The Quick Read: A lender reviews seven things in your file: how you use the home, the equity left after closing, your credit, your debt ratio, your cash reserves, your income documents, and the appraisal. On a one-unit primary residence, conventional cash-out generally stops at 80% loan-to-value. The automated underwriting finding drives most files, and a human underwriter then clears the conditions it leaves behind.
What Is a Conventional Cash-Out Refinance?
A conventional cash-out refinance is a new first mortgage that pays off your existing mortgage and hands you the leftover equity in cash. Fannie Mae’s Selling Guide says the new loan must pay off the existing mortgage on the same property, or be a new mortgage on a home with no lien. Proceeds can also cover closing costs, prepaids and any other liens. What is left can be used for any purpose.
“Conventional” means the loan follows Fannie Mae or Freddie Mac guidelines instead of FHA or VA rules. Those guidelines are the floor. Individual lenders sometimes add their own rules on top, called overlays. That is the honest reason two lenders can give two different answers on the same file.
Across the wholesale programs Lendmire works with, the pattern is consistent: the agency rules set the outer limits, and the lender’s overlays decide where inside those limits your file lands. Lendmire’s cash-out refinance programs follow that structure. Lendmire is a broker and arranges the loan. A wholesale lender reviews the file and makes the credit decision, and every figure here is subject to lender guidelines and full file review.
Key Terms Defined
- LTV (loan-to-value): The new loan balance divided by the appraised value of the home.
- CLTV: Combined loan-to-value, which adds any second liens to the first mortgage.
- DTI (debt-to-income): Your monthly debts, including the new housing payment, divided by your gross monthly income.
- Seasoning: The minimum time you must have owned the home, or held the loan being paid off, before refinancing.
- Reserves: Liquid savings left after closing, counted in months of housing payments.
- Overlay: A lender rule that is stricter than the agency guideline.
- LLPA: A loan-level price adjustment, a wholesale pricing factor based on things like credit score, LTV and loan purpose.
How Does the Lender Decide, Step by Step?
The decision runs in a fixed order: application, automated finding, documents, appraisal, underwriter review, conditions, closing. Each step can change the outcome of the one before it. A file that looks strong at step two can shrink at step four.
1. Application and credit pull. The lender collects income, asset, employment and debt information and pulls your credit.
2. Automated finding. Most files run through Desktop Underwriter or Freddie Mac’s equivalent. The system returns a finding based on credit, ratios, equity, reserves and loan type.
3. Documents. You supply what the finding and the income type require.
4. Appraisal. The appraised value, not your own estimate, sets LTV. Freddie Mac’s cash-out product page states that a new appraisal and inspection report is required.
5. Underwriter review. A person checks that the documents match the finding. This is where human judgment enters.
6. Conditions. The underwriter lists items to clear: a pay stub, a letter of explanation, proof a debt was paid.
7. Closing. Disclosures are issued, and funds are disbursed after the cancellation window ends.
If new debt appears or income drops before closing, the lender recalculates. Fannie Mae’s debt-to-income rules make a loan ineligible for delivery if the ratio then exceeds its ceiling. Don’t finance a car mid-process.
How Much Equity Do You Have to Leave? (LTV)
On a one-unit primary residence, conventional cash-out tops out at 80% LTV. Two- to four-unit primary residences, second homes and investment properties top out at 75%. The Fannie Mae Eligibility Matrix sets these caps by occupancy and unit count. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
This is lower than the leverage on other loan types, and that surprises people. A standard purchase on a primary residence reaches 95%, and a rate-and-term refinance reaches 95% on a one-unit home. Cash-out is capped lower because the lender is lending against equity you already hold and handing you money.
The math runs like this. Take the appraised value and multiply it by the cap. That gives the maximum new loan. Subtract the payoff of your current mortgage, any liens being cleared and the financed closing costs. What remains is your potential cash.
Picture a homeowner whose home appraises where they hoped, who owes about half the value. At an 80% cap, that homeowner has real room to take cash. Now picture a second homeowner who owes about 75% of value. Almost nothing is left after costs. Same loan program, very different outcome.
Mortgage insurance matters at the edges. Conventional insurance is required above 80% LTV, and a cash-out at or below 80% avoids it. The wholesale network also has a lane reaching 89.99% LTV with no mortgage insurance, at a 680 score and a 50% ratio, on a thirty-year fixed, primary residence, conforming balance. It carries its own six months of seasoning. In Texas, the state constitution caps a homestead cash-out at the agency figure, so that lane is not written there. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
What Credit Score Does a Lender Look For?
Wholesale conventional programs generally start at a 620 decision score. A 640 minimum applies on an adjustable rate under manual underwriting. The 89.99% no-mortgage-insurance lane asks for 680.
Credit does two jobs. It decides whether you qualify, and it shifts pricing. Fannie Mae’s LLPA matrix says price adjustments are assessed on features such as credit score, loan purpose, occupancy, number of units and product type. In plain words: higher LTV and lower scores cost more. Cash-out carries its own adjustment on top of that.
Credit events set waiting periods, and those are agency rules. They are four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
How Is Debt-to-Income Calculated?
DTI is your total monthly obligations divided by your gross monthly income. The obligations include the new mortgage payment plus other long-term debts and significant short-term ones. The ceiling for automated files is 50%. Manually underwritten loans run at 36% or 45%, with the reserve and score factors of the Eligibility Matrix.
Fannie Mae’s DTI guide notes that cash-out refinances are an exception, so the DU maximum can be lower on those casefiles. Don’t treat 50% as a promise.
Here is a simple sequence, with no dollar figures:
| Step | What happens |
|---|---|
| 1 | Add the new housing payment, including taxes and insurance |
| 2 | Add car loans, student loans, credit card minimums |
| 3 | Divide by gross monthly income |
| 4 | Compare to the finding’s ceiling |
One edge case helps many borrowers. If part of the proceeds pays off a debt at closing, that payment can drop out of the ratio. A borrower at the DTI ceiling may qualify only when a specific card or loan is paid at closing. The lender will require that payoff in writing as a condition.
Do You Need Reserves?
Sometimes. Reserves are savings left after closing, counted in months of payments. The older Eligibility Matrix states that minimum reserves apply to cash-out refinances on DU casefiles with a DTI above 45%.
Reserves act as a compensating factor. A borrower with a high ratio but strong savings looks safer than one with the same ratio and none. On manually underwritten files the reserve requirement is built into the matrix cells by LTV and score. The automated finding names the months required on the findings report, so you do not have to guess. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Cash you take out at closing typically does not count as reserves. Retirement accounts and similar assets are generally counted at a discount. Ask what counts before you move money around.
What Income Documents Will the Lender Ask For?
Income documentation depends on how you are paid. The lender is making a good-faith judgment that you can repay, which is why the file is built the way it is.
| Income type | Typical documents |
|---|---|
| Salaried / W-2 | Recent pay stubs, W-2s, employment verification |
| Self-employed | Traditional personal-income documentation, business documents, profit-and-loss support |
| Retirement or pension | Award letters, account statements, proof of continuance |
| Rental income (on a property you own) | Leases and tax return schedules |
Self-employed borrowers often hit a wall here. The lender uses your net taxable income after write-offs, not your gross revenue. A business owner who minimizes taxable income can look weaker on paper than in real life. If that describes you, ask early how the lender will calculate it.
Variable income such as bonuses or commissions typically needs a track record. Count on the lender averaging it.
What Happens When the Appraisal Comes In Low?
A low appraisal shrinks your cash. LTV is measured against the appraised value, so a lower value lowers the maximum loan by 80% of the gap. The payoff does not change. The difference comes straight out of your proceeds.
You have three practical moves: take less cash, ask the lender whether the appraisal can be reviewed with better comparable sales, or wait and reapply later. Some borrowers also pay down the existing balance to clear the cap. A cash-out where you bring cash to closing rarely makes sense.
How Long Must You Own the Home?
Two clocks apply. The first mortgage being paid off must be at least 12 months old, counted from note date to note date. And at least one borrower must have been on title for six months before the note date. Freddie Mac’s guide states both.
Exceptions exist, and they are specific:
- Delayed financing: Buyers who paid cash can pull funds back out sooner, if the purchase was arm’s-length and the source of funds is documented.
- Inheritance: Freddie Mac’s product page says there is no seasoning requirement for inherited properties.
- Legal awards: Divorce-related awards are an exception in the wholesale programs.
- Co-owner buyouts: Freddie Mac has a special-purpose cash-out for buying out a co-owner. Lendmire’s piece How a Cash-Out Refinance Lender Qualifies a Spouse Buying Out an Ex walks through that case.
This is where “buy and refinance right away” falls apart. The clocks are real, and the exceptions are narrow.
How Do Property Type and Occupancy Change the Answer?
Occupancy decides the leverage cap. A primary residence gets the highest cap, and a second home or rental gets the lower one. On a primary residence, Freddie Mac requires all borrowers to occupy the home for a cash-out. A non-occupant co-borrower can complicate things, and the two agencies treat that differently.
Unit count matters too. Two- to four-unit primary residences carry 75%, not 80%. Loans above the conforming limit move to jumbo programs, which are a separate lane with their own rules, and loan limits vary by county.
How Do the Factors Trade Off?
Most pages describe these as separate pass/fail tests. In real files they trade against each other. The automated finding weighs them together.
| If this is weak | This can offset it |
|---|---|
| Higher DTI | More reserves, stronger credit |
| Lower credit score | Lower LTV, lower DTI |
| High LTV | Strong score, solid reserves |
| Thin reserves | Lower DTI, lower LTV |
The offset has limits. A score below the floor does not get rescued by savings. Hard floors hold.
Why Do Cash-Out Files Get Reduced or Denied?
Most shortfalls trace to a handful of causes. Here is what we see and what usually helps.
| Problem | Common fix |
|---|---|
| Appraisal under expectations | Take less cash or pay down the balance |
| DTI over the ceiling | Pay off a debt at closing, or reduce the amount |
| Not enough time on title | Wait out the clock, or check the exceptions |
| Score under the floor | Pay down card balances, then re-pull credit |
| Income hard to document | Gather two years of records before applying |
| New debt before closing | Hold off on new credit until after closing |
What Does the Trade-Off Look Like in Practice?
A cash-out refinance replaces your whole mortgage. That is the big difference from a HELOC or home equity loan, which leave your first mortgage in place. If your current loan is attractive, replacing it for a one-time cash need deserves a hard look.
The CFPB’s research team notes that both payments and loan terms are likely to increase with a cash-out. Using proceeds to pay off credit cards converts unsecured debt into debt secured by your home. Missing payments on it can put the home at risk. Lenders also typically want you to keep some equity afterward.
Closing costs include origination fees, appraisal fees and title insurance. Your Loan Estimate shows them. You also get a three-business-day right to cancel on a refinance of your primary home, so funds are not released immediately at signing.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
A quick self-check before you apply:
- Is the home my primary residence?
- Have I owned it six months or more?
- Is my current loan at least 12 months old?
- Do I know my approximate appraised value?
- Will the new loan land at or under 80% of it?
- Is my credit score at least 620?
- Do I know my DTI, including the new payment?
- Do I have reserves beyond the closing cash?
- Can I document my income type?
- Have I avoided new debt?
- Does the cash have a clear purpose?
If you answer no to several, fix those first.
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
What is the maximum LTV on a conventional cash-out refinance?
On a one-unit primary residence it is 80%. Two- to four-unit primary residences, second homes and investment properties are capped at 75%. A separate wholesale lane reaches 89.99% with no mortgage insurance, but it requires a 680 score, a 50% ratio and a thirty-year fixed on a conforming primary residence. All figures are subject to lender guidelines and full file review.
Can I do a cash-out refinance right after buying my home?
Usually not. At least one borrower must be on title for six months, and the loan being paid off must be 12 months old. Buyers who paid cash may use delayed financing, which has documentation requirements. Inheritance and certain legal awards are also exceptions.
Does a cash-out refinance require mortgage insurance?
Conventional mortgage insurance is required above 80% LTV. A standard cash-out at or under 80% does not carry it. Where it applies, you can request cancellation at 80% of the original value, and the servicer must end it automatically at 78%. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
What debt-to-income ratio do I need?
Automated files allow a ceiling of 50%, while manually underwritten loans run at 36% or 45%. Cash-out files can face tighter treatment, and reserves may be required when DTI is above 45%. Paying off debts at closing can lower the ratio.
Can I cancel after I sign?
Generally yes, on a primary residence refinance. The CFPB explains that you have three business days, and you must cancel in writing.
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 Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
2. Freddie Mac Cash-out Refinance product page
3. Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios
4. Fannie Mae Eligibility Matrix
5. LLPA matrix
6. Fannie Mae Eligibility Matrix (legacy address)
7. Freddie Mac Seller/Servicer Guide 4301.5
8. CFPB Office of Research blog on cash-out refinances
9. CFPB: Right of rescission explainer
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 · How to Prepare a Conventional Cash-Out Refinance for a Clean Close · 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
- 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
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.