The Quick Read: A cash-out refinance removes private mortgage insurance (PMI) when the new first mortgage lands at or below 80% of the new appraised value. On a one-unit primary residence, 80% is also the most a conventional cash-out can borrow. So the two usually line up. The requirements that decide the file are the appraisal, the seasoning clocks, credit and ratios, and how much cash comes out. Everything here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Key Takeaways
- PMI is required above 80% loan-to-value (LTV) on the agency path. The one exception is a wholesale no-MI cash-out lane, covered below.
- A conventional cash-out on a one-unit primary residence caps at 80% LTV. On two- to four-unit primary residences, second homes and investment property, it caps at 75%.
- The first mortgage being paid off must be at least 12 months old, and a borrower must have been on title for 6 months.
- Cancelling PMI on your current loan costs less than refinancing and should be checked first. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
How Does a Cash-Out Refinance Remove PMI?
A cash-out refinance replaces your old first mortgage with a new one. The old loan and its PMI are paid off at closing. If the new loan is 80% of value or less, the new loan needs no mortgage insurance.
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: 7.24% as of October 29, 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.
PMI exists because of the 80% line. Fannie Mae’s Selling Guide describes eligible loans as 80% LTV or below, and loans above that need mortgage insurance on the portion over 80% of value. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
The new loan includes three things: the payoff of the old loan, any closing costs you finance, and the cash you take. LTV is that total divided by the new appraised value. The 80% cap applies to the whole loan. It does not apply to your equity. That is the misunderstanding that trips up the most borrowers.
What Are the Core Cash-Out Requirements?
Across the wholesale programs we place files with, the requirements fall into a short list. Lendmire’s cash-out refinance programs page covers the program side. The mechanics are below.
| Requirement | Typical standard | Why it matters |
|---|---|---|
| Leverage, 1-unit primary | 80% LTV | Sets the maximum loan |
| Leverage, 2-4 units, second home, investment | 75% LTV | Occupancy sets the cap |
| Loan seasoning | First mortgage 12 months old | Blocks recent refinances |
| Title seasoning | 6 months on title | Blocks recent buyers |
| Credit | 620 decision score at the wholesale floor | Lower scores price higher or fail |
| Total ratio | 50% ceiling on automated findings | Caps debt against income |
These are typical guideline figures, not promises. A cash-out can be written on a primary residence, a second home or an investment property. Occupancy sets the leverage, so the owner does not have to live in the home. The Fannie Mae Eligibility Matrix lays out the LTV caps by occupancy, plus the credit, reserve and ratio factors by transaction type.
What Do the Seasoning Clocks Look Like?
Two clocks run on a cash-out. Both can block a recent buyer, and both are documented from the settlement statement.
1. Title clock. At least one borrower must have been on title for six months before the note date.
2. Loan clock. When the cash-out pays off a first mortgage, that loan must be at least 12 months old, counted from note date to note date.
Freddie Mac’s Seller/Servicer Guide §4301.5 sets out both rules. It also lists exceptions. Delayed financing, inheritance and legal awards are the usual ones. A special-purpose cash-out, such as buying out a co-owner, is treated differently. Paying off a HELOC is another case where the 12-month test does not apply in the same way. Check each against the live guide before counting on it.
A purchase from a few months ago is the classic failure. The borrower has equity from appreciation, but the title clock hasn’t run. No appraisal fixes that.
Worked Example: Three Cash-Out Levels
Take a homeowner whose home is worth 100 units of value and whose payoff balance is 70 units. These are illustrative percentages, not real figures. Assume the appraisal holds at value.
- No cash out, costs paid in cash. New loan is 70% of value. No PMI.
- Modest cash out plus financed costs. New loan is 78%. No PMI, close to the line.
- Maximum cash out. New loan is 80%. No PMI, no room left. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Now lower the appraisal by 5%. The same 78% loan becomes about 82% of the lower value. PMI is back, or the loan must shrink. Financed costs do the same thing. Rolling them into the balance can push a file over 80% by itself.
The appraisal sets the denominator. A higher value is the main lever that moves a borrower under 80%. A low value can break the whole file.
Where Does the General Rule Break?
The 80% rule has named exceptions. Know them before you plan around it.
The wholesale no-MI lane. One wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence and a conforming balance. It carries its own six months of seasoning. It is not written in Texas. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Texas homesteads. A cash-out on a Texas homestead, a Section 50(a)(6) loan, is capped at 80% of the home’s value by the state constitution. That is a state rule, not an agency one.
Two- to four-unit homes, second homes and investment property. The cap drops to 75%. PMI isn’t the issue there. The lower cap is.
FHA and VA. The federal cancellation law does not cover FHA or VA insurance, according to the CFPB’s Homeowners Protection Act examination manual. Homeowners with FHA mortgage insurance often look at a conventional refinance to remove it. Lendmire’s piece Best Cash-Out Refinance Program to Remove Mortgage Insurance From an FHA Loan works through that case.
Lender-paid mortgage insurance. This is built into the loan terms instead of billed monthly. It follows different termination rules than borrower-paid PMI.
Pending policy. Federal proposals to expand proactive PMI cancellation exist. They are not in the agency guides as enforceable rights. Don’t plan a file around them.
Check Cancellation Before You Refinance
Cancelling PMI on your current loan avoids re-underwriting and a reset of loan terms. A refinance costs more. Check cancellation first, especially if you don’t need cash.
Three routes exist:
- Automatic termination. PMI ends at 78% of the original value on the original schedule. Fannie Mae’s homeowner site advises contacting the servicer around 80%.
- Request at 80% of original value. Per the CFPB, the request goes in writing. Servicers generally want good payment history, no junior liens and proof that value hasn’t dropped below the original.
- Cancellation on current value. Servicing policy allows this when appreciation has pushed LTV down. Fannie Mae’s Lender Letter LL-2018-03 set tiers: 75% or less after two to five years of seasoning, and 80% or less after more than five. That letter is older, so the live servicing guide governs. Improvements you made can waive the two-year seasoning when they raised value.
Note what 20% equity does not do. It does not end PMI on its own. Automatic termination runs off the original value and a scheduled balance. Appreciation helps only if you ask.
A servicer often orders a valuation on a current-value request. If it comes in below the original value, the request is typically denied unless you pay down the loan or document higher value. Some servicers also charge an upfront cost.
If the answer is “I need cash anyway,” or the cancellation tiers don’t fit, the refinance becomes the better path. If the answer is “I don’t need cash,” a no-cash refinance can also reach 80% LTV or below. A rate-and-term (limited cash-out) refinance allows only incidental cash back: the lesser of 2% of the new loan or $2,000 at Fannie Mae, and the greater of 1% of the new loan or $2,000 at Freddie Mac. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Cash-Out Versus a Home Equity Loan Versus Cancelling First
Three tools can solve overlapping problems. They are not interchangeable.
| Option | Touches your first mortgage? | PMI outcome |
|---|---|---|
| Cash-out refinance | Replaces it | Gone if new loan is 80% or less |
| Cancel PMI, then borrow later | No | Gone once servicer approves |
| Home equity loan or line | No | Existing PMI stays until cancelled |
Sequencing matters. If you qualify to cancel first, you drop the PMI cost without a new loan. Then you can look at borrowing against equity afterward, with a clearer picture. Cash-out pricing is loan-level and depends on LTV and credit score. An 80% cash-out sits at the top of the range, so it generally costs more than a no-cash refinance. Describe the tradeoff by comparing the loan terms you receive on the Loan Estimate, not by assuming savings.
Credit, Ratios and the File
The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. A manually underwritten loan runs tighter, at 36% or 45% with reserve and score factors from the Eligibility Matrix. Waiting periods after credit events are agency rules: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Those can be shorter with documented extenuating circumstances.
The friction points on these files are routine. Settlement statements have to prove both clocks. Payoff letters have to match the balance. The appraisal has to come in. A second lien has to be dealt with. Cleaner documents leave fewer preventable gaps, though nothing guarantees an outcome.
Key Terms Defined
Private mortgage insurance (PMI): Insurance on a conventional loan above 80% LTV that protects the lender, paid by the borrower. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Loan-to-value (LTV): The loan amount divided by the appraised value of the home.
Cash-out refinance: A new first mortgage that pays off the old one and gives the borrower more than limited incidental cash.
Rate-and-term refinance: A refinance that pays off the old loan and costs, with only incidental cash back.
Seasoning: The minimum age of a loan or period on title before a refinance is allowed.
Step by Step: From Servicer Call to Closing
1. Ask your servicer about cancellation. Find out whether current-value cancellation is open to you. It needs no refinance.
2. Pull your closing documents. Gather the settlement statement from your purchase or last refinance to prove the 6-month and 12-month clocks.
3. Choose the cash amount. Decide how much cash you need. Remember that financed costs count toward the 80% test.
4. Order the appraisal. The value sets the denominator. A low value may mean taking less cash or leaving PMI in place.
5. Submit the file. The loan is tested against the matrix for credit, ratios and reserves, with documentation to match.
6. Review the disclosures. The Loan Estimate and Closing Disclosure show the loan terms and costs. Compare them with your current loan.
7. Close and confirm payoff. The new first mortgage pays off the old loan and its PMI. Confirm the old PMI billing stops.
Common Mistakes
- Assuming 20% equity ends PMI automatically.
- Counting equity instead of value when sizing the loan.
- Forgetting that financed costs raise the balance.
- Assuming the federal cancellation law uses today’s value. It uses original value. Current-value cancellation comes from agency servicing policy.
- Applying conventional rules to FHA mortgage insurance.
- Ignoring the title clock on a recent purchase.
Frequently Asked Questions
Can a cash-out refinance get rid of PMI?
Usually yes, when the new loan is 80% of value or less. On a one-unit primary residence, 80% is also the cash-out cap, so the cash you take must leave the loan at or under that line. A wholesale no-MI lane can go higher under narrow conditions.
Does having 20% equity automatically remove PMI?
No. Automatic termination runs off the original value and a scheduled 78% balance. Appreciation helps only if you request cancellation on current value and meet the servicer’s conditions. Lendmire’s piece Best Cash-Out Refinance Program When Refinancing Could Remove Existing Mortgage Insurance covers when that route makes sense.
How long do I have to own the home before a cash-out?
At least one borrower must be on title for six months. The first mortgage being paid off must also be at least 12 months old. Exceptions exist for delayed financing, inheritance and legal awards, and the rules differ for special-purpose cash-outs.
Does a cash-out work on a rental or second home?
Yes, but occupancy sets the leverage. Second homes and investment property cap at 75% LTV, and so do two- to four-unit primary residences. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
What happens if my appraisal comes in low?
LTV rises on the same loan. Either the cash amount shrinks, you pay down the balance, or PMI stays on the new loan. An appraisal reconsideration with recent nearby sales is sometimes an option.
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. Program details vary by borrower, property and lender, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. 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 Selling Guide (PDF)
2. Fannie Mae Eligibility Matrix
3. Freddie Mac Seller/Servicer Guide §4301.5
4. CFPB’s Homeowners Protection Act examination manual
5. Fannie Mae: Private mortgage insurance
6. CFPB
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Best Cash-Out Refinance Program to Remove Private Mortgage Insurance · Can You Use a Conventional Cash-Out Refinance Right After a Rehab? · Best Cash-Out Refinance Program When Moving Into a Conventional Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.