occupancy and unit count.
3. Count every lien that stays. The new loan plus any lien that remains on the property is measured against value. A second lien you keep eats into the room you have.
4. Subtract the payoffs. The balance on your current first mortgage comes off the top. So does any purchase-money second lien that must be paid.
5. Subtract financed costs and prepaids. Closing costs, points and prepaid items can be rolled into the new loan. Fannie Mae’s cash-out section allows this, and it allows real estate taxes to be included when an escrow account is set up, except taxes that are more than 60 days delinquent.
6. What remains is your net cash. That is the number that reaches you at disbursement.
In plain terms: value times the cap, minus what you still owe, minus the costs built into the loan. Cash out is not “equity minus what I owe.” The cap sits in the middle and shrinks the answer.
A Worked Example in Percentages
Take a home appraised at 100% of value. Your current mortgage balance is 50% of that value. Your total equity is 50%.
On a conventional one-unit primary residence at the 80% cap, the new loan can reach 80% of value. Subtract the 50% payoff. That leaves 30% of value as gross cash, before financed costs. Equity left in the home is the 20% cushion.
Now change the starting point. A balance at 70% of value leaves 10% of value as gross cash. A balance at 30% of value leaves 50%. Same cap, very different cash.
| Current balance (% of value) | Gross cash at 80% cap | Equity left in home |
|---|---|---|
| 30% | 50% of value | 20% |
| 50% | 30% of value | 20% |
| 70% | 10% of value | 20% |
Two points stand out. First, the equity left in the home is the same 20% every time, because the cap protects it. Second, costs come out of the gross figure, so a small gross number can shrink fast.
Why You Cannot Take All of It
Lenders keep a cushion because the home is the collateral. If values slip or a sale is forced, the cushion absorbs the loss. The cap is a risk limit, not a suggestion.
Mortgage insurance is part of this too. Conventional loans above 80% loan-to-value carry it. A cash-out at the 80% cap sits right at that line. The one wholesale lane that goes higher, to 89.99% on a thirty-year fixed primary residence with a conforming balance, comes with its own conditions: a 680 score, a 50% ratio and six months of seasoning. It is not available everywhere, and it is not written on Texas homesteads.
Texas is its own case. A cash-out on the homestead is capped by the state constitution at the agency figure, so the higher wholesale lane does not apply there.
What Changes Your Number
Appraisal variance moves the answer more than most borrowers expect. A few percentage points of difference in value shifts the cap, and the cap shifts the cash. When the appraisal comes in light, the gross cash falls by the cap percentage of the shortfall. That is why the first appraisal result matters more than any estimate you ran beforehand.
| Factor | Effect on cash out |
|---|---|
| Appraised value | Moves the cap up or down |
| Occupancy and unit count | 80% on one-unit primary; 75% on multi-unit, second home, investment |
| Second liens that stay | Count against the cap |
| Financed costs and prepaids | Reduce net cash |
| Credit, ratios, reserves | Can block or shrink the loan |
On credit, the wholesale conventional programs generally start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Fannie Mae applies minimum reserves to files with a ratio above 45%, per its Eligibility Matrix. Manually underwritten loans use tighter ratios of 36% or 45%.
How the Loan Is Underwritten, Step by Step
Across the wholesale programs Lendmire places files with, the same checks come up on almost every cash-out file.
1. Occupancy. For a primary residence, every borrower must live in the home.
2. Title and ownership time. A borrower must have been on title for 6 months, with exceptions for delayed financing, inheritance and legal awards. Exceptions exist for LLC or LP time and for certain trusts, depending on the program.
3. Seasoning of the loan being paid off. The first mortgage must be at least 12 months old, counted from note date to note date. Files that assume this away get kicked back.
4. Credit and ratios. The lender checks score, income and total debt against the program’s limits.
5. Reserves. Some files need documented reserves, especially at higher ratios.
6. Payoff statement and disclosures. The payoff statement ties the old balance to the new loan. Because this is a consumer mortgage, a Loan Estimate and Closing Disclosure apply.
7. Disbursement. The old loan is paid first. The remainder goes to you.
The friction on these files is rarely the cap. It is seasoning, title timing and a payoff figure that differs from the borrower’s statement. Settlement reconciliation catches those, so a payoff statement that matches the file keeps it clean.
Where the General Rule Breaks
The 80% figure is the rule for a conventional one-unit primary residence. Several situations change it.
Limited cash-out is a different loan. A rate-and-term refinance, also called limited cash-out, pays off the existing first mortgage, closing costs and a purchase-money second, and allows only incidental cash back. Leverage can reach 95% on a one-unit primary residence. Take real cash and the loan moves into the stricter cash-out bucket with the lower cap. The two loan purposes sit in separate sections of the Fannie Mae Selling Guide.
Recent purchases. A home bought for cash can be eligible under a delayed financing exception, where the new loan is tied to the documented initial investment plus financed closing costs. Check the current guide version before relying on it.
Student-loan cash-out. Fannie Mae has a variant where student loans are paid in full, directly to the servicer. The standard cash-out leverage limits still apply, and cash back to the borrower is limited to a small incidental amount. Use the current guide for the exact figure.
Second liens. Under Fannie Mae’s cash-out rules, only subordinate liens used to buy the property may be paid off and included, with a carve-out for energy-retrofit debt such as PACE. A home equity line or home equity loan that you keep counts against the cap. One you want gone needs to be handled as its own question with the lender.
VA cash-out. VA allows a loan up to 100% of the reasonable value, with the funding fee counted inside that ceiling, under VA Circular 26-18-30. The old 90% figure lives on as one net tangible benefit path. Individual lenders may cap lower. A Certificate of Eligibility is required, and the borrower must live in the home, per VA’s cash-out page.
FHA. FHA cash-out is capped at 80% of adjusted value, and combined debt counts toward it. Older material still quotes 85%, a figure from a temporary 2009 measure. Treat 85% as stale.
Streamlines pay out no real cash. The FHA Streamline and the VA IRRRL are for people who already hold an FHA or VA loan. The FHA Streamline has no value-based sizing, and HUD’s archived reference guide limits cash back to minor adjustments of $500. If you want real cash, a streamline is the wrong product.
Jumbo. Above the conforming limit, the jumbo lanes take over, with their own score floor and leverage rules. The same logic holds: cap first, payoffs second.
Occupancy changes everything. If the property is a second home or a rental, the cap drops to 75%. Occupancy decides the leverage.
When It Isn’t Worth Doing
Costs are the first test. A small gross number can be mostly eaten by financed costs, and you still take on a new loan with new terms. Run the net figure, not the gross one.
The second test is the loan you are giving up. The new loan replaces the old terms entirely, with a larger balance and possibly a longer term. VA warns that closing costs can add up to thousands of dollars and tells borrowers to understand how the new loan relates to the home’s value.
The third is risk. The CFPB‘s research on cash-out refinances says converting non-mortgage debt into mortgage debt can put the home at risk of foreclosure. Debt that was unsecured becomes secured by the house.
Use of proceeds is open. That makes the decision yours, and a short test helps. Ask what the cash is for, how much cushion you want to keep, and whether the new balance fits your budget.
Cash-Out Refinance vs. Other Ways to Reach Equity
| Option | How it reaches equity | What happens to your first mortgage |
|---|---|---|
| Cash-out refinance | New larger first loan | Replaced |
| Home equity line | Second lien | Stays |
| Home equity loan | Second lien | Stays |
The refinance resets the whole loan. A second lien leaves your first mortgage alone but adds another lien that counts toward combined leverage. Which one fits depends on what the current loan carries and how much you need.
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
Appraised value: The value an appraiser assigns, which the lender uses to size the loan.
Loan-to-value (LTV): The new loan balance divided by appraised value.
Combined LTV: All loans on the property added together, divided by appraised value.
Seasoning: The minimum time you must have held the home or the loan being paid off.
Limited cash-out: A refinance that pays off the old loan and costs, with only incidental cash back.
Net tangible benefit: A test used on government refinances to show the borrower comes out ahead.
Frequently Asked Questions
Can I take out 100% of my equity?
No on conventional loans. The cap is 80% of appraised value on a one-unit primary residence, so the cushion stays in the home. VA is the exception, allowing up to 100% of reasonable value with the funding fee counted inside it.
How much do I need to have in equity before a cash-out makes sense?
It depends on the cap and your current balance. At an 80% cap, a balance at 70% of value leaves only 10% of value as gross cash, and costs shrink it further. The more equity above the cushion, the more the refinance pays out.
How soon after buying can I take cash out?
Not right away. The loan being paid off must be at least 12 months old, counted note date to note date, and a borrower must be on title for 6 months. Exceptions cover delayed financing, inheritance and legal awards. FHA also looks at payment history on the current loan.
Does a home equity line change how much I can take?
Yes. Any lien that stays counts toward combined leverage. If it stays, it reduces the cash. If you want it paid off, that has to be arranged as part of the refinance.
Can an FHA or VA streamline give me cash?
No. The FHA Streamline limits cash back to minor adjustments, and the VA IRRRL is a rate-reduction product for existing VA loans. Real cash means a cash-out loan.
Next Step
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 or request a quote.
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. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
6. HUD FHA streamline reference guide (archive)
7. CFPB
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: Cash-Out Refinance Documentation for a Borrower Tapping Equity · How Much a Duplex Cash-Out Refinance Releases for an ADU or Renovation · Cash-Out Refinance Reserve Rules for Second-Home Owners Pulling Equity
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.