The Quick Read: Staying at or below 80% loan-to-value on a one-unit primary residence is the standard way to avoid mortgage insurance on a cash-out refinance. That is also the conventional leverage cap for that kind of loan, so the two rules line up. The new loan is what gets tested, not the old one. One wholesale lane reaches 89.99% with no mortgage insurance, subject to the conditions below and to lender guidelines and full file review.
Key Takeaways
- A cash-out refinance is a brand-new first mortgage. It pays off the old one and hands you the difference.
- Mortgage insurance is tied to the new loan’s LTV: the new loan amount divided by the appraised value.
- On a one-unit primary home, the standard conventional cash-out cap is 80%. Two- to four-unit homes, second homes and investment properties cap at 75%.
- Two clocks apply: time on title and the age of the loan being paid off.
- Financed closing costs count toward the cap, so they shrink your cash.
What Is a Cash-Out Refinance, Really?
A cash-out refinance replaces your current mortgage with a larger one and pays you the difference. The CFPB describes it the same way and notes that closing costs often apply. It is not a second loan layered on top. Your first mortgage disappears, and a new one takes its place.
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.
Lenders also treat a home with no mortgage as a cash-out when you borrow against it. Freddie Mac’s Guide section 4301.5 calls these “free and clear” properties. The same leverage cap applies to them.
Lendmire’s cash-out refinance programs page covers the conventional options in more detail. This article focuses on one narrow question: what has to be true for the new loan to carry no mortgage insurance.
Why Does Mortgage Insurance Show Up at All?
Mortgage insurance protects the lender when a borrower puts little equity into the loan. Fannie Mae’s Selling Guide, per its Charter Act eligibility language, requires an LTV of 80% or less, or mortgage insurance on the portion above 80%. Freddie Mac applies the same principle to the loans it purchases. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
On the agency path, then, mortgage insurance is required above 80% LTV. The exception is the wholesale no-MI cash-out lane described later here. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Now the part that makes cash-out unusual. For a standard cash-out on a one-unit primary home, the maximum is already 80%. So a compliant standard cash-out on that property normally never triggers mortgage insurance. Higher leverage is a different product, such as a limited cash-out refinance, not a standard cash-out with insurance added.
Lendmire’s conventional program sheet lists typical annual mortgage insurance premiums of 0.58% to 1.86% of the balance, depending on the file. That matters mainly for the loans where insurance applies, not for a cash-out kept inside the cap.
How the Loan Is Underwritten, Step by Step
Across the wholesale programs Lendmire places files with, a conventional cash-out follows the same sequence. Each step can decide the outcome.
Step 1: The appraisal sets the denominator. LTV is the new loan amount divided by the appraised value. A higher appraisal gives you more room. A lower one can erase it. Rounding can matter, too. A figure just over 80% can be treated as the next whole percent, so a file sitting right on the line deserves a close look.
Step 2: The cap applies to the whole new loan. This is where most borrowers get tripped up. You do not get “80% of your equity.” You get a new loan up to 80% of the home’s value. Out of that amount come the payoff of your current mortgage, any other liens that must be cleared, and any closing costs you choose to finance. Whatever remains is your cash.
Step 3: Seasoning is checked. Two clocks run at once. On the conventional side, 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 6 months. Both are documented in the file, usually through the credit report or title commitment. The exceptions are delayed financing for cash buyers, inheritance and legal-award situations.
Step 4: Occupancy and property type set the leverage. The cap is 80% on a one-unit principal residence. It drops to 75% on two- to four-unit principal residences, second homes and investment property. Occupancy changes the number, but a cash-out can be written on any of those property types.
Step 5: Credit and ratios are reviewed. The wholesale conventional programs start at a 620 decision score. The automated underwriting finding governs most files, with a total debt-to-income ceiling of 50%. Manually underwritten loans run to 36% or 45%, depending on the reserve and score factors in the agency Eligibility Matrix. Higher scores generally give a cleaner file.
Step 6: Pricing and closing. Cash-out loans are priced differently from limited cash-out loans because of loan-level price adjustments tied to LTV and credit score. The lender pays off the old lien and sends the net proceeds to you. Your Loan Estimate and Closing Disclosure show the exact costs.
Key Terms Defined
Loan-to-value (LTV): The new loan amount divided by the appraised value of the home.
Private mortgage insurance (PMI): A policy that protects the lender when a conventional loan is above 80% LTV, paid by the borrower. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Seasoning: The minimum time you have owned the home and the minimum age of the mortgage you are paying off.
Limited cash-out refinance: A refinance that pays off the existing mortgage and costs, with only a small amount of cash back.
Delayed financing: A cash-out exception that lets a buyer who paid cash take money out without waiting for the standard title period.
Where Does the 80% Rule Break?
The general rule holds for most files. Here are the named edge cases where it bends.
The No-MI Wholesale Lane
This is the one real exception to the eighty-percent line. A wholesale lane reaches 89.99% LTV with no mortgage insurance on the new loan. The conditions are narrow: a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence, a conforming balance, and six months of seasoning of its own. It is also not written in Texas. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Is it right for you? It depends on whether your file fits every one of those boxes. If your score sits below 680 or the home is a second home, the lane does not apply, and the standard 80% cap governs. It is subject to lender guidelines and full file review.
Texas Homesteads
In Texas, a cash-out on a 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 preference. The no-MI wholesale lane is not available there.
Free-and-Clear Homes
Owning a home with no mortgage does not exempt you from the cap. Fannie Mae and Freddie Mac treat the loan as a cash-out, so the same leverage limits apply.
Delayed Financing
A cash buyer can sometimes take money out soon after closing. Freddie Mac’s Guide section 4301.5 requires that the purchase closing disclosure show no financing was used, that title shows you as owner with no liens, and that the source of purchase funds is fully documented. The exception waives the title wait. It does not change the leverage cap or the cash-out pricing.
Student-Loan Cash-Out
Fannie Mae has a student-loan cash-out that waives the cash-out price adjustment when conditions are met. The standard LTV limits still apply. Waiving the adjustment does not lift the cap.
Government Loans
FHA loans use mortgage insurance premium rather than PMI. The federal cancellation law that covers PMI does not apply to FHA insurance. If you hold a VA loan, Lendmire’s piece on the best VA cash-out refinance program without mortgage insurance is the better starting point.
Lender-Paid Mortgage Insurance
Lender-paid insurance is a separate category. It is not a way around the cap on a standard cash-out.
Cash-Out vs. Limited Cash-Out: Which One Are You Actually Doing?
Some borrowers only want a small amount back or want to wrap closing costs into the loan. That is a limited cash-out, also called a rate-and-term refinance. The leverage is much higher, up to 95% on a one-unit primary residence. Mortgage insurance applies above 80% on the agency path; the wholesale lane that reaches 89.99% LTV carries no mortgage insurance.
The cash back is capped at a small amount. Fannie Mae allows the lesser of 2% of the new loan amount or $2,000. Freddie Mac allows the greater of 1% of the new loan amount or $2,000. A limited cash-out also covers paying off a purchase-money second lien and buying out a co-owner under a written agreement.
The tradeoff is plain. If you need meaningful cash, you are in standard cash-out territory with its 80% cap. If you only need to restructure, limited cash-out gives more leverage but brings mortgage insurance back above 80%. Pick the product that matches your actual goal.
What Does the Decision Look Like in Practice?
Picture a homeowner with a one-unit primary residence, a first mortgage well over 12 months old, and more than six months on title. The appraisal supports a value, and the borrower asks for a new loan at exactly 80% of that value. The payoff, plus any financed closing costs, comes out first. The rest is cash. No mortgage insurance applies because the loan does not exceed 80%.
Now change one thing. Say the borrower wants a little more and asks for 85%. That is over the standard cash-out cap, so the request does not fit a standard cash-out at all. It would either need a different structure or a smaller cash amount.
Next, consider a borrower with a very low existing balance. A small payoff does not change the test. The new loan is still measured against the appraised value, and the cap still applies to the whole loan. A low balance simply means more of the 80% becomes cash.
Here is the practical question to ask yourself: should you borrow right up to the ceiling? Often not. Financed closing costs eat into the cap and reduce your net cash. Borrowing below the maximum leaves room for appraisal surprises and keeps a cushion. The ceiling is a limit, not a target.
If You Land Over the Line
You have a few choices:
1. Reduce the cash amount until the new loan sits at or below 80%.
2. Pay closing costs out of pocket instead of financing them.
3. Check whether the 89.99% no-MI lane fits your score, property and state.
4. Switch to a limited cash-out if you need less cash.
What Happens to Your Existing PMI?
A cash-out refinance pays off your current loan, so any mortgage insurance on it ends with the payoff. The new loan is tested fresh. Having PMI today does not block a cash-out, and it does not carry over.
If you are weighing a refinance against simply waiting, the federal rules are worth knowing. Per the CFPB, you may ask the servicer to cancel PMI when the balance is scheduled to reach 80% of the original value. Under the Homeowners Protection Act, the servicer must end it automatically at 78%, provided the loan is current. You need a good payment history, no subordinate liens and no decline in value. Ending PMI lowers your monthly costs.
Lendmire’s piece on the best cash-out refinance program to remove private mortgage insurance walks through that comparison.
Common Mistakes
- Assuming the cap applies to equity. It applies to the whole new loan against appraised value.
- Forgetting the second clock. Six months on title is not enough if the loan being paid off is under 12 months old.
- Financing every cost. Each financed dollar counts against the cap and reduces your cash.
- Treating the cap as a goal. A lower request can be the wiser choice.
- Mixing up programs. FHA and VA insurance work differently from PMI.
What Does a Cash-Out Cost You Beyond Insurance?
Skipping mortgage insurance is a real saving, but it is only one side of the trade. You take on a larger principal balance and restart your loan term. Closing costs often apply.
Using cash-out proceeds to pay off credit cards can make sense, but credit card balances trended back toward earlier levels over the following year in a report on cash-out borrowers. Paying off cards with home equity only helps if the spending pattern changes.
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. Questions can go to 828-256-2183.
Frequently Asked Questions
Does a cash-out refinance require PMI?
Not when the new loan stays at or below 80% of the appraised value. That is also the standard cash-out cap on a one-unit primary residence, so a compliant file usually carries no insurance. The wholesale no-MI lane reaches 89.99% for qualifying primary residences, subject to lender guidelines and full file review.
Can I borrow 80% of my equity?
No. The 80% limit applies to the entire new loan compared with the home’s appraised value. Your payoff, any other liens and any financed costs come out of that amount first. What remains is your cash, and it is often less than people expect.
Does PMI on my current loan stop me from doing a cash-out?
No. The current loan’s insurance ends when it is paid off. Eligibility turns on equity, seasoning, credit, income and the new loan’s LTV, not on whether the old loan had PMI.
How long must I own the home first?
At least one borrower must have been on title for 6 months, and the mortgage being paid off must be at least 12 months old. Delayed financing, inheritance and legal-award exceptions exist. Each is judged on its documentation.
Is a cash-out on a rental or second home treated the same way?
Occupancy decides the leverage. A one-unit primary home caps at 80%, while two- to four-unit homes, second homes and investment property cap at 75%. A cash-out can be written on each.
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. CFPB
2. Freddie Mac Guide Section 4301.5, Cash-out refinance Mortgages
3. Fannie Mae Selling Guide (Charter Act eligibility)
4. CFPB
5. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Cash-Out Refinance Options on a Conventional Loan You Already Have · Best Cash-Out Refinance Program to Get Rid of PMI on the Current Loan · Best Cash-Out Refinance Program to Remove Private Mortgage Insurance
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
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.