The Quick Read: A conventional cash-out refinance on a one-unit primary residence typically leaves you at least 20% equity, because the new first mortgage is capped at 80% of the appraised value. On two- to four-unit homes, second homes and investment property, the cap drops to 75%, so at least 25% stays put. The cash you receive is smaller than the gap between the cap and your balance, since payoffs and closing costs come out first. All figures are subject to lender guidelines and full file review.
What Does a Cash-Out Refinance Actually Do to Your Equity?
It swaps equity for cash. The new loan replaces your existing first mortgage, and the Consumer Financial Protection Bureau draws the same line: a cash-out refinance replaces the original mortgage, while a home equity loan or HELOC leaves your first lien in place.
Your ownership stake is the appraised value minus everything you owe against the home. Borrow more, and the stake shrinks. The cap sets how far it can shrink.
Across the wholesale programs Lendmire places files with, the leverage ceiling is the number that decides almost every cash-out conversation. Borrowers ask what they can pull. The better question is what they want to keep.
Key Terms Defined
Equity: The appraised value of your home minus all mortgage debt secured by it.
LTV (loan-to-value): Your loan balance divided by the appraised value, shown as a percentage.
CLTV (combined LTV): The same ratio, but counting every lien on the home, including a HELOC that stays in place.
Seasoning: The minimum time you must have owned the home or held the loan before a cash-out refinance is allowed.
Cash-out proceeds: What is left after the new loan pays off your old mortgage, required liens, closing costs and prepaids.
How Much Equity Stays in the Home by Property Type?
Occupancy and unit count set the floor. The Fannie Mae Eligibility Matrix lists the conventional cash-out caps, and they match the ones Lendmire sees across its wholesale lenders.
| Property | Max LTV on cash-out | Minimum equity kept |
|---|---|---|
| 1-unit primary residence | 80% | 20% |
| 2- to 4-unit primary residence | 75% | 25% |
| Second home | 75% | 25% |
| Investment property | 75% | 25% |
Two notes. First, an individual lender can set a tighter cap than the agencies do, so the agency figure is a ceiling, not a promise. Second, Texas homestead cash-out is capped by the state constitution at the agency figure, and one wholesale lane described below is not written there.
Manufactured homes sit lower still, and the matrix lists a reduced cap for them. Check it directly if that is your property type. Jumbo and non-agency loans follow their own investor rules, so none of these caps apply to them.
How Is the Loan Underwritten, Step by Step?
The sequence is the same on nearly every file, and each step trims the number you started with.
1. Appraisal sets the value. Freddie Mac’s cash-out refinance page states that a new appraisal and inspection report is required. An online estimate does not drive the loan.
2. Cap times value gives the maximum loan. At 80%, a home appraised at a round $500,000 supports a first mortgage of up to 80% of that value, leaving at least 20% as equity. Change the value and the whole picture moves with it.
3. The payoff comes out. The new loan first retires your current first mortgage and any junior lien that has to be paid.
4. Costs and prepaids come out next. Closing costs and prepaids reduce what you receive. Rolling them into the loan is allowed only inside the cap, so it cuts cash, not equity left.
5. Qualification runs alongside. Credit, income and debts are reviewed. 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%. Per Fannie Mae’s matrix document, minimum reserves apply on automated cash-out files when the debt ratio exceeds 45%.
6. Pricing reflects leverage. Cash-out pricing generally runs higher at higher LTV and lower scores. That is a mechanic, not a quote.
The Formula, in Both Directions
Forward: maximum loan = appraised value × the cap. Cash to you = maximum loan − payoff − required liens − costs and prepaids.
Reverse: if you want to keep a certain equity percentage, your maximum loan is the value times 100% minus that percentage. Anything you borrow beyond your payoff and costs is the cash.
Here is the pattern with percentages only. Say a one-unit primary residence carries an existing balance equal to 50% of its value. The 80% cap leaves room for a new loan 30 points of value larger than the old one, before costs. Raise the balance to 70% of value and the room shrinks to 10 points. At 80% or more, no cash is available at all.
| Existing balance (% of value) | Room under 80% cap | Equity left if you take the full room |
|---|---|---|
| 40% | 40 points, before costs | 20% |
| 50% | 30 points, before costs | 20% |
| 60% | 20 points, before costs | 20% |
| 70% | 10 points, before costs | 20% |
| 80% or higher | None | Whatever you already had |
Notice the right-hand column. Take the full room and you land at 20% every time. The cap fixes your equity floor, and your payoff decides only how much cash sits above it.
The Dial: Taking Less Than the Maximum
Nothing forces you to borrow to the cap. Equity left rises point for point as cash taken falls. Take the full room and you keep 20%. Take three-quarters of it and you keep more. Take half and you keep more still.
For many owners, that is the real decision. A homeowner funding a single repair does not need to leave 20% as the only cushion. Borrowing only what the project costs preserves equity and keeps the new balance smaller.
What Shrinks the Equity You Keep?
Several things pull your cushion down below where the headline cap suggests.
- Closing costs rolled into the balance. They count against the cap, so cash falls first, and equity left sits at the floor if you borrow to the limit.
- A low appraisal. The cap applies to the appraised value, not your estimate. If the number lands below what you expected, the room under the cap shrinks and the cash with it.
- Other liens. A HELOC that stays in place counts toward combined LTV. One that must be paid off comes out of your proceeds.
- Paying off a HELOC that funded other spending. On limited cash-out files, only purchase-money subordinate liens can be paid off and included, per Fannie Mae’s limited cash-out rule. Paying off a HELOC used for anything else can push the loan into full cash-out and under the lower cap.
Take a modeled case. A homeowner expects the home to appraise at one figure, but the appraisal comes in 5% lower. The 80% cap now applies to a smaller value, so the maximum loan drops by 80% of that shortfall, and every dollar of the drop comes out of cash. The equity floor stays at 20%, but of a smaller home.
Why Does the Cushion Exist, and What Does It Mean for You?
Lenders require it to absorb price drops and to avoid mortgage insurance. Conventional mortgage insurance is required above 80% LTV, which is why the 80% line matters. Borrowers can request cancellation at 80% of the original value and servicers must terminate it automatically at 78%, under the Homeowners Protection Act. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
From the owner’s side, the cushion is your exit room. It is what lets you sell and cover the costs, refinance again later, or absorb a dip in prices. The CFPB notes that cash-out refinances were considered a mechanism that worsened the 2008 financial crisis, which is part of why the equity buffer is a hard line.
A wholesale lane also exists that reaches 89.99% LTV with no mortgage insurance. It needs a 680 score and a 50% ratio on a thirty-year fixed, primary residence, conforming balance, and it carries its own six months of seasoning. It leaves roughly 10% equity, not 20%. That is a thinner cushion. For some borrowers the extra cash justifies it, but for anyone whose value could slip, the thinner margin is the cost. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Where the General Rule Breaks
Named exceptions change either the cap or the waiting period.
- Seasoning. The first mortgage being paid off must be at least 12 months old, note date to note date, and a borrower must be on title for 6 months. Freddie Mac states the six-month title test on its product page. Delayed financing, inheritance and legal-award exceptions exist. Freddie Mac notes there is no seasoning requirement for eligible inherited properties.
- Co-owner buyouts. A special-purpose cash-out used to buy out a co-owner follows the cash-out leverage rules, per Freddie Mac’s Guide Section 4301.6. It does not get the higher no-cash-out leverage.
- Limited cash-out. A rate-and-term refinance reaches 95% LTV on a one-unit primary residence, because it brings only incidental cash back. If you want no real cash, this is the lane to compare.
- Texas homestead. Cash-out on a Texas homestead is capped by the state constitution at the agency figure, and the 89.99% wholesale lane is not written there.
- Loan size and type. High-balance loans can carry different caps. Jumbo loans follow investor rules and are a separate decision. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
If your property is a second home or rental, occupancy decides the leverage: the cap is 75% rather than 80%.
Should You Take the Maximum?
Not by default. A larger balance means a larger payment, all else equal, and it replaces your old loan’s rate and term. Compare Loan Estimates side by side before deciding, and divide closing costs by any monthly savings to see your break-even.
CFPB research on how cash-out borrowers use proceeds found many pay down credit cards and auto loans. Credit scores rose at first, then gradually worsened, though they stayed above pre-refinance levels. The same research warns that turning non-mortgage debt into mortgage debt secured by your home can raise foreclosure risk if payments become unsustainable.
Ask yourself three things:
- Will the cash build value, such as a repair or improvement, or only cover spending?
- Can I carry the larger balance if my income dips?
- If prices fell 10%, would the remaining equity still let me sell or refinance?
The honest flip point: if the cash replaces high-cost debt and your budget stays comfortable, taking more can be defensible. If the cash is for lifestyle spending and the cushion is already thin, a smaller draw or a different product, such as a HELOC that leaves your first loan alone, may serve you better.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
If you want to see how a cash-out lane compares, Lendmire’s cash-out refinance programs page lays out the structure.
Frequently Asked Questions
What equity do I keep after a conventional cash-out refinance?
At least 20% on a one-unit primary residence, because the loan caps at 80% of appraised value. On two- to four-unit homes, second homes and investment property, the floor is 25%. If you borrow less than the cap allows, you keep more than the minimum.
Can I take cash out if I have little equity?
Usually not. If your existing balance is at or above the cap, there is no room under it, so no cash is available. A rate-and-term refinance, which brings only incidental cash back, is the lane to look at instead, subject to lender guidelines.
Does a low appraisal change my cash?
Yes. The cap applies to the appraised value, so a lower number shrinks the maximum loan. Cash falls dollar for dollar with the drop, while your equity floor stays at the same percentage of a smaller value.
Is my cash simply the cap minus my balance?
No. The payoff, any required liens, closing costs and prepaids come out first. What you receive is the leftover, which is smaller than the raw gap under the cap.
Can I keep more than the minimum equity?
Yes. Borrowing less than the maximum raises your equity left. Many owners take only what a specific project needs and keep a thicker cushion.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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. CFPB Office of Research blog on cash-out refinance borrowers
2. Fannie Mae Eligibility Matrix
3. Freddie Mac Cash-Out Refinance product page
4. Fannie Mae Matrix (document 20786)
5. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
6. Freddie Mac’s Guide Section 4301.6
7. Credit scores rose at first, then gradually worsened
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 Paid-Off Inherited Home Get a Conventional Cash-Out Refinance? · Conventional Cash-Out Refinance DTI on a 2-4 Unit Primary Home · Conventional Cash-Out Refinance Requirements for a Vacation Home
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
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.