The Quick Read: The extra cash is the gap between the new loan and what that loan must pay off. The payoff covers your current first mortgage, any liens being cleared, and financed costs. The program’s loan-to-value (LTV) limit sets the ceiling on the new loan, so on a conventional cash-out the cash you receive is smaller than the equity you own.
The LTV cap is not the amount you can take out. It limits the total new loan. Payoffs and costs come out first, and what is left is your check. This article walks through the formula, the underwriting steps, the program variations, and the edge cases where the usual math breaks.
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 a Cash-Out Refinance Actually Does
A cash-out refinance replaces your current mortgage with a larger one and pays you the difference. It is a new loan on the whole balance, not a second payment layered on top. Freddie Mac’s guide describes it as a mortgage with no specific restrictions on the use of the proceeds.
That differs from a refinance in its rate-and-term form, which is a limited cash-out. A rate-and-term loan pays off the existing first mortgage, the closing costs, and any purchase-money second lien. Only incidental cash comes back. Under the Fannie Mae path, that is the lesser of 2% of the new loan amount or $2,000. Go past that cap and the loan is underwritten as a cash-out.
Lendmire’s cash-out refinance programs page covers the program side. The mechanics below apply to any lender.
The Formula: Gross Ceiling, Then Net Check
The math has three lines.
1. Maximum new loan = appraised value × the program’s maximum LTV.
2. Cash to you = maximum new loan − payoff of the first mortgage − any liens that must be paid − financed closing costs and fees.
3. Financed insurance or funding fees come out of the same ceiling. They do not sit on top of it.
Gross and net are different numbers. The gross ceiling is what the LTV allows. The net check is what is left after everything the loan has to cover, so budget from the net figure.
Here is a worked example with no dollar figures. Say a home appraises at a value you call 100 units. On a one-unit primary residence with a conventional cash-out limit of 80% LTV, the new loan can reach 80 units. If the current mortgage balance is 50 units and financed costs are a small fraction of one unit, your net cash is a little under 30 units. Your equity before was 50 units. After closing it is 20 units, because the new loan is 80. You turned roughly 30 units of equity into cash and new debt. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Every dollar of cash adds a dollar to the loan balance. Costs rolled in add to it too. The balance rises by the cash you take plus whatever you finance.
How the Loan Is Underwritten, Step by Step
1. Eligibility gate. The file has to qualify as a cash-out under program rules. The first mortgage being paid off must be at least 12 months old, measured from the existing note date to the new note date. Fannie Mae’s announcement SEL-2023-01 sets that 12-month seasoning. A borrower must also have been on title for 6 months, with exceptions for delayed financing, inheritance, and legal awards.
2. Application and credit review. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45% ratios, with reserves and score factors set by the Eligibility Matrix. Waiting periods after credit events follow agency rules: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
3. Appraisal. Value sets the ceiling, so the appraisal is the biggest swing factor in the whole file. A value that comes in light shrinks the maximum loan and the cash with it.
4. Payoff and lien treatment. The payoff includes the first mortgage and any liens that must be cleared. Paying off a second lien used for spending other than the purchase generally converts a limited cash-out into a cash-out. A HELOC drawn for a kitchen or a car is the usual example.
5. Pricing. Cash-out loans carry pricing add-ons that no-cash-out refinances avoid. Fannie Mae applies loan-level price adjustments to certain cash-out transactions based on LTV and credit score. That is why cash-out costs more than a plain refinance at the same balance. Your Loan Estimate shows how the cost lands on your file.
6. Closing. The settlement statement nets the new loan against the payoff and costs, and the remainder is disbursed to you.
What decides the outcome: appraised value, LTV cap, payoff balance, liens being paid, financed costs, occupancy and property type, credit, ratios, and seasoning.
Limits by Loan Type and Occupancy
Occupancy and property type set the leverage. The table covers the main paths.
| Loan type | Typical cash-out ceiling | Notes |
|---|---|---|
| Conventional, one-unit primary home | 80% LTV | Standard cash-out |
| Conventional, 2-4 units, second home, investment | 75% LTV | Occupancy sets leverage |
| Wholesale no-MI lane, primary home | Up to 89.99% LTV | 680 score, 50% ratio, 30-year fixed, conforming |
| FHA cash-out | 80% of Adjusted Value | Principal residence |
| VA cash-out | Up to the full appraised value | Individual lenders may set lower |
| Texas homestead (Section 50(a)(6)) | 80% of home value | State constitution; no-MI lane not written there |
Each ceiling is subject to lender guidelines and full file review.
Conventional. Occupancy sets the leverage. A cash-out is written on a primary residence, a second home, or an investment property. The cap is 80% LTV on a one-unit primary residence and steps down to 75% on two- to four-unit principal residences, second homes, and investment property. Freddie Mac’s rules on cash-out secured by a primary residence are spelled out in Freddie Mac’s Guide §4301.5.
The no-mortgage-insurance lane. Mortgage insurance is normally required above 80% LTV on the agency path, and this wholesale lane is the one exception to that eighty-percent rule. It reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% ratio on a thirty-year fixed, primary residence, conforming balance. It carries its own six months of seasoning.
FHA. HUD cut the FHA cash-out cap from 85% to 80% of Adjusted Value for case numbers assigned on or after September 1, 2019. HUD Mortgagee Letter 2019-11 states the change and says it was meant to reduce risk to the FHA insurance fund. HUD later folded the rule into Handbook 4000.1. FHA applies the cap to the Adjusted Value, which can differ from the raw appraisal. Anyone quoting 85% or 95% for FHA cash-out is working from old information.
VA. You may refinance up to the full appraised value on a home you own and occupy. VA cash-out can also pay off liens of any type. Lenders can set tighter limits than VA does, and that is lender policy, not VA policy. The Certificate of Eligibility can carry a condition tying the cash-out to the named property, and entitlement rules are involved enough that VA’s loan limits page is the place to check specifics.
Where the General Rule Breaks
Streamlines give no cash. The FHA Streamline and the VA IRRRL are tied to an existing FHA or VA loan and require a net tangible benefit. Neither is a way to take equity out. An IRRRL cannot be used to take equity out of the property or pay off debts other than the VA loan being refinanced.
A paid-off home is still a cash-out. Freddie Mac treats a mortgage placed on a property the borrower owned free and clear as a cash-out refinance. There is no old balance to subtract, so the whole new loan, less costs, comes back as cash.
Co-owner buyouts. Buying out a co-owner under a written agreement is a limited cash-out transaction at both agencies. The proceeds go to the co-owner, not into your pocket as free cash.
A HELOC payoff can flip the loan. If the second lien funded something other than the purchase, Fannie Mae’s guide makes the file a cash-out. A borrower expecting a plain refinance should know the file will then be treated as a cash-out.
Student loan cash-out. Fannie Mae offers a student loan cash-out option that can waive the cash-out pricing add-on when its conditions are met. Read Fannie Mae’s B2-1.3-03 for the conditions.
PACE liens. On some Fannie Mae transactions, a property with a Property Assessed Clean Energy lien cannot close as a cash-out unless the PACE loan is paid off. Confirm the current guide text on any file with one.
Construction-to-permanent and renovation loans carry their own exceptions, which Freddie Mac’s §4301.5 lists.
Texas homestead. A cash-out on a Texas homestead is capped at 80% of the home’s value by the state constitution. The wholesale no-MI lane is not written there.
What the Extra Cash Does to Your Loan
The new balance is re-amortized under new terms. A larger loan and a new rate reprice the entire mortgage, not just the cash you took. That is the cost most borrowers miss. Your old balance gets the new rate too, whether that helps or hurts.
Weigh the new rate carefully, especially if it is higher than the rate you hold now. Depending on terms, a cash-out refinance may be more or less expensive than a HELOC.
Three things move when the balance rises:
- The payment. A bigger balance on a possibly longer term changes it. You get a new figure on your Loan Estimate.
- Total interest. Cash borrowed over a new term costs interest on the full period. A thirty-year term stretches the cost of a short-term need.
- Your equity. The cap leaves a cushion at the program’s LTV. If values fall, that cushion is what stands between you and owing more than the home is worth.
Closing costs come out of the proceeds or get financed. Either way they cut the check or raise the balance. There is no free version of this.
On mortgage insurance: above 80% LTV on the agency path it is required, except in the wholesale no-MI lane described above. The borrower may request cancellation at 80% of the original value with good payment history, no subordinate liens, and no decline in value. The servicer must end it automatically at 78% under the Homeowners Protection Act. Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance, and that is the program sheet’s range, not a quote. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
How Much Should You Actually Take?
The maximum is a ceiling, not a target. Size the cash to the job.
- Match the cash to a defined need. A project with a quote is easier to size than a general cushion.
- Compare the payoff you gain to the balance you add. Borrowers often use cash-out proceeds to pay down other debts, mainly credit card and auto loans. Clearing a card does not fix the habit that ran it up.
- Keep a cushion under the cap. Taking less than the maximum leaves more equity if values soften.
- Look at the whole balance, not just the cash. If your current rate is better than what a new loan would carry, the cash costs more than it looks.
- Compare the alternatives. A second mortgage or HELOC leaves the first loan untouched. Whether that is cheaper depends on terms.
Key Terms Defined
LTV (loan-to-value): The new loan amount divided by the home’s appraised value, shown as a percentage.
Limited cash-out refinance: A refinance, often called rate-and-term, that returns only a small capped amount of cash.
Seasoning: The minimum time you have held the loan or title before a cash-out is allowed.
LLPA (loan-level price adjustment): A pricing add-on Fannie Mae applies to certain loans, including many cash-outs, based on LTV and credit score.
Adjusted Value: The value FHA uses to apply its cash-out cap, which can differ from the raw appraisal.
Closing-Day Sequence
At the table, the order is fixed. The new loan funds. The old first mortgage is paid off. Any liens you agreed to clear are paid. Financed costs are settled. What remains is disbursed to you. VA files add initial and final cash-out disclosures. Check your Closing Disclosure against your Loan Estimate line by line before signing.
Frequently Asked Questions
How much cash can I take out of my home?
It depends on the loan type and your payoff. On a conventional one-unit primary home the cap is 80% LTV, FHA is 80% of Adjusted Value, and VA allows up to the full appraised value. The cash is that ceiling minus your current balance, liens paid, and financed costs. Lender guidelines and full file review decide the final figure. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Why can’t I borrow against all my equity?
The program caps leverage to leave an equity cushion. HUD said its FHA cut was meant to reduce risk to the insurance fund and strengthen equity positions. The cap applies to the total new loan, so the cash you receive is smaller than the equity you hold.
Do closing costs reduce the cash I receive?
Yes. Costs come out of proceeds or get financed into the balance. Financed costs lower the net check or raise the loan. Gross cash available and net cash received are different numbers.
Does paying off my HELOC make it a regular refinance?
Not if the HELOC funded something other than the purchase. Fannie Mae’s guide treats that payoff as a cash-out. A second lien from the original purchase can be paid in a limited cash-out.
Can an FHA Streamline or VA IRRRL give me cash?
No. Both are no-cash products tied to an existing government loan and require a net tangible benefit. For cash you would need an FHA or VA cash-out, or a conventional one.
How long must I own the home first?
The first mortgage being paid off should be at least 12 months old, and a borrower on title for 6 months, with exceptions for delayed financing, inheritance, and legal awards. The wholesale no-MI lane carries its own six months of seasoning.
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. All program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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. Freddie Mac Guide §4301.5, Cash-out refinance Mortgages
2. Fannie Mae Selling Guide announcement SEL-2023-01
3. HUD Mortgagee Letter 2019-11
4. VA Purchase and Cash-Out Refinance Loans
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 a Cash-Out Refinance Releases When Buying Out an Ex · How Much Cash Comes Out of a Cash-Out Refinance After Adding a Co-Borrower? · How Much Cash Comes Out of a Cash-Out Refinance After a Job Change?
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
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.