The Quick Read: a limited cash-out refinance replaces your existing first mortgage and lets you take out only a small amount of cash. It can also pay off a second lien, but only one used to buy the home. Fannie Mae sets the rules in its Selling Guide section B2-1.3-02. Break any of them and the loan is reclassified as a cash-out refinance, which has lower leverage limits and seasoning rules.
Key Takeaways
- Cash back is capped at a small, incidental amount. Closing costs and prepaids can be rolled into the balance.
- Only subordinate liens used to buy the property can be paid off inside the new loan.
- At least one borrower must be on title when the application is taken.
- On a one-unit principal residence, leverage reaches 95%, and 97% where the existing loan is agency-owned and the program allows it.
- Pay off the wrong lien or take too much cash and the loan becomes a cash-out refinance, with 80% as the one-unit cap.
What Is a Limited Cash-Out Refinance?
It is a refinance whose purpose is to change the loan, not to pull equity. The new first mortgage sits on the same property. It pays off the existing first mortgage, covers closing costs and prepaids, and may pay off a purchase-money second lien. The borrower walks away with little or no cash.
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.
You will see three names for this product. Fannie Mae uses “limited cash-out.” Lenders and borrowers say “rate-and-term.” Freddie Mac uses “no cash-out.” The labels differ. The idea is the same.
The question the file answers is simple: what is this loan for? If the answer is a lower payment, a different term, or removing a borrower, it fits here. If the answer is “I need money for a project,” it belongs in the cash-out refinance programs lane instead.
Fannie Mae treats the two as separate loan purposes. The guide gives each its own section. A limited cash-out refinance is not a cash-out refinance with a small check attached.
How Is the Loan Underwritten, Step by Step?
The underwriting order is the same on nearly every file. Across the wholesale programs placed on conforming loans, these are the checkpoints that decide the outcome.
1. Classify the loan purpose. The loan officer states what the new loan pays off. The existing first mortgage, closing costs and prepaids fit. A non-purchase second lien or too much cash back does not.
2. Confirm title. At least one borrower on the new loan must be an owner, on title, when the application is taken. Adding yourself after applying does not fix it.
3. Check the listing status. If the home was listed for sale, the listing must be off the market on or before the date the new loan disburses.
4. Identify who owns the existing loan. This matters only for the highest leverage tier, covered below.
5. Run automated underwriting. Desktop Underwriter returns the finding. On most conforming files the automated finding governs, with a total debt ratio ceiling of 50% and a wholesale credit floor of 620. Lenders can set stricter overlays, so some lenders ask for more.
6. Order the appraisal and measure leverage. Loan-to-value is measured against the appraised value. The limits apply to the first mortgage, to the combined first and second liens, and to the home equity line limit counted at its full amount.
7. Handle other liens. An existing second lien that stays in place has to be resubordinated. New second financing has its own test.
8. Disclose and disburse. Because this is a consumer mortgage, the borrower receives a Loan Estimate and, before signing, a Closing Disclosure. Any listing must be withdrawn by the disbursement date.
Five things decide whether the file stays in the limited lane: loan purpose, total cash back, which liens are paid, occupancy and property type, and the leverage tier.
What Can the Loan Pay Off? (Allowed vs. Not Allowed)
Most reclassifications happen here. The table shows the usual cases. The Selling Guide controls the exact wording.
| Use of proceeds | Stays limited cash-out? |
|---|---|
| Pay off existing first mortgage | Yes |
| Closing costs and prepaids | Yes |
| Purchase-money second lien | Yes |
| HELOC or second used for other purposes | No, becomes cash-out |
| Cash back above the cap | No, becomes cash-out |
| Land contract, over 12 months old | Yes |
| Single-closing construction-to-permanent costs | Yes |
The HELOC row trips up the most borrowers. Plenty of people assume they can roll a home equity line into a rate-and-term refinance. They can’t, unless that line was used to buy the property. A second lien taken out to remodel, pay off cards or cover tuition is a non-purchase lien. Paying it off converts the loan to cash-out.
How Much Cash Back Is Allowed?
Only a small, incidental amount. The guide’s “Cash Back” section sets a ceiling tied to the loan amount. Anything over that ceiling moves the file to cash-out treatment.
One practical warning. That formula has been revised over time, and older web pages still print the earlier version. Some pages also blur “limited cash-out” with “cash-out.” Before quoting a number to a borrower, check the live Selling Guide section and the loan’s closing figures. This article leaves the exact amount to the guide for that reason.
In practice, the cash-back total is often the payoff reconciliation. The final payoff of the old loan, any escrow refund and the prepaids all move the number. A file that looks clean at application can land over the ceiling after settlement figures update. Loan officers watch that line until closing.
What Leverage Limits Apply?
On a one-unit principal residence, limited cash-out leverage runs up to 95%. The Fannie Mae Eligibility Matrix is the reference for the full grid by occupancy and unit count. Limits step down from principal residence to second home to investment property. The matrix also treats fixed-rate and adjustable-rate loans differently.
For comparison, here is how the loan purposes differ on a one-unit principal residence.
| Factor | Limited cash-out | Cash-out |
|---|---|---|
| Max LTV, 1-unit primary | 95%, or 97% where eligible | 80% |
| Max LTV, 2–4 units | Per matrix | 75% |
| Cash to borrower | Small, incidental | Open use |
| Seasoning | Fewer tests | 12-month note, 6 months on title |
| Existing seconds | Purchase-money only | Any lien |
The cash-out column comes from the programs placed through the wholesale network. The limited column follows the guide and matrix.
Mortgage insurance applies above 80% on either path. You may ask to cancel it at 80% of the original value with good payment history, no subordinate liens and no decline in value. The servicer must end it automatically at 78%.
What Is the 97% Tier, and What Does It Require?
It is the top leverage tier, from above 95% up to 97%, and it is the hardest to qualify for. The existing loan must be owned or securitized by Fannie Mae. The lender has to tell Desktop Underwriter this in the “Owner of Existing Mortgage” field.
The Selling Guide adds these conditions:
- The loan must be a one-unit principal residence, and every borrower must occupy it.
- Underwriting runs through Desktop Underwriter only. Manual underwriting does not reach this tier.
- If the system cannot confirm ownership, the lender documents it from its servicing system, the current servicer, or Fannie Mae’s Loan Lookup tool.
- The ownership requirement does not apply when the combined leverage tops 95% only because of a Community Seconds loan.
Fannie Mae’s 97% LTV FAQ confirms the 97% option covers standard limited cash-out refinances of existing Fannie Mae loans, as well as HomeReady. It also confirms the loan must be fixed-rate on a one-unit principal residence. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The common failure is ownership. A borrower assumes the loan is a Fannie Mae loan because it is conforming. It may be held by another investor. When the lookup comes back negative, the file drops to the 95% tier or fails the leverage test. Checking ownership early prevents a re-quote after the appraisal.
Where Does the General Rule Break?
Several edge cases change how a loan is classified. These are the ones that come up most often.
Buying out a co-owner. Divorce, a sibling’s share or an inherited interest can all fit. The guide has a section on refinances that buy out an owner’s interest, and the borrower keeping the home must qualify on their own under the underwriting guidelines. How the loan is labeled can differ between the two agencies, so the loan officer confirms treatment before the file goes in.
Construction-to-permanent. The Fannie Mae matrix addendum says single-closing transactions are processed as purchases or limited cash-out refinances. Two-closing transactions are processed as limited cash-out or cash-out refinances. The number of closings changes the label.
Land contracts. Paying off an installment land contract is allowed when the contract was signed more than 12 months before the application. A recent contract takes a different path.
HomeReady and RefiNow. The addendum describes RefiNow as a fixed-rate, one-unit, principal-residence limited cash-out refinance. High-balance loans are excluded, and it cannot be paired with a HomeReady refinance. RefiNow may no longer be offered, so confirm that before you plan around it.
Manufactured housing. Fannie Mae’s manufactured housing product matrix lists lower limits in some tiers, and it shows mixed entries by home type. Treat the live matrix as the answer, because the page may be out of date.
Second homes and rentals. Occupancy decides leverage. A second home sits below a principal residence, and an investment property lower still. A homeowner refinancing a vacation home should read the matrix row for that occupancy, not the primary-home figure.
Texas homestead. A cash-out on a Texas homestead is capped by the state constitution at the agency figure. The wholesale cash-out lane with no mortgage insurance is not written there.
When Does It Become a Cash-Out Refinance?
The file converts when any of these happens:
- Cash back exceeds the cap.
- A non-purchase second lien gets paid off.
- A recent combined first-and-second payoff does not meet the guide’s test.
- The borrower was not on title when the application was taken.
- The home is still listed at disbursement.
Once reclassified, the cash-out rules govern. That means 80% leverage on a one-unit principal residence and 75% on two- to four-unit homes, second homes and investment property. It also means the first mortgage being paid off must be at least 12 months old, measured note date to note date. The borrower must have been on title for 6 months, with delayed financing, inheritance and legal-award exceptions. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
A wholesale lane reaches 89.99% leverage with no mortgage insurance. It requires a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence, a conforming balance and its own six months of seasoning. It is a cash-out product, not a limited one. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Lendmire’s piece How Long Is the Seasoning Period for a Fannie Mae Cash-Out Refinance? covers the timing tests in more detail.
Key Terms Defined
Limited cash-out refinance: a refinance that pays off the existing first mortgage and closing costs and returns only a small amount of cash.
Subordinate lien: a loan secured by the home that ranks behind the first mortgage, such as a second mortgage or HELOC.
Purchase-money second: a second lien taken out at the time of purchase to finance part of the price.
LTV, CLTV and HCLTV: the ratio of the first loan, the first plus other liens, and the first plus the full home equity line, each divided by the appraised value.
Seasoning: how long a loan has been in place or a borrower has been on title before a refinance qualifies.
Desktop Underwriter: Fannie Mae’s automated system that returns an eligibility finding on a loan file.
What Does the Decision Look Like for a Homeowner?
Picture a homeowner with one first mortgage and a second used to buy the house. They want a different term and a lower monthly cost. The new loan pays off both liens and the closing costs. Cash back stays inside the ceiling. That file fits the limited lane, and leverage can reach 95% or higher if the loan is reviewed for the 97% tier.
Now picture a homeowner with a first mortgage and a HELOC that paid for a new kitchen. They want to combine them. The HELOC is not a purchase-money lien. Paying it off makes the loan cash-out. Leverage drops to 80%, and the seasoning tests apply.
Neither choice is wrong. The second one uses equity, and the cost shows up in the loan terms. The Consumer Financial Protection Bureau warns that cash-out refinances typically carry higher interest rates, higher monthly payments and larger balances than other refinances. They can also turn unsecured debt into debt secured by the home. The CFPB’s home equity guide notes that lenders typically expect a borrower to keep some equity after a cash-out, HELOC or home equity loan.
Closing costs can be financed into a limited cash-out loan. That raises the balance, so compare the new loan to the old one on a like-for-like basis. Look at the full monthly obligation, including taxes and insurance, on both sides.
What Documents Does the Lender Ask For?
The checklist is short, and gaps cause most of the friction.
- Proof of title and ownership, such as the current deed or title report.
- The latest statement for the existing first mortgage, plus any second lien.
- The original settlement statement if a second lien was a purchase-money loan.
- Evidence the listing was withdrawn, if the home was ever for sale.
- Income and asset documents the automated finding asks for.
- Proof of the existing loan’s owner on a 97% file.
The purchase-money second is where files stall. A homeowner may not have the closing statement from years ago. Without it, the lender cannot show the second was used to buy the home. Pulling that statement from the title company early saves a re-classification.
Why Do Limited Cash-Out Loans Get Reclassified or Declined?
These are the usual failure points:
- Wrong lien paid. A HELOC or home equity loan was not a purchase-money lien.
- Cash back over the cap. Settlement figures moved after the initial estimate.
- Title gap. No borrower was on title when the application was taken.
- Listing still active. The home was not withdrawn by disbursement.
- Unconfirmed existing loan owner. The 97% tier needs proof, and a failed lookup stops it.
- Occupancy mismatch. A second home or rental cannot use the principal-residence limits.
- Lender overlays. A lender may set stricter terms than the agency. The label “limited cash-out” does not change that.
Frequently Asked Questions
Can I take any cash out of a limited cash-out refinance?
A small amount, yes. The guide allows incidental cash back up to a ceiling tied to the loan amount. Above it, the loan becomes a cash-out refinance. The formula has been revised, so confirm the current wording in the live Selling Guide before relying on a figure from an older page.
Can I roll my HELOC into a rate-and-term refinance?
Only if the HELOC or second lien was used to buy the property. A line used for repairs, debt payoff or other spending is a non-purchase lien, and paying it off turns the loan into a cash-out refinance with lower leverage limits.
Is 97% leverage available on any refinance?
No. It applies to a fixed-rate, one-unit principal residence where Fannie Mae owns or securitizes the existing loan. All borrowers must occupy the home, and the file must run through Desktop Underwriter. Otherwise the 95% tier governs, subject to lender guidelines.
Do I need to be on title before I apply?
Yes. If you plan to add a spouse or relative to the deed, finish that first and confirm how the guide treats your situation.
What if the home was listed for sale?
It can still qualify. The listing must be off the market on or before the date the new loan disburses. Lenders usually ask for proof of withdrawal in the file.
Closing Thought
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
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. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
2. Fannie Mae Eligibility Matrix
3. Fannie Mae FAQs: 97% LTV Options
5. Fannie Mae Manufactured Housing Product Matrix
6. Consumer Financial Protection Bureau
7. Consumer Financial Protection Bureau, using home equity guide
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Refinance vs PMI Cancellation on a 2-4 Unit Primary Home · How to Refinance Out of PMI After Buying at the Wrong Time · How Much a Conventional Refinance Saves a Move-Up Buyer
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.