The Quick Read: A lender tests the new loan against the home’s appraised value, then checks credit, income, debt ratios and how long you have owned the home. Closing costs come out of the same capped loan amount, so they shrink the cash you receive or they get paid from your own funds. The Loan Estimate shows which one applies to your file.
How Does a Cash-Out Refinance Work?
A cash-out refinance replaces your current mortgage with a larger one and pays you the difference. The new loan pays off the old first mortgage, covers the closing costs, and the rest goes to you. If the home is owned free and clear, a new loan on it is still treated as cash-out. Freddie Mac’s Guide covers both forms.
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.
It is different from a refinance. That one limits proceeds to the payoff and costs, with only incidental cash back. A cash-out places no such limit on how you spend the money, but it carries tighter leverage.
The envelope matters. On conventional loans, the cash-out cap is 80% loan-to-value on a one-unit principal residence. Two- to four-unit homes, second homes and investment properties sit at 75%. Those figures are subject to lender guidelines and full file review. The Fannie Mae Eligibility Matrix sets limits by occupancy, unit count and transaction type.
Lendmire’s cash-out refinance programs page lays out how these loans are arranged through wholesale lenders. Lendmire is a mortgage broker, not a lender. The lenders review and decide.
How Is the File Underwritten, Step by Step?
Underwriting is a sequence. Each step can add conditions, and a gap at one step stalls the next. Across the wholesale programs a broker places files with, the order is consistent.
1. Application and Loan Estimate. You apply, and the lender issues a Loan Estimate. It lists closing costs, any costs financed into the loan, and estimated cash to close.
2. Eligibility screen. The lender confirms the home is the right occupancy type, checks how long you have been on title, and checks the age of the loan being paid off. The first mortgage generally must be at least 12 months old, counted note date to note date. At least one borrower generally needs six months on title. Delayed financing, inheritance and legal-award exceptions exist.
3. Appraisal. The appraised value sets the ceiling. On FHA cash-out, the cap applies to adjusted value.
4. Leverage test. The lender adds the new loan and every other lien, then divides by value. That is the combined loan-to-value test. A second lien you keep eats into the room.
5. Credit, income and debt ratios. Automated underwriting reviews the file. The wholesale conventional programs start at a 620 decision score. The total debt-to-income ceiling is 50% on most files. Manually underwritten loans use ratios of 36% or 45%, with reserve and score factors from the matrix.
6. Reserves. On Fannie Mae files, minimum reserves apply to cash-out refinances when automated underwriting returns a debt-to-income ratio above 45%. Reserves are documented with recent asset statements.
7. Pricing and conditions. Lenders apply pricing adjustments based on credit score and leverage. Fannie Mae’s cash-out rules tie a loan-level price adjustment to both. Cash-out pricing runs higher than limited cash-out or purchase pricing. Then the deal works through its conditions.
8. Closing Disclosure. It shows payoffs, closing costs, and the cash to or from you.
What Is Each Underwriting Test Looking For?
Each test has a document behind it, and each has a typical way to fail.
| What the underwriter checks | Evidence requested | What goes wrong |
|---|---|---|
| Value and leverage | Appraisal, payoff statements | Low appraisal shrinks the loan |
| Seasoning | Prior settlement statement, deed | First loan too new |
| Credit | Credit report | Score under program floor |
| Income and ratios | Pay stubs, tax documents | New payment pushes debt ratio over the ceiling |
| Reserves | Recent asset statements | Funds not sourced or seasoned |
| Occupancy | Application, utility and ID records | Occupancy type does not match the program |
The ratio test deserves a second look. The new loan is larger than the old one, so the new payment is usually higher. A CFPB guide to using home equity warns that a cash-out refinance may lengthen payoff time and raise the monthly payment. The lender runs that new payment through your ratios, not the old one.
Key Terms Defined
Loan-to-value (LTV): The new loan amount divided by the home’s appraised value.
Combined loan-to-value (CLTV): The new loan plus every other lien, divided by value.
Debt-to-income (DTI): Your monthly debt payments divided by your gross monthly income.
Seasoning: The minimum time you must have owned the home, and the minimum age of the loan being paid off.
Reserves: Verified savings left over after closing, counted in months of payments.
Prepaids: Items paid at closing for future costs, such as interest and the first escrow deposits.
Rolled-in costs: Closing costs financed into the new loan amount instead of paid in cash.
What Do Typical Closing Costs Include?
There is no official percentage for cash-out closing costs. Commercial sources quote ranges, but no agency publishes one. Plan on a few percent of the loan amount, and let your Loan Estimate set the real number.
The CFPB’s closing-cost study found origination fees were the largest disclosed category. Here is what the other lines cover.
| Cost category | What it covers | Can it be financed? |
|---|---|---|
| Origination charges | Lender and broker work | Usually, within the loan cap |
| Appraisal | Valuation of the home | Yes, or paid up front |
| Title and settlement | Title search, lender’s policy, closing agent | Yes, within the cap |
| Government fees | Recording and any transfer charges | Yes, within the cap |
| Prepaids and escrows | Interest, taxes, insurance deposits | Often part of cash to close |
Total closing costs and “cash to close” are different numbers. CFPB’s Closing Disclosure guide separates them. A refinance can show money coming to you and still carry thousands of dollars in costs. The costs were netted out of proceeds.
How Do Closing Costs Change the Cash You Receive?
Closing costs do not sit outside the loan cap. They sit inside it. The cap on a one-unit principal residence is 80% of the home’s value, and that figure limits the whole new loan, not the cash you receive. The lender sets the maximum loan at 80% of value. Subtract the payoff of the old mortgage. Subtract the closing costs if they are rolled in. What is left is your cash.
Work it in order. The new loan is capped. The old payoff comes out first. Then costs come out if they are financed. A borrower who pays costs from savings keeps more of the loan proceeds. That borrower still brings cash to the table, because prepaids and escrows, which are deposits for interest, taxes and insurance, are often part of cash to close. A borrower who rolls the costs in brings nothing for those items but nets less and borrows more.
Many borrowers assume the cap applies only to the cash they receive. In fact it governs the entire loan.
Then the file re-tests. A bigger loan means a bigger payment. That payment feeds back into the debt-to-income ratio. A file that clears leverage can still stall on ratios.
What Happens When the Appraisal Comes In Low?
A low appraisal cuts the ceiling, and the costs do not shrink with it. Say the value lands 5% under your estimate. The 80% cap drops with it. If the old payoff and rolled-in costs stay fixed, the cash line falls by the whole difference.
Three moves are common. Ask for an appraisal reconsideration with recent nearby sales and condition notes. Pay the costs from savings so more of the loan stays as proceeds. Or take a smaller cash-out. A broker can also check whether a different program fits better.
Some borrowers drop below the threshold where cash-out makes sense at all. If the net cash no longer covers the costs plus the higher monthly payment, keeping the existing loan can win.
Where Does the General Rule Break?
Several situations change the usual path.
- Owned free and clear. A new loan on a home with no mortgage still counts as cash-out under both Freddie Mac and Fannie Mae rules.
- Renovation loans. Freddie Mac treats CHOICERenovation loans as no cash-out when proceeds fund only the eligible work.
- Student-loan payoff. Fannie Mae waives the cash-out pricing adjustment when the requirements are met.
- Texas homestead. 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. The wholesale no-mortgage-insurance lane is not written there.
- Mortgage insurance. Insurance is required above 80% on the agency path, and the borrower may request cancellation at 80% of original value, with automatic termination at 78%. The one exception is a wholesale cash-out lane that reaches 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence, a conforming balance, and its own six months of seasoning.
- FHA cash-out. HUD cut the FHA cash-out limit from 85% to 80% of adjusted value. Older articles still cite 85%.
- FHA Streamline and VA IRRRL. Neither pulls equity out. HUD’s Streamline rules cap cash at $500 and bar financing closing costs into the loan. A VA IRRRL is a rate-reduction product for an existing VA loan. A VA cash-out loan can convert a non-VA loan to a VA loan, and it runs through a private lender with a Certificate of Eligibility.
- Past credit events. Agency waiting periods apply: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
- Jumbo balances. Above the conforming limit, jumbo lanes take over with their own score and leverage rules. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
“No-cost” offers deserve one note. The costs do not vanish. They are built into the rate or the balance.
Cash-Out Versus a HELOC or Home Equity Loan
A cash-out refinance replaces your first mortgage. A home equity line or loan adds a second lien and leaves the first one alone. If your current first mortgage is one you want to keep, the second lien may be the cleaner fit. If you want one payment and a reset term, cash-out fits better. The right choice depends on your existing loan, your equity and how much cash you need.
Borrowers most often use cash-out to pay other debts. CFPB survey data showed more than half chose that reason each year from 2014 to 2019. A payoff only helps if the balances stay down.
What Should You Prepare Before You Apply?
Gather these first. Missing items are where files get conditioned.
- Two years of tax documents and recent pay stubs, or the equivalent for your income type
- Statements for every account used for reserves
- Current mortgage statement and payoff information
- Settlement statement from your purchase, if you bought recently
- Proof of any second lien and its balance
- A clear read on whether you plan to bring cash or roll costs in
The best program for your situation depends on your property type, credit profile, leverage need and documents. A broker that shops multiple wholesale lenders can match the scenario to the program. 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. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Frequently Asked Questions
Do closing costs count against the maximum loan amount?
Yes, when they are financed. Rolled-in costs sit inside the capped loan, so they reduce the cash you receive. If you pay them from savings, the cap stays focused on the payoff and your proceeds. Your Loan Estimate shows which approach your file uses. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
How much equity do I have to leave in the home?
On conventional loans, the cap is 80% LTV for a one-unit principal residence, which leaves 20% equity. Two- to four-unit homes, second homes and investment properties cap at 75%. One wholesale lane reaches 89.99% with no mortgage insurance under tight conditions. All are subject to lender guidelines.
Can I do a cash-out refinance on a home I just bought?
Usually not right away. The first mortgage being paid off generally has to be at least 12 months old, and at least one borrower needs six months on title. Delayed financing, inheritance and legal-award exceptions can apply. A settlement statement documents the dates.
Does a larger payment affect whether I qualify?
Yes. The lender runs the new, higher payment through your debt-to-income ratio. Most wholesale conventional files cap total ratio at 50%. On Fannie Mae files, a ratio above 45% from automated underwriting can also trigger minimum reserves.
What if my appraisal comes in low?
The loan ceiling falls with the value, but costs and the old payoff stay the same. That squeezes net cash. You can request a reconsideration with nearby sales, pay costs from savings, take a smaller cash-out, or compare other programs.
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.
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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 Eligibility Matrix
3. Fannie Mae (document 20786)
4. Fannie Mae Selling Guide B2-1.3-03
5. A CFPB guide to using home equity
7. CFPB’s Closing Disclosure guide
8. HUD Mortgagee Letter 2019-11
10. CFPB cash-out research news release
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 Cash-Out Refinance Funds Are Paid Out at Closing · How Cash-Out Refinance Funding Works on a Second Home · Can You Get Approved for a Cash-Out Refinance That Rolls Closing Costs Into the Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- 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.