The Quick Read: Debt-to-income on a cash-out refinance is built from the new, larger mortgage payment plus the monthly debts that survive closing. Debts paid off through the closing disbursement usually drop out of the ratio, but the bigger loan payment replaces them. Whether the net number improves depends on the file, and the ratio is only one of several tests, subject to lender guidelines and full file review.
How Is the Ratio Built?
Debt-to-income (DTI) is total monthly obligations divided by total monthly income of the borrowers used to qualify. Fannie Mae describes the numerator as the payment on the new loan plus other long-term or significant short-term debts, per its Selling Guide section on debt-to-income ratios.
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: 7.18% as of November 5, 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.
On a cash-out refinance, the housing piece is the full payment on the new loan: principal, interest, property taxes, homeowners insurance, mortgage insurance if any, and association dues. That payment is on a larger balance than the old one. A rough estimate can easily go wrong when it subtracts the debts being paid off but forgets that the old mortgage payment is replaced by a bigger one.
The ratio is not the only gate. Credit, equity, and reserves sit beside it.
Key Terms Defined
- Back-end DTI: all monthly debt payments, housing included, divided by gross monthly income. This is the number that decides most files.
- Front-end DTI: the housing payment alone divided by income. Underwriting decisions lean on the back-end number.
- Payoff statement: a lender-issued document showing the exact amount to clear a debt on a given date, including accrued interest.
- Revolving debt: accounts like credit cards, where the balance and payment change month to month.
- Installment debt: loans with fixed payments and a set end date, like auto, student, and personal loans.
- Direct disbursement: the title or settlement agent sending loan proceeds straight to creditors at closing.
How Does the Lender Underwrite It, Step by Step?
Across the wholesale programs Lendmire places files with, the sequence is consistent.
1. Collect the payoff list. The existing mortgage, any liens, and the cards or loans to be cleared at closing. The lender works from payoff statements and the credit report.
2. Calculate the new housing payment. Full payment on the larger loan, with taxes, insurance, and dues.
3. Drop paid-off debts. Revolving balances and installment loans paid at closing leave the ratio. The payoff has to appear as a real disbursement on the settlement statement, not an intention.
4. Keep everything else. Alimony, child support, and other recurring obligations stay in. Fannie Mae’s monthly debt obligations rules govern these.
5. Run automated underwriting. The system weighs DTI together with credit, loan-to-value, and reserves. Lenders also recalculate DTI outside the system.
6. Check equity. Payoffs, other liens, and financed costs come out of available equity before any cash reaches you.
7. Recheck at the end. New debt or reduced income that surfaces before closing triggers a recalculation. If the recalculated number exceeds the cap, the loan is ineligible.
What Do the Payoff Rules Say?
The payoff rule is the heart of this topic. Fannie Mae’s guidance on debts paid at or before closing says a revolving balance paid off at or before closing need not be counted, and the account does not have to be closed. Installment loans paid off or paid down to 10 or fewer remaining monthly payments need not be included either.
The same section adds a warning. Paying off or paying down debt solely to qualify gets careful evaluation, and the borrower’s credit-use history is a factor. Freddie Mac has a parallel exception: a debt may be excluded if the borrower has sufficient funds to pay the balance off.
| Debt type | Typical treatment at payoff |
|---|---|
| Credit card, paid at closing | Payment drops out; account can stay open |
| Installment loan, paid in full | Payment drops out |
| Installment loan, 10 or fewer payments left | May be excluded even if not paid |
| Collection or judgment | Generally must be paid at or before closing |
| Debt paid by someone else | 12 months of proof of on-time payments |
| Alimony or child support | Stays in the ratio |
What Are the DTI Limits?
There is no single federal cap. Limits come from the program and the underwriting path. Fannie Mae’s maximum is 36% for manually underwritten loans, with higher ratios allowed when the file has the required reserve and score factors, and 50% through its automated system. Recalculated ratios above 50% on an automated file make a loan ineligible for delivery.
On the wholesale conventional programs Lendmire arranges, the automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans run 36% or 45%, with the reserve and score factors of the Eligibility Matrix. All of it is subject to lender guidelines.
Cash-out is a named exception. The maximum can be lower on cash-out files, and Fannie Mae’s eligibility matrix applies minimum reserves to cash-out automated files with a ratio above 45%. A high ratio on a cash-out can mean reserves requirements you would not see otherwise.
The old 43% federal figure is a common misconception. That was a former General QM cap. It was replaced by a price-based test, though lenders must still consider DTI or residual income.
Worked Example: Three Ways to Look at One File
Run the numbers on a homeowner with a mortgage, two credit cards, and a car loan with many payments left. No dollar figures needed. Read the table as direction of change.
| Item | Keep loan, no refi | Cash-out, keep cash | Cash-out with payoffs |
|---|---|---|---|
| Housing payment | Old payment | Larger payment | Largest payment |
| Credit cards | Counted | Counted | Dropped |
| Car loan | Counted | Counted | Dropped |
| Net DTI | Baseline | Usually higher | Depends on the trade |
The payoff column wins only if the payments removed are bigger than the added housing cost. Cards with high payments relative to balance remove a lot per dollar of equity used. A car loan near the end of its term removes little. That is the break-even test: for each debt on the list, ask how much monthly payment it clears per dollar of balance. Debts that clear a lot are worth including. Debts with low payments and long balances may raise the total once rolled into a 30-year loan.
Taxes, insurance, and mortgage insurance in the new payment also move the number. A larger loan can raise the housing payment more than the interest alone suggests.
When Do Payoffs Not Help?
Payoffs fall short in three situations.
The new payment outweighs the removed payments. Rolling a low-payment loan into a bigger mortgage trades a short debt for a long one. The ratio can get worse.
Payoffs made only to qualify. Underwriters weigh credit-use history. A file that clears cards and then runs them back up looks different from one with a clean pattern.
Equity runs out. Payoffs and financed costs come out of available equity first. Conventional cash-out is capped at 80% LTV on a one-unit principal residence and 75% on two- to four-unit principal residences, second homes, and investment property. Occupancy sets the leverage. Mortgage insurance is required above 80% on the agency path, with one exception: a wholesale no-MI cash-out lane that reaches 89.99% LTV at a 680 score and 50% ratio on a thirty-year fixed, primary residence, conforming balance, with its own six months of seasoning. In Texas, a homestead cash-out is capped at 80% of value by the state constitution, and that wholesale lane is not written there. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Seasoning matters too. The first mortgage being paid off must be at least 12 months old (note date to note date), and the borrower must have been on title for six months, with exceptions for delayed financing, inheritance, and legal awards.
Where the General Rule Breaks
Limited cash-out versus cash-out. A limited cash-out allows only incidental cash back. Paying off a second lien that was not used to buy the property turns the loan into a full cash-out, per Fannie Mae’s cash-out refinance transaction rules. A HELOC payoff is the usual trap.
Student loans. Fannie Mae has a student-loan payoff feature that waives the cash-out pricing adjustment when requirements are met. Those loans carry special feature codes.
Collections, charge-offs, judgments, liens. These generally have to be paid at or before closing. Even when no monthly payment counts, the payoff eats cash and equity.
Debts paid by someone else. Expect 12 months of canceled checks or bank statements from the other party showing no late payments.
Open 30-day accounts. Cash-out proceeds cannot justify excluding one unless the funds actually pay the balance at closing.
Government streamlines. The FHA Streamline and VA IRRRL are rate-and-term products for existing government loans. They test net tangible benefit, not a full DTI, and neither includes cash-out. A VA cash-out is a different loan with full documentation. So this topic is a conventional and full-documentation concept.
Closing-Table Mechanics
Payoff amounts shift with accrued interest, so the settlement agent updates them near closing. A shortfall at the table creates a problem, because the payoff must be a real disbursement. Direct payment by the title company is the cleanest path. Paying a debt yourself after closing does not count, since the lender calculated the ratio on the closing disclosure’s disbursements. Reconcile the payoff list against the Closing Disclosure before signing.
Common mistakes:
- Estimating DTI without the new taxes, insurance, and mortgage insurance.
- Leaving a collection off the payoff list.
- Opening new credit between application and closing.
- Assuming a card must be closed, or that a payoff always helps.
Self-employed and bank-statement files calculate qualifying income differently, which changes the denominator. That is worth discussing with a loan officer before you build your own estimate.
How Do You Build a Rough Estimate?
Before applying, list your income, current housing payment, and every other monthly debt with its balance and payments left. Mark which debts you would clear. Estimate the new housing payment at the larger balance, with taxes and insurance. Subtract cleared payments, add the new payment, and divide by income. If the result sits close to a limit, reserves and credit history will matter more. The cash-out refinance programs page at Lendmire lays out the options. For files near a ceiling, see Lendmire’s article Top Cash-Out Refinance Providers With a Debt-to-Income Ratio Near the Lender Limit.
Frequently Asked Questions
Do debts I pay off at closing count in my DTI?
Generally no. Revolving balances and installment loans paid through the closing disbursement can drop out of the ratio, and the paid card does not need to be closed. The new, larger housing payment still counts in full.
Can paying off debt make my DTI worse?
Yes. If the payments removed are smaller than the added housing cost, the net ratio rises. Low-payment, long-balance debts are the usual cause.
Is there one maximum DTI for a cash-out refinance?
No. The limit depends on the program and underwriting path. At Fannie Mae it is 36% manual and 50% automated, and cash-out files can face lower limits or added reserves. Across the wholesale conventional programs, the ceiling is generally 50%, subject to lender guidelines.
Does paying off a HELOC keep it a limited cash-out?
Only if the second lien was used to buy the property. Otherwise the loan is a cash-out refinance with cash-out eligibility rules.
Do FHA Streamline and VA IRRRL use DTI?
Generally not in the same way. They are rate-and-term products on existing government loans and rely on a net tangible benefit test instead.
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.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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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 B3-6-07, Debts Paid Off At or Prior to Closing
2. Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios
3. Fannie Mae Selling Guide B3-6-05, Monthly Debt Obligations
4. Freddie Mac
5. Fannie Mae Eligibility Matrix
6. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much Cash Comes Out of a Cash-Out Refinance With High Equity and Low Income? · How to Retitle an Inherited 2-4 Unit for a Cash-Out Refinance · Credit vs Income for a Cash-Out Refinance: What Decides Approval
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
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.