The Quick Read: A cash-out refinance can remove PMI only when the new loan lands at or below 80% of the new appraised value, or when it fits the one wholesale no-MI lane described below. The underwriter tests value, leverage, seasoning, occupancy, credit, and debt ratio in that order, and the cash you pull out raises the balance and works against the goal. If you do not need the cash, canceling PMI through your servicer is often the simpler route.
The Short Version
- Mortgage insurance on a conventional loan follows leverage. Above 80% LTV it is required on the agency path, except in one wholesale no-MI cash-out lane that reaches 89.99% LTV for a thirty-year fixed on a primary residence.
- On a one-unit primary residence, a conventional cash-out is written to 80% LTV on the standard path. That is the same line where PMI stops being required.
- Cash taken out counts against the equity test. So do financed closing costs.
- Two seasoning clocks apply: time on title and the age of the loan being paid off.
- A refinance is not the only way to drop PMI. Cancellation through the servicer costs less when you do not need cash. Every figure here varies by lender and program, and guidelines, property type, leverage, and credit profile all apply.
Everything below explains how a file gets from application to a decision. Lendmire’s cash-out refinance programs page lists the program parameters for the wholesale lenders the brokerage places files with. Those figures are subject to lender guidelines and full file review.
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.
What Counts as a Cash-Out Refinance?
A cash-out refinance is a new first mortgage that pays off the old liens and returns equity to you. It is also cash-out when the new loan goes on a home with no existing lien. Freddie Mac’s cash-out refinance page treats a free-and-clear property that way.
The line matters for PMI because cash-out has its own leverage ceiling, lower than a rate-and-term refinance. A limited cash-out (rate-and-term) refinance can run to 95% LTV on a one-unit primary residence, but it returns only incidental cash, and mortgage insurance still applies above 80%. For that reason it fits a lower balance reset better than a PMI-removal goal. Fannie Mae sets the incidental cash at the lesser of 2% of the new loan amount or $2,000. Freddie Mac sets it at the greater of 1% of the new loan amount or $2,000. Anything beyond those limits makes the loan cash-out, and the ceiling drops.
Cash-out transactions also carry pricing adjustments tied to LTV and credit score. Fannie Mae’s Selling Guide section B2-1.3-03 governs how these loans are classified, including delayed financing, which Fannie Mae still treats as cash-out. Those adjustments are one reason a cash-out refinance often costs more than simply canceling PMI.
Why Does the 80% Line Decide PMI?
Mortgage insurance exists to cover the portion of a loan above 80% of value. Fannie Mae’s Selling Guide states the rule: a loan either has an LTV of 80% or less, or carries mortgage insurance on the excess. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
For a cash-out, this works out neatly on a one-unit primary residence. The cash-out ceiling is 80% LTV. So a standard conventional cash-out lands at or below the PMI line by design. The catch is the arithmetic. Your new loan equals your payoff, plus any cash you take, plus any closing costs you finance. All of it is divided by the new appraised value. Take more cash and the ratio climbs toward the ceiling. Take too much and the loan does not fit. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
There is one exception to the eighty-percent rule. Across the wholesale programs Lendmire places files with, one lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score and a 50% ratio on a thirty-year fixed, a primary residence, a conforming balance, and its own six months of seasoning. It is not written in Texas on a homestead. Texas caps a homestead cash-out at 80% of the home’s value under the state constitution. Outside that lane, mortgage insurance is required above 80% on the agency path. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
How Does Underwriting Work, Step by Step?
Underwriters test a cash-out in a fixed sequence. A failure at an early step usually ends the review.
1. Classify the loan. The underwriter decides whether it is cash-out or limited cash-out. Fannie Mae will not take a cash-out refinance if the property is listed for sale when the new loan is disbursed. That is a common surprise for owners who listed and then pulled the listing.
2. Test the two seasoning clocks. The first clock is time on title. Freddie Mac requires the borrower to have been on title for at least six months before the note date. Fannie Mae measures six months from purchase date to disbursement. The second clock is the age of the loan being paid off. In the wholesale programs, the first mortgage being paid off must be at least 12 months old, measured note date to note date. Exceptions exist for delayed financing (a documented cash purchase), inheritance, and legal awards.
3. Confirm occupancy. Occupancy sets the leverage, and a cash-out can be written on a primary residence, a second home, or an investment property. A one-unit primary residence gets the 80% ceiling. Two- to four-unit primary residences, second homes, and investment property are held to 75%.
4. Order the valuation. The appraised value is the denominator of the whole test. A lower value shrinks the available cash and can push the loan over the no-PMI line. Some eligible files qualify for an appraisal waiver, but that is decided by the automated system file by file. Do not plan around it.
5. Run credit and the debt ratio. The wholesale programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans are held to 36% or 45%, with reserve and score factors from the Eligibility Matrix. The new payment, including any mortgage insurance, counts in the ratio.
6. Check reserves. Fannie Mae’s Eligibility Matrix shows minimum reserves on automated cash-out files when the ratio runs above 45%.
7. Clear the liens. The old first mortgage is paid off at closing. Any second lien either gets paid off too or stays in place, and a staying lien counts against the combined leverage.
8. Close and reset. The old policy ends because the old loan ends. The new appraisal becomes the new “original value.” The 80% and 78% dates restart on the new loan’s schedule.
What Does the Underwriter Check, in One Table?
| Stage | What gets tested | Where files stall |
|---|---|---|
| Classification | Cash-out vs. limited cash-out | Cash above the incidental limit |
| Seasoning | Time on title; age of the old loan | Recent purchase or recent refinance |
| Occupancy | Primary, second home, investment | Occupancy stated inconsistently |
| Valuation | Appraised value, LTV | Low appraisal |
| Credit and ratio | Decision score, total ratio | New payment pushes the ratio up |
| Reserves | Assets after closing | Undocumented accounts |
| Liens | Payoffs and subordinate debt | Second lien left in place |
Do Financed Closing Costs Count Against the Equity Test?
Yes. Every dollar in the new loan counts toward the ratio. That includes the payoff, the cash to you, and closing costs rolled into the balance. This is the quiet reason borrowers land a few points higher than they expected.
Picture a homeowner whose current loan sits at 70% of the home’s value. They want cash for a project and also want PMI gone. Each point of cash they take moves the new loan toward the 80% ceiling. Add financed closing costs and the room shrinks again. A modest cash request fits. A large one forces a choice: take less, or accept that the loan will not reach the no-PMI level.
Those percentages are illustrative. The real answer comes from the appraisal and the lender’s file review.
What Happens When the Appraisal Comes in Low?
The loan amount that fits shrinks with it. If value drops, LTV rises on the same balance, and either the cash shrinks or the loan no longer clears the ceiling.
Three habits cushion a low appraisal:
- Request less cash than the maximum, so a modest miss does not break the file.
- Gather recent in-neighborhood sales and a list of improvements for an appraisal reconsideration request.
- Decide in advance what you will do if the number lands short. Some borrowers switch to a limited cash-out, and some cancel PMI at the servicer instead.
Refinance or Cancel? Match the Goal to the Route
Your goal decides the route. A cash-out replaces the whole loan. It brings new closing costs, cash-out pricing adjustments, a new term, and a reset amortization clock. The cash you take also raises the balance.
| Goal | Likely route | Why |
|---|---|---|
| Cash plus PMI removal | Cash-out refinance | Only route that returns equity |
| PMI removal only | Servicer cancellation | No new loan costs |
| Lower balance reset, little cash | Limited cash-out | Higher leverage ceiling, though PMI still applies above 80% |
| Equity grew from appreciation | Current-value termination | Uses today’s value |
The cancellation rules come from the federal Homeowners Protection Act. The CFPB explains that you can ask to cancel when your balance reaches 80% of the home’s original value, and that you must certify there are no junior liens. Automatic termination comes later, at 78% of original value when the loan is current. PMI does not drop on its own at 80%. You have to ask.
Appreciation has a separate path. Under Fannie Mae’s Servicing Guide, a borrower can request termination based on current value, and the servicer verifies it. Fannie Mae’s lender letter LL-2026-07 says servicers may now solicit borrowers who may be eligible for that route. For many owners, this beats a cash-out. Cancellation through the servicer is often the cheaper route if you do not need cash. FHA mortgage insurance is a different mechanism and sits outside these conventional rules.
Where the General Rule Breaks
Several edge cases change the answer.
Lender-paid mortgage insurance. It is not borrower-cancellable. Confirm which type your loan carries before planning around cancellation.
Delayed financing. A buyer who paid cash can skip the six-month wait with documented funds and the cash-purchase settlement statement. The loan is still cash-out and priced that way.
Co-owner buyouts and inherited property. A buyout under a written agreement is a limited cash-out transaction at both agencies. Inheritance and legal awards are among the seasoning exceptions.
Student loan payoffs. Fannie Mae waives the cash-out pricing adjustment when proceeds go primarily to student loans. Standard cash-out leverage still applies.
Ineligible features. Installment land contract payoffs, certain PACE-lien situations, and some energy-improvement loan types are ineligible for cash-out delivery.
Texas homesteads. The 80% cap sits in the state constitution, and the no-MI wholesale lane is not written there.
Credit events. The agencies set waiting periods: 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.
What Documents Does the File Need?
Preparation is where a broker earns the file. Typical items:
- Two recent pay periods of income evidence and the prior year’s income documents, or the alternative the program allows
- Statements for every account counted as reserves
- The current mortgage statement and homeowners insurance declarations
- For a delayed-financing file, the cash-purchase settlement statement and proof of source of funds
- Payoff details on any second lien
- A recent list of improvements, which helps if the appraisal needs a second look
Missing reserves documentation and unclear liens cause more delay than credit does.
Why Do Cash-Out Files Get Stuck or Declined?
- The home is listed for sale when the new loan is disbursed.
- Seasoning is short on title or on the old loan.
- The appraisal lands under the number the plan needed.
- The new payment, with mortgage insurance, pushes the total ratio past the ceiling.
- A second lien stays in place and lifts combined leverage.
- Occupancy is inconsistent across documents.
A broker who shops several wholesale lenders can match a file to the program whose seasoning and ratio rules fit it. The best program depends on your property, credit profile, leverage need, and documentation.
Does the Break-Even Make Sense?
Weigh what you keep against what you pay. The CFPB notes that ending PMI reduces monthly costs. But a cash-out replaces the whole loan, so closing costs, cash-out pricing adjustments, and a reset clock all sit on the other side. If the PMI saving is the only goal, cancellation usually wins. If you also need cash, the refinance can be justified, but run the full comparison against keeping your current loan.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off the old loan and returns equity to you as cash.
Limited cash-out refinance: A refinance that pays off the old loan and costs, with only incidental cash back.
Loan-to-value (LTV): The new loan balance divided by the appraised value.
Seasoning: The minimum time you have held the home, or the minimum age of the loan being paid off.
PMI: Private mortgage insurance, which protects the lender on conventional loans above 80% LTV. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Delayed financing: A cash-out loan placed soon after a cash purchase, with documented funds waiving the title wait.
Frequently Asked Questions
Do I have to refinance to get rid of PMI?
No. You can ask your servicer to cancel when your balance reaches 80% of the original value, if payments are current and there are no junior liens. Servicers may also review current value under investor rules. A refinance is a third option, and usually the costliest one.
Does a cash-out refinance end PMI automatically?
Only if the new loan fits under the leverage line. On a one-unit primary residence, cash-out is written to 80% LTV, so a standard file lands there. If your cash request plus financed costs pushes the ratio higher, the loan does not fit that ceiling. The wholesale no-MI lane is the one exception, at 89.99% LTV with a 680 score. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
How long must I own the home before a cash-out?
You need six months on title, with exceptions for delayed financing, inheritance, and legal awards. The loan you are paying off must also be at least 12 months old, note date to note date.
What if my appraisal comes in low?
Your available cash shrinks, and the loan may no longer clear the ceiling. You can request an appraisal reconsideration with recent in-neighborhood sales, reduce the cash you take, or switch to canceling PMI through your servicer.
Does the old PMI policy end when I refinance?
Yes. The old policy ends when the old loan is paid off. The new loan sets a new original value, and the 80% and 78% dates restart on the new schedule.
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.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. 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. Freddie Mac Cash-Out Refinance
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. Fannie Mae Eligibility Matrix
5. CFPB
6. Fannie Mae Servicing Guide B-8.1-04, Termination of Conventional Mortgage Insurance
7. LL-2026-07
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 Lenders Size a Conventional Cash-Out Refinance on a Primary Home · How Lenders Apply Max LTV to a High-Balance Cash-Out Refinance · Cash-Out Refinance Requirements When You Want PMI to Go Away
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
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.