The Quick Read: The lender starts with the appraised value, applies a leverage cap, and subtracts everything the new loan must pay off or cover. On a one-unit primary residence the conventional cap is 80% of value, and what remains after the old mortgage, any liens and financed costs is your cash. Seasoning, credit and debt ratios decide whether you reach that cap at all, subject to lender guidelines and full file review.
Key Takeaways
- The cap is a percentage of appraised value, applied to all liens combined.
- Cash to you is the cap amount minus payoffs, other liens and financed closing costs.
- The first mortgage being paid off generally must be at least 12 months old, and a borrower must have been on title for 6 months.
- A low appraisal shrinks your cash dollar for dollar at the cap percentage.
- Cash back above the small “incidental” allowance on a rate-and-term loan turns it into a cash-out.
What Is a Conventional Cash-Out Refinance?
A conventional cash-out refinance replaces your current first mortgage with a larger one and hands you the difference. The loan follows Fannie Mae or Freddie Mac guidelines. Freddie Mac’s Guide defines it as a mortgage with no specific restrictions on how proceeds are used. That includes a home owned free and clear. No mortgage today? It still counts as a cash-out.
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.
Fannie Mae’s Selling Guide lists what the new loan may pay: the existing first mortgage, plus closing costs, points and prepaids. Anything left over goes to you, for any purpose.
This is the owner-occupied lane. Lendmire’s cash-out refinance programs page covers the program side. Lendmire is a mortgage broker licensed for consumer lending in 16 states, so it arranges these loans through wholesale lenders and does not lend.
How Is the Loan Underwritten, Step by Step?
Lenders work through the same sequence on nearly every file: eligibility, value, cap, deductions, borrower review, pricing. Order matters, because a file that fails an early step never reaches the math.
Step 1: Eligibility and seasoning. The lender identifies your existing first lien and its note date. If you are paying it off, that mortgage must be at least 12 months old, measured note date to note date. At least one borrower must also have been on title for 6 months. Both tests come before any sizing. Freddie Mac applies a similar six-months-on-title rule and a 12-month test on the loan being paid off.
Step 2: Value. An appraisal typically sets the value on a cash-out. That number is the base for every calculation that follows. Your own estimate of the home’s worth does not drive the cap.
Step 3: The leverage cap. Maximum total financing is the appraised value times the cap. On a one-unit primary residence, the cap is 80%. On a two- to four-unit primary residence, second home or investment property, it is 75%. Because the cap covers total financing, any second lien that stays in place counts toward it. The Fannie Mae Eligibility Matrix labels this LTV, CLTV and HCLTV for that reason.
Step 4: Deductions. From the capped amount, the lender subtracts:
1. the payoff of the existing first mortgage,
2. any second liens that are paid off through closing,
3. closing costs, points and prepaids financed into the loan.
What remains is your net cash.
Step 5: Borrower review. Automated underwriting reviews credit, income, assets, debts and reserves. The wholesale conventional programs start at a 620 decision score, and the automated finding governs most files, with a total debt-to-income ceiling of 50%. Manually underwritten loans use ratios of 36% or 45%, tied to score and reserve factors. Approval is never certain until the lender completes its review.
Step 6: Pricing. Cash-out loans carry added loan-level price adjustments compared with a rate-and-term refinance. The extra cost usually shows up inside the rate or in points. It does not appear as a separate line labeled “cash-out fee.”.
A Worked Example in Percentages
Take a home appraised at 100 units of value with a first mortgage balance equal to 50% of that value. The one-unit cap is 80%, so the new loan can reach 80 units. Subtract the 50-unit payoff. That leaves 30 units. Now subtract financed closing costs of, say, 2 units. Net cash is roughly 28 units, or 28% of the home’s value.
Now run the low-appraisal version. The home appraises 5% lower, at 95 units. The cap becomes 76 units. After the same 50-unit payoff and 2 units of costs, cash falls to 24 units, a drop of about 14% from the first version. Because the payoff and costs stay fixed, the whole value miss comes out of your cash.
Run it again with a larger existing balance. At a 70% payoff, the 80% cap leaves 10 units before costs. Closing costs eat a visible share of that. At that point the cash may not justify replacing the loan.
What Do the Leverage Caps Look Like by Property?
Occupancy and unit count set the ceiling. The table below uses the verified parameters for conventional cash-out and shows how the same equity yields different cash.
| Property | Cash-out cap |
|---|---|
| One-unit primary residence | 80% |
| Two- to four-unit primary residence | 75% |
| Second home | 75% |
| Investment property | 75% |
| Texas homestead (Section 50(a)(6)) | 80% by state constitution |
This article focuses on the home you live in.
Does a Wholesale No-Mortgage-Insurance Lane Exist?
Yes. Mortgage insurance is required above 80% LTV on the agency path, except in one wholesale cash-out lane. That 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, a conforming balance and its own six months of seasoning. It is not written on Texas homestead loans. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Think of it as a specialty lane, not the default. If your equity is thin and your credit is strong, it can change how much you reach. If your profile sits below those lines, the standard 80% cap on a one-unit primary residence governs.
Where mortgage insurance does apply, you may request cancellation at 80% of original value with good payment history, no subordinate liens and no decline in value. The servicer must end it automatically at 78%. Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance. That range is a program-sheet figure, not a quote.
Where Does the General Rule Break?
Delayed financing. A recent all-cash buyer can take cash out without waiting out the normal title period, if all other cash-out requirements are met. It is priced as a cash-out. The exception exists for buyers who paid cash and now want to recover it.
Inheritance and legal awards. The six-month title test has exceptions for inheritance and legal awards. Documentation matters here.
Cash back on a “no-cash-out” loan. A rate-and-term refinance allows only incidental cash back, and the two agencies set it differently. 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. Go past your agency’s allowance and the loan is reclassified as a cash-out, with a lower cap and added pricing.
Student-loan cash-out. It uses the standard cash-out cap but is priced with the lower limited cash-out adjustments. Fannie Mae’s Selling Guide addresses it directly.
Buyouts and divorce. Buying out a co-owner under a written agreement is a limited cash-out at both agencies. Treatment of related structures can differ between Fannie Mae and Freddie Mac, so the agency matters.
Manufactured homes. Single-width manufactured homes are generally not eligible for cash-out on a principal residence. Multi-width homes face a lower cash-out cap, and title seasoning differs at Freddie Mac. Treat that as a guideline pointer and confirm with a loan officer.
Texas. A homestead cash-out is a Section 50(a)(6) loan, capped at 80% of the home’s value by the state constitution. Texas has its own rule set.
Other structures. Some renovation and energy-retrofit situations, such as a PACE lien payoff, carry their own agency treatment.
Cash-Out vs. Rate-and-Term vs. a Second Lien
The right structure depends on what you need the money to do and what you already have.
| Factor | Cash-out refi | Rate-and-term | Second lien |
|---|---|---|---|
| Replaces first mortgage | Yes | Yes | No |
| Cash to borrower | Yes, above cap math | Incidental only | Yes |
| Leverage (one-unit primary) | 80% | 95% (97% in some cases) | Counts toward the cap |
| Existing first loan stays | No | No | Yes |
The key tradeoff is simple. A cash-out replaces your whole first mortgage. If your current first loan has terms you like, a separate second lien may preserve it. If you can use a cleaner single loan, the cash-out may fit. Neither is automatically better. The better choice depends on balances, terms and how much cash you need.
Rate-and-term also reaches higher leverage. It runs to 95% LTV on a one-unit primary residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows, per the Fannie Mae 97% LTV FAQ. Do not mistake that figure for a cash-out number. It applies only to loans that pay off existing debt with minimal cash back. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
What Can Shrink Your Cash?
Several items reduce the number you actually receive. Check this list before you decide:
- a lower-than-expected appraisal,
- a larger existing balance or additional liens,
- financed closing costs, points and prepaids,
- seasoning that blocks the loan until the first mortgage turns 12 months old,
- a credit score or debt ratio that falls short of program lines,
- pricing adjustments that make a smaller cash-out less worthwhile.
Conforming loan limits also apply. Lenders will not exceed the county limit for conforming loans, and above that line the jumbo lanes take over with their own rules. For how that works, see Lendmire’s article How Two Appraisals Size a Jumbo Cash-Out Refinance on a Primary Home.
What the Decision Looks Like in Practice
Picture a homeowner who bought three years ago, has a first mortgage well past 12 months and wants cash for a kitchen. Equity looks large on paper. The lender caps total financing at 80% of the appraised value, pays off the old loan, and rolls in financed costs. The question then becomes whether the leftover cash justifies replacing the existing loan.
Three questions frame the decision:
1. Is the cap high enough? If the cap minus payoff leaves little, a different structure may be better.
2. What does the larger loan do? The Consumer Financial Protection Bureau notes that a bigger replacement loan may raise the monthly payment and lengthen the payoff time. Lenders also typically require you to retain some equity.
3. Is the cost worth it? Pricing adjustments and financed costs reduce the benefit of small cash-outs.
Borrowers should also know how much time they have after signing. A refinance on a primary residence carries a three-business-day right of rescission, which lets you cancel. Rescinding does not erase your original mortgage. You still owe the old loan.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Cash-out refinance: A new first mortgage larger than the old one, with the difference paid to the borrower.
LTV (loan-to-value): The loan amount divided by the appraised value of the home.
CLTV: Combined loan-to-value, which adds every lien on the home together.
Seasoning: The minimum age of your existing loan or time on title before a cash-out is allowed.
Limited cash-out (rate-and-term): A refinance that pays off existing debt and costs with only incidental cash back.
Delayed financing: A cash-out available to a recent all-cash buyer without the usual title wait.
Frequently Asked Questions
How much of my home’s value can I borrow in a conventional cash-out?
Up to 80% of appraised value on a one-unit primary residence, counting all liens together. Two- to four-unit primary residences, second homes and investment property top out at 75%. One wholesale lane reaches 89.99% with no mortgage insurance for borrowers who meet its score, ratio and seasoning lines. Final eligibility depends on lender guidelines and full file review.
Can I take a cash-out if I just bought my home?
Usually not right away. The mortgage being paid off must generally be at least 12 months old, and a borrower must have been on title for 6 months. Delayed financing is the main exception for recent all-cash buyers. Inheritance and legal awards also have exceptions.
Does a home with no mortgage count as a cash-out?
Yes. Freddie Mac treats a free-and-clear home as a cash-out when you borrow against it. The same 80% one-unit cap and the same borrower review apply.
What happens if the appraisal comes in low?
The cap shrinks with it, and the cash drops by the cap percentage of the shortfall. On a one-unit home, each dollar of lost value removes 80 cents of capacity. If the math no longer works, options include a smaller cash-out, a rate-and-term refinance or a second lien.
Can I cancel after I sign?
A refinance on your primary residence carries a three-business-day right of rescission, and Saturdays count while Sundays and legal holidays do not. Rescinding does not cancel your original loan.
If You Are Weighing Your Options
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. Reach out at 828-256-2183 or through the quote request page to talk through your numbers. Nothing here is a commitment to lend, and every program figure is subject to lender guidelines.
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.
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
2. Fannie Mae Selling Guide B2-1.3-03 Cash-Out Refinance Transactions
4. CFPB: 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: Best Cash-Out Refinance Program With Conventional Loan-to-Value Limits on a Primary Home · Can You Get Approved for a Cash-Out Refinance With Conventional 12-Month Seasoning? · Best Cash-Out Refinance Program Without PMI on a Conventional Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.