The Quick Read: On a one-unit principal residence, a conventional cash-out refinance must leave at least 20% of the home’s appraised value as equity, because the loan caps at 80% of value. Two- to four-unit principal residences, second homes and investment properties all carry a 75% cap, so 25% stays untouched. One wholesale lane reaches 89.99% with no mortgage insurance. It has its own tests, covered below.
The rule is easy to misread. The cap is not 80% of your equity. It is 80% of the home’s appraised value, and every lien on the property counts against it. This article walks through the math, the variations, and where the general rule bends.
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 the Equity Rule Actually Says
A cash-out refinance is a new first mortgage. It pays off your old loan and hands you the difference. The lender measures the new loan against the appraised value. That ratio is the loan-to-value ratio, or LTV.
Here is the plain version. Cap at 80% LTV, and 20% of value stays as equity. Cap at 75%, and 25% stays. The Fannie Mae Eligibility Matrix sets the one-unit principal-residence cash-out maximum at 80%. The matrix also lists lower figures for other property categories. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The federal consumer-finance regulator’s guide to using home equity describes the same idea from the consumer side. For a conventional cash-out on a primary home through the wholesale programs we place files with, the figure is 20% of value.
For a closer look at the programs, see Lendmire’s cash-out refinance programs page. Every figure here is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Key Terms Defined
Equity: The part of your home’s value you own outright, meaning appraised value minus what you owe.
Loan-to-value (LTV): The new loan balance divided by the appraised value, shown as a percentage.
Combined LTV (CLTV): The same ratio, but it adds every loan on the home, including a second mortgage or home equity line.
Seasoning: The waiting period a lender requires before a refinance, such as time on title or the age of the loan being paid off.
Limited cash-out refinance: Often called rate-and-term. It replaces your loan and allows only small, incidental cash back.
Delayed financing: An exception that lets someone who bought with cash take out a loan soon after purchase and recover the money put in.
How the Loan Is Worked Out, Step by Step
Think of it as a short chain. Each step shrinks the cash you can take home.
1. The appraisal sets the denominator. The cap applies to appraised value, not what you paid or what a website estimates. A lower appraisal cuts the maximum loan dollar for dollar.
2. Multiply value by the cap. On a one-unit primary home, that is 80% of value. On a two- to four-unit home or a second home, it is 75%. That product is the most the new loan can be.
3. Count every lien. A second mortgage or home equity line that stays in place counts toward the combined ratio. It uses up cap room before you see a dollar.
4. Subtract what the new loan must pay. That means the payoff of your old first mortgage, any liens being paid off, and financed closing costs and prepaid items.
5. What is left is your cash. Nothing more.
Notice the step most people miss. Financed closing costs are not cash back, but they eat cap room. Roll them in, and your cash shrinks.
A worked example in percentages
Say you own a one-unit primary home and owe 60% of its appraised value on a single first mortgage. The cap is 80%. That leaves 20% of value as the gross room. Closing costs and prepaids financed into the loan come out of that 20%. Your cash is what remains.
Now run it again with a low appraisal. Suppose the home appraises 5% lower than you hoped. Your old balance is now a bigger share of value, and the maximum loan drops because the lender applies the 80% cap to the lower number. The debt did not move, so the cash you can take falls by more than the 5% drop in value.
| Scenario | Balance owed (% of value) | Cap | Room before costs |
|---|---|---|---|
| Comfortable equity | 50% | 80% | 30% |
| Moderate equity | 65% | 80% | 15% |
| Thin equity | 75% | 80% | 5% |
| Thin equity, 2-4 units | 70% | 75% | 5% |
Why You Need More Equity Going In Than You Keep
Because costs come out first, you need more than 20% equity to receive any cash at all. A borrower sitting at 78% LTV today cannot cash out on a one-unit primary home. The cap is 80%, and the closing costs alone would push the new loan past it. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
A practical rule of thumb helps. Look at the gap between what you owe and the cap. Subtract the costs you expect to finance. If little remains, the refinance may not be worth the cost. The CFPB guide also warns that a cash-out refinance can raise the monthly payment and stretch the payoff time. A small cash amount rarely justifies that trade.
Can You Take 100% of Your Equity?
No. The cap exists so you keep a cushion. Taking out all equity would leave a loan equal to the home’s whole value, and an appraisal dip would put you underwater. The retained equity protects the lender, but it also protects you. It gives you room to sell, pay costs and absorb a price decline.
Mortgage Insurance and the No-MI Exception
Mortgage insurance is a monthly charge that protects the lender when your down payment or equity is thin. On the agency path, it is generally required above 80% LTV, except for the wholesale no-MI cash-out lane described below. You can ask to cancel it at 80% of the original value with a 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 is the program sheet’s range, not a quote.
On a standard cash-out at the 80% cap, mortgage insurance does not come into play. The question matters mainly in the one special lane.
The wholesale lane that goes to 89.99%
One wholesale lane we place files with reaches 89.99% LTV with no mortgage insurance. It has tight conditions. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
- A 680 decision score.
- A 50% total ratio.
- A thirty-year fixed rate.
- A primary residence.
- A conforming loan balance.
- Its own six months of seasoning.
This is the exception to the usual rule. It is not available in Texas. It leaves only about 10% of value as equity, so it suits borrowers with strong credit and steady income who need the extra room. Eligibility depends on lender guidelines and full file review.
Where the General Rule Bends
The 80% figure is the headline. These cases change it.
Occupancy and unit count. A cash-out can be written on a primary residence, a second home or an investment property. Occupancy sets the leverage. That is the whole answer for non-primary homes.
Limited cash-out refinance. A rate-and-term refinance gets far higher leverage: 95% on a one-unit principal residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows. The trade-off is that cash back must stay small. Fannie Mae allows the lesser of 2% of the new loan amount or $2,000. The Fannie Mae Selling Guide section on limited cash-out refinances governs this. Go over the allowed cash back, and the loan is reclassified as a cash-out. The lower cap then applies.
Delayed financing. If you bought with cash, this exception lets you recover your documented investment. The new loan is limited to your initial investment plus financed closing costs, prepaids and points. It still sits within the LTV maximums, measured on current appraised value. The Selling Guide’s cash-out section lays out the documentation.
Co-owner buyout. Buying out a co-owner under a written agreement is a limited cash-out transaction at both agencies. It does not trigger the lower cash-out cap in the way a regular cash-out does.
Manufactured homes. The Fannie Mae matrix limits single-width manufactured homes to purchase and limited cash-out transactions. A cash-out is not available there.
Texas homestead. A cash-out on a Texas homestead, called a Section 50(a)(6) loan, is capped at 80% of the home’s value by the state constitution. State law can add rules of its own, so check before assuming the general figures apply. The no-MI wholesale lane is not written there.
Loans above agency limits. Jumbo loans follow investor rules, not these agency caps. Terms differ by lender.
Features that may block cash-out treatment. Some loan features, such as a temporary rate buydown or certain PACE obligations, can affect how a transaction is classified. Verify against the current guide with your loan officer.
Waiting Periods and Credit Gates
Cash-out loans come with seasoning rules. Across the wholesale conventional programs we place files with, the first mortgage being paid off must be at least 12 months old, counted from note date to note date. You also must have been on title for 6 months. Exceptions exist for delayed financing, inheritance and legal awards.
On credit, the wholesale conventional programs start at a 620 decision score. An adjustable rate under manual underwriting starts at 640. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45%, depending on the reserve and score factors in the Eligibility Matrix. Agency waiting periods after credit events apply: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Shorter periods can apply with documented extenuating circumstances.
Cash-out loans also cost more than rate-and-term loans. Both agencies add credit-fee adjustments for cash-out. Those adjustments generally grow with higher LTV and lower credit scores. A borrower right at the cap pays more than one with extra cushion.
Cash-Out, HELOC and Home Equity Loan Compared
| Feature | Cash-out refinance | HELOC | Home equity loan |
|---|---|---|---|
| What it replaces | Your first mortgage | Nothing (a second lien) | Nothing (a second lien) |
| How you get money | One lump sum | Draw as needed | One lump sum |
| Keeps your current first loan | No | Yes | Yes |
| Counts toward CLTV | Yes | Yes | Yes |
The key difference: a cash-out refinance changes your whole first mortgage. A HELOC or home equity loan sits on top of it. Which fits depends on what your existing loan looks like and how much you need.
What the Decision Looks Like in Practice
Here is a short pre-application checklist.
- Estimate your home’s value honestly, and expect the appraisal to be the real number.
- List every lien: first mortgage, second mortgage, home equity line.
- Estimate the financed closing costs and prepaids you would roll in.
- Subtract all of that from the cap.
- Confirm the first loan is at least 12 months old and you have been on title for 6 months.
- Check your score against the 620 starting floor, or 680 for the no-MI lane.
- Decide whether a rate-and-term refinance, a HELOC or a home equity loan fits better.
Borrowers who took cash out saw their credit scores rise at first, then gradually worsen, though the scores stayed above pre-refinance levels, per the CFPB’s report release. The lesson is practical. Paying off high-cost debt with home equity can help, but spending habits matter afterward.
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.
Frequently Asked Questions
How much equity do I have to keep after a conventional cash-out refinance?
At least 20% of appraised value on a one-unit primary home, since the loan caps at 80%. Two- to four-unit homes, second homes and investment properties keep 25%. The one wholesale exception, a no-MI lane reaching 89.99%, keeps about 10% and has its own score, ratio and seasoning tests.
Is the cap 80% of my equity or 80% of my home’s value?
It is 80% of the home’s appraised value. People often confuse the two. If your home is worth 100 and you owe 50, you do not borrow 80% of the 50. The new loan can reach 80 in total, and the payoff and costs come out of that.
Can a low appraisal change my cash?
Yes, and sharply. The cap applies to appraised value, so a lower number shrinks the maximum loan. Your old balance does not shrink, so the cash falls by more than the appraisal did. Thin-equity borrowers can lose the cash-out entirely.
What if I do not have enough equity for a cash-out?
A limited cash-out refinance may still work. It allows far higher leverage, but cash back stays small. Going over that reclassifies the loan as cash-out.
Do I need a waiting period before cashing out?
Generally yes. Across the wholesale programs we place files with, the first mortgage must be at least 12 months old and you must have been on title for 6 months. Delayed financing, inheritance and legal awards are named exceptions. Approval is subject to lender guidelines and full file review.
For your own numbers, request a scenario review with Lendmire.
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.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
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 Eligibility Matrix
2. CFPB, Using home equity guide
3. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
4. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
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: How PMI Works on a Conventional Cash-Out Refinance · How Much a Conventional Cash-Out Refinance Lends Inside Seasoning · How an Appraisal Sizes a Conventional Cash-Out Refinance
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
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.