The Quick Read: The lender adds up what the new loan must pay off, then adds the closing costs you choose to finance. It tests that total against the appraised value and a leverage cap for your occupancy and unit count. Finally, it checks that any cash coming back to you stays inside a small tolerance. If the total clears all three tests, the loan stays “limited.” If it fails one, the loan becomes a full cash-out refinance with different rules.
Key Takeaways
- The loan amount is built from a payoff stack: your current first mortgage, an eligible purchase-money second, financed costs and eligible taxes.
- Appraised value is the denominator. A lower appraisal shrinks the room you have.
- Cash back is a small tolerance, not a goal, and the formula changed recently.
- Paying off the wrong kind of second lien can flip the whole loan into cash-out.
- Program figures here are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
What Does “Limited Cash-Out” Mean to a Lender?
A limited cash-out refinance replaces your current mortgage without turning your equity into spending money. Freddie Mac calls its version a “no cash-out” refinance, and many borrowers know it as a rate-and-term refinance. The job of the loan is to change the interest rate or term, or both, of what you already owe.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
Lendmire, a mortgage broker, arranges these loans through wholesale lenders. The files that run into trouble are almost always misclassified, not under-qualified. A borrower expects a simple refinance, and one line item pushes it into the cash-out category.
The table shows how the two categories differ for a one-unit primary residence. Both sets of limits come from the agency rules and the wholesale programs that follow them.
| Factor | Limited cash-out | Cash-out |
|---|---|---|
| Purpose | Replace the current loan | Convert equity to cash |
| Leverage, one-unit primary | 95% (97% in a narrow case) | 80% |
| Leverage, 2–4 units | Lower caps by occupancy | 75% |
| Cash back | Small tolerance only | Any amount within the cap |
| Existing-loan age test | None | First mortgage 12+ months old |
If you want more than a small tolerance back, the right comparison is Lendmire’s cash-out refinance programs. For a deeper look at what this category allows, see Lendmire’s explainer Limited Cash-Out Refinance for Fannie Mae Loans: What It Allows.
How Does a Lender Size the Loan, Step by Step?
The lender works through six moves in order. The order matters, because each step can change the answer to the next.
1. Classify the purpose. If the loan pays off the first mortgage, eligible costs and a small cash-back tolerance, it starts as limited cash-out. Anything beyond that moves it to the cash-out rules in Fannie Mae’s cash-out topic.
2. Fix the value. The appraisal sets the denominator for every test that follows.
3. Look up the cap. The lender finds the maximum leverage for your occupancy and unit count in the Fannie Mae Eligibility Matrix.
4. Build the payoff stack. The lender lists what the new loan must retire and what you want to finance.
5. Test the stack. The lender divides the new loan, plus any second lien that stays, by the appraised value. The result must come in at or under the cap.
6. Test the cash back. Whatever is left over for you must fit the tolerance.
Then the file runs through Desktop Underwriter, Fannie Mae’s automated underwriting system. Across the wholesale programs Lendmire places files with, the automated finding governs most files. The usual floor is a 620 decision score, with a total debt-to-income ceiling of 50%. A manually underwritten file uses tighter ratios of 36% or 45%, with reserve and score factors from the Matrix.
What Goes Into the Payoff Stack?
The payoff stack is the list of everything the new loan is allowed to retire or finance. Per Fannie Mae’s limited cash-out rules, the new loan may pay off the existing first mortgage, including prepayment penalties and late fees. It may also finance closing costs, points and prepaid items.
| Item | Allowed in a limited cash-out? | Effect |
|---|---|---|
| First mortgage payoff and accrued interest | Yes | Core of the stack |
| Purchase-money second lien | Yes | Stays in the category |
| Later HELOC or other second | Generally no | Can flip it to cash-out |
| Closing costs, points, prepaids | Yes, if financed | Raises the balance |
| Eligible real estate taxes | Yes, with limits | Paid to the taxing authority |
| Taxes over 60 days delinquent | Excluded | Cannot be rolled in |
| Cash to the borrower | Only a small tolerance | Over it means cash-out |
Two details trip people up. First, taxes folded into the loan must go straight to the taxing authority, with none of that money reaching you. Second, a co-owner buyout under an agreement and a payoff of PACE (energy-improvement) debt are both acceptable uses.
Why Financed Closing Costs Do Not Make It Cash-Out
Rolling closing costs into the loan does not change the category. The guide lists financed costs, points and prepaids as an acceptable use. That lowers what you bring to the table, but it raises the balance and the interest you pay over time. The cost is built into the loan amount rather than erased.
Financed costs also push the loan toward the leverage cap. On a file already near the ceiling, the extra percentage points can decide whether you finance all your costs or only some.
The Cash-Back Test (and Why Old Articles Disagree)
The cash a borrower, or any other party, can receive in aggregate may not exceed the greater of a small percentage of the new loan amount or a flat dollar floor. That is the current rule, set out in Fannie Mae Announcement SEL-2025-08. The cap applies to the unpaid principal balance of the new loan and covers all limited cash-out refinances.
Before that announcement, the test used the lesser of two measures. That is why older pages, and some current ones, show a different formula. Check the live Selling Guide topic for the exact current figures before relying on any article, this one included.
Cash back is a ceiling, not an entitlement. Freddie Mac’s parallel rule in Guide Section 4301.4 says excess proceeds reduce the loan or go to principal. You cannot simply take extra money that no permitted use covers.
Incidental cash does appear in ordinary files. A refund of leftover escrow from your old servicer, or a small difference from rounding a payoff, can land in your hands. The tolerance exists for that.
A Worked Example in Percentages
These scenarios use modeled percentages of the appraised value, not market data. No dollar figures are needed to see the logic.
Scenario one: inside the lines. Say you own a one-unit primary residence. The existing first mortgage balance plus accrued interest equals about 78% of the appraised value. You finance costs equal to roughly 1.5% of value. The stack comes to 79.5% of value, well under the 95% cap. Cash back is the leftover escrow refund, which fits the tolerance. The loan stays limited cash-out. Because it is under 80%, mortgage insurance is not triggered.
Scenario two: over the line. Now say the lender adds a home-equity line you opened years after buying. The payoff stack jumps, and the cash you would receive no longer fits the tolerance. You have three options, none of them pleasant:
- Leave the line out and keep it, with its balance counting toward combined leverage (and, depending on its terms, possibly staying subordinate to the new loan).
- Reduce the cash back, and apply the excess to principal.
- Move to a full cash-out refinance, where the 80% cap for a one-unit primary residence applies and the pricing changes.
The third option works only if the appraisal supports it. At the lower cap, a home with modest equity may not stretch far enough. That is the practical meaning of “sizing”: the same house can support a refinance that stays limited but not one that is cash-out.
What Moves the Number Before Closing
Three things shift the loan amount between application and closing, so no first estimate is final.
- Per diem interest. Your current servicer keeps charging interest every day until it is paid off. The payoff figure grows until the closing date.
- Payoff statement updates. The lender orders updated statements as closing nears, and the balance on each one is what counts.
- Escrow refunds. Your old servicer returns the escrow balance after payoff. That refund is part of the incidental cash.
The appraisal moves the cap itself. A low value shrinks the maximum loan. Lendmire’s piece How a Lender Sizes Your Cash-Out Refinance From Appraised Value covers that mechanism in more depth.
Where the General Rule Breaks
These are the named edge cases that surprise borrowers most.
A second lien that was not purchase-money. Only subordinate liens used to buy the property may be paid off and rolled in. Paying off any other second converts the loan to cash-out. In practice, this is the most common surprise. Freddie Mac applies the same rule and requires the lien to have gone entirely to the purchase.
The HELOC question. Whether a HELOC payoff counts as “no cash-out” depends on how the line was used. A flat yes or no is the wrong answer, and a lender reviews the draw history.
The 97% tier. The top leverage option is narrow. Fannie Mae’s 97% LTV FAQ says it applies to existing Fannie Mae loans, on a fixed-rate one-unit primary residence run through Desktop Underwriter. The lender must tell the system Fannie Mae owns the loan, and a system message can serve as confirmation. Otherwise the lender provides documentation. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
A buyout of a co-owner. In a divorce or an inheritance buyout, limited cash-out treatment is allowed. The person buying out the other must qualify on their own. Freddie Mac treats these differently, so the program matters.
Manufactured homes. Leverage limits run lower. Single-wide units are not eligible for cash-out, and the 97% tier applies only to a specific product line.
Construction-to-permanent. A single-closing loan is processed as a purchase or limited cash-out. A two-closing loan is processed as limited cash-out or cash-out.
Listing history. If the home was previously listed for sale, it must have come off the market on or before the new loan’s disbursement date. Also, at least one borrower must hold title at the time of application.
Second homes and rentals qualify too, but occupancy sets the leverage, and the caps are lower than on a primary residence.
When Sizing Flips to Cash-Out
The flip happens whenever the loan retires a non-purchase lien or sends more than the tolerance to you. The conventional cash-out refinance limits are 80% on a one-unit primary residence and 75% on two- to four-unit primary residences, second homes and rentals.
Seasoning joins the tests. The first mortgage being paid off must be at least 12 months old, measured note date to note date. In Lendmire’s wholesale network, you must also have been on title for 6 months, with exceptions for delayed financing, inheritance and legal awards. A limited cash-out has no such existing-loan age test, which is why it sometimes works for a borrower who cannot yet do a cash-out.
Pricing is also affected. Fannie Mae assesses loan-level price adjustments based on credit score, leverage, loan purpose and occupancy. Two borrowers with similar equity can end up with different costs. Those adjustments are built into the loan’s pricing, not charged as a separate line.
Key Terms Defined
Payoff stack: The list of debts and costs the new loan retires or finances.
LTV (loan-to-value): The loan balance divided by the appraised value.
CLTV: Combined loan-to-value, which adds any second lien that stays in place to the new loan.
Purchase-money second: A second mortgage used in its entirety to buy the home.
Per diem interest: Interest that accrues each day on your old loan until payoff.
Desktop Underwriter: Fannie Mae’s automated system that issues the underwriting finding on most files.
What You Can Do to Help the Lender Size It Right
Bring documents that settle classification questions early:
- A recent statement for the first mortgage, plus one for any second lien.
- The origin documents for any second, so the lender can see whether it financed the purchase.
- Proof of ownership and, if relevant, the date any listing ended.
- Any co-owner agreement, if a buyout is part of the plan.
- Your list of costs you want to finance versus pay in cash.
A clean file at application means fewer reclassifications later.
Deciding in Practice
Ask one question first: do you want a better loan or more cash? A better loan points to the limited cash-out path, with the leverage caps above. More cash points to a different test, with a lower cap and an older-loan requirement. Rolling costs into the balance trades cash today for interest over time. 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
Do I have to take the cash back?
No. The cash-back figure is a ceiling on what is allowed, not an amount you must receive. Excess proceeds reduce the loan or go to principal. Most of what shows up in a limited cash-out file is incidental, such as an escrow refund.
Can I roll closing costs into the loan?
Yes. Fannie Mae lists closing costs, points and prepaid items as acceptable uses. The costs stay inside the leverage cap, so a file near the ceiling may not finance everything. Financing them raises your balance and the interest you pay over time.
Can I pay off my HELOC in this refinance?
It depends on how the HELOC was used. A line that financed the purchase fits the rules, while a line you drew on later to spend usually turns the loan into cash-out. A lender reviews the draw history before deciding.
What happens if I go over the limit?
The loan no longer qualifies as limited cash-out. You can reduce the loan or the cash back, or move to a cash-out refinance with a lower leverage cap and a 12-month age requirement on the existing first mortgage. Pricing changes too.
Does Fannie Mae need to own my loan?
Only for the narrow 97% tier. The standard limited cash-out does not require Fannie Mae to own the existing loan. For the 97% option, the lender confirms ownership through Desktop Underwriter or documentation, subject to lender guidelines.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae’s cash-out topic
2. Fannie Mae Eligibility Matrix
3. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
4. Fannie Mae Announcement SEL-2025-08
5. Freddie Mac Guide Section 4301.4
6. Fannie Mae FAQs: 97% LTV Options
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can a Conventional Cash-Out Refinance Close Without an Appraisal? · How Much a Conventional Refinance Saves a Move-Up Buyer · Refinance vs PMI Cancellation on a 2-4 Unit Primary Home
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
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.