The Quick Read: The cash a cash-out refinance leaves after a family loan payoff is whatever remains once the new loan pays off your old mortgage, pays off the family loan, and covers closing costs. The family payoff is one more subtraction, not extra money. On a one-unit primary residence, the new loan generally tops out at 80% of the home’s value, subject to lender guidelines. Equity left after both payoffs decides your cash, and sometimes that is nothing.
What Is the Formula for Net Cash?
Net cash is a subtraction. Start with the new loan amount. Take out the payoff of your current first mortgage. Take out the payoff of the family loan. Take out closing costs and prepaid items, such as the first escrow deposits. What is left goes to you.
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.
The 80% cap is a ceiling on the whole new loan. It is not a pile of cash. Every debt the loan retires comes out of that ceiling before you see a dollar.
The rules do not treat an informal family loan as a special category. The answer comes from how they treat any payoff that is not the first mortgage, plus ordinary closing math. The lender decides on your actual file.
Picture a home where your current mortgage is 50% of the value and you owe a relative another 10%. The 80% ceiling leaves 20% of the value, before closing costs. Costs come out of that 20%, and what remains is your cash. Those percentages are illustrations, not a quote.
Key Terms Defined
Cash-out refinance: A new mortgage larger than what you owe on the home, with the extra paid to you or to creditors at closing.
Limited cash-out refinance: Often called a rate-and-term refinance. It pays off your existing first mortgage and closing costs, with only small incidental cash back.
Payoff: The exact amount a creditor says is needed to close out a debt on a given date, including interest owed to that date.
LTV (loan-to-value): The new loan balance divided by the home’s appraised value.
Seasoning: The waiting period a lender wants before a loan or ownership counts as established.
Lien: A recorded legal claim on your home that must be paid and released before the title is clear.
Why Does a Family Loan Turn Your Refinance Into a Cash-Out?
A family loan that did not buy your house pushes the file into cash-out territory. Limited cash-out is narrow. It pays your first mortgage, closing costs, and a second lien used to purchase the home. Anything else is cash-out.
Fannie Mae’s limited cash-out rules set that line. Incidental cash back on a limited cash-out is small. 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. Those caps are far too small to repay a family member of any real size.
So if your relative lent you money for a remodel, a business, or bills, the refinance is a cash-out. That is true whether the loan was secured by a lien or just a handshake and a signed note. It also changes the leverage cap. A limited cash-out on a one-unit primary residence reaches 95% of value. A cash-out on the same home reaches 80%. That gap can turn a workable plan into a shortfall.
One exception exists. If family money bought the house, the file can look different. Fannie Mae’s cash-out refinance guide covers cash-purchase buyers who refinance afterward (delayed financing). When an unsecured loan, or one secured by something other than the home, funded the purchase, the settlement statement must show the cash-out proceeds going to repay it. That is a purchase-money situation. A loan taken after you bought does not qualify.
How Is the Maximum Cash Calculated, Step by Step?
Work the numbers in this order.
1. Find the value. The lender orders an appraisal. That value, not your estimate, drives everything.
2. Apply the cap. For a conventional cash-out, the Fannie Mae Eligibility Matrix sets the maximum LTV by occupancy and unit count. It is 80% on a one-unit primary residence and 75% on two- to four-unit homes. Multiply value by the applicable percentage to get the maximum new loan.
3. Subtract the first mortgage payoff. Use the payoff figure, which includes interest to the closing date, not the statement balance.
4. Subtract the family loan payoff. Use principal plus any interest you and your relative agreed to, as of the closing date.
5. Subtract closing costs and prepaids. If you finance costs into the loan, they still sit under the same ceiling.
6. What is left is your cash. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
If step 6 comes out negative, you cannot repay everything from the refinance as structured. You would need to bring cash, pay your relative only part of the balance, or skip the cash-out.
Texas caps a cash-out refinance on a homestead at 80% of value under the state constitution, so higher-leverage cash-out programs are not written there. Not every lender or state offers every program, and each lender sets its own seasoning and eligibility requirements. Everything here is subject to lender guidelines and full file review.
Three Scenarios: Plenty, Little, and Short
These are illustrations in percentages of home value, not quotes. Closing costs are described only as a rough drag, to show the shape.
| Scenario | First mortgage | Family loan | Result at 80% cap |
|---|---|---|---|
| Plenty left | 40% of value | 8% of value | Large cushion after costs |
| Little left | 65% of value | 10% of value | Thin cash after costs |
| Shortfall | 72% of value | 10% of value | Payoffs alone exceed the cap |
In the first row, the two payoffs use up 48% of value. That leaves 32% of value under the cap. After costs, real cash remains.
In the second row, the payoffs total 75% of value. Only 5% of value sits under the cap before costs.
In the third row, the payoffs total 82% of value, which is already above the 80% cap before any closing costs are counted. You cannot retire both debts from this loan. A low appraisal pushes any scenario one row down the table.
Run the shortfall case honestly. Options include paying part of the family loan at closing and leaving a smaller balance, bringing cash, or waiting until the first mortgage balance drops or the value rises. A partial payoff leaves the remaining family payment in your debt-to-income ratio, which matters in the next section.
How Does the Lender Qualify You With a Family Loan in the File?
The lender looks at the same things it would for any cash-out, plus the family loan paper trail.
- Credit and ratios. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total debt ratio ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45% depending on reserves and score.
- Debt payments. Paying off the family loan removes its payment from your ratio. Any balance left after a partial payoff stays in.
- Seasoning. On a standard conventional cash-out, the first mortgage being paid off must be at least 12 months old, and a borrower must have been on title for six months. Delayed-financing, inheritance, and legal-award exceptions exist.
- Reserves. Fannie Mae’s matrix notes minimum reserves on automated cash-out files with higher debt ratios.
- Documentation. Expect to provide the signed note if one exists, a payoff letter from your relative, and proof of how the original money was sent.
A practitioner note. Files with informal family debt go smoother when the paperwork is built before the application, not during it. A one-page payoff letter does most of the work. It states the principal, the agreed interest, the daily amount after the payoff date, and a promise to release any lien. Lenders also look at where the borrowed funds came from and whether any related payments belong in your debts. Informal does not mean invisible.
What Happens to the Family Payoff at Closing?
The family payoff is paid at the closing table, not handed to you first. On the Closing Disclosure, third-party payoffs appear in a section called Payoffs and Payments. The CFPB’s Closing Disclosure explainer separates total closing costs from the Cash to Close figure, which is why your cash is lower than the headline loan amount.
For your relative, that means a few things.
- They should expect a payment from the closing agent, not from you.
- A secured loan needs a signed lien release, recorded after payoff.
- They should keep the payoff letter and proof of payment for their own records.
On a primary residence refinance, you generally have a right to cancel. The CFPB explains that this runs until midnight of the third business day after closing. Saturdays count as business days. Sundays and legal public holidays do not. Funds are typically held until that window ends, so your relative is repaid after it closes. Rescinding cancels the refinance, not your old debts.
Where Do the Rules Differ by Loan Type?
Government streamline programs cannot repay a family loan. The FHA Streamline works on an existing FHA loan with limited credit review and a net tangible benefit test. The VA IRRRL works on an existing VA loan with a net tangible benefit and its own seasoning. Neither is built to pay a private creditor or hand you cash. The FDIC’s summary of VA rules says no loan other than the existing VA loan may be paid from IRRRL proceeds.
The paths that can pay off a family loan, and the ones that cannot, are compared below.
| Path | Can it pay a family loan? | Key limit |
|---|---|---|
| Conventional cash-out | Yes | 75% LTV on two to four units; the one-unit cap is somewhat higher |
| FHA cash-out | Yes | Lower cash-out cap than rate-and-term |
| VA cash-out | Yes, for VA-eligible borrowers | Separate product from the IRRRL |
| FHA Streamline / VA IRRRL | No | Existing government loan only |
Jumbo lanes take over above the conforming limit. Cash-out leverage on those files varies by lender, so ask early.
On occupancy, a second home or investment property carries a lower cash-out cap, so occupancy sets the leverage.
What Are the Real Costs and Risks?
You are trading one debt for a bigger mortgage. That has consequences.
- The whole mortgage is repriced. You refinance your entire first mortgage to repay a smaller family loan. If your current loan has favorable terms, you give those up.
- Your balance rises. The family payment goes away, but the new mortgage payment goes up. The net effect depends on your rate and term, which this article does not quote.
- Cash-out carries pricing adjustments. Those cost more than a limited cash-out. The lender discloses the details on your Loan Estimate.
- Mortgage insurance. At higher loan-to-value ratios, agency loans require it. You can request cancellation at 80% of original value, and the servicer must end it at 78%.
- Family strain. Paying a relative from a mortgage is clean on paper. Make sure both sides agree on the payoff amount in writing before you apply. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Tax treatment can depend on your situation, including interest your relative received and any gift or forgiveness of debt. Borrowers should speak with a qualified tax professional before relying on any deduction or credit.
When Should You Skip the Cash-Out?
Skip it when the math leaves you little or nothing. Costs are a flat drag on a small cash amount.
Consider alternatives when:
- Your current mortgage has terms worth keeping.
- The payoff would leave you with almost no cash after costs.
- The family loan is small enough to repay from savings or another source.
- Your debt ratio is close to the ceiling.
A home equity line or a second-lien loan leaves your first mortgage untouched. A personal loan avoids liens but carries its own terms. Each has tradeoffs, and a broker can lay out which fits your numbers.
One note on gifts. If your relative would rather forgive the debt, nothing needs to be refinanced. A lender will want to see that treatment documented, and it affects how the earlier funds are viewed. Settle that question first.
Documents to Gather Before You Apply
- The signed note or written agreement with your relative, if any.
- A payoff letter showing principal, agreed interest, and the per-day amount.
- Proof of how the original money was delivered and used.
- Your current mortgage statement and payoff request.
- A lien release agreement if the family loan is recorded.
- Recent pay or income documents, plus bank statements.
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. Start with Lendmire’s cash-out refinance programs page. Lendmire is a mortgage broker, so program terms are subject to lender guidelines, and nothing here is a commitment to lend.
Frequently Asked Questions
Does paying off a family loan count as cash in my pocket?
No. It is a payoff line at closing, and it reduces your net cash dollar for dollar. The money goes to your relative through the closing agent, and only what remains after all payoffs and costs reaches you.
Can I keep my refinance as a limited cash-out if I repay a relative?
Usually not. Limited cash-out allows payoff of the first mortgage, costs, and a second lien that helped buy the home. A family loan used for anything else makes the file a cash-out. The exception is family money that funded the purchase, which follows its own rules.
Does an unsecured family loan matter if nothing is recorded on my home?
Yes, in two ways. If it is being repaid from proceeds, it is a payoff line and needs paper. If any balance remains, its payment counts in your debt ratio. Lenders also review debts disclosed anywhere in the file, so an informal loan still shows up.
Can an FHA Streamline or VA IRRRL pay a family loan?
No. Those streamlines are built for an existing FHA or VA loan and do not pay other creditors or return cash to you. VA-eligible borrowers can look at a separate VA cash-out refinance. Others look at a conventional or FHA cash-out.
What if the appraisal comes in low?
The cap shrinks while your debts do not. Your cash drops by the lost value multiplied by the cap percentage, so a thin deal can become a shortfall. You can pay part of the family loan, bring cash, or wait.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
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
1. Fannie Mae Selling Guide B2-1.3-02: Limited Cash-Out Refinance Transactions
2. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
3. Fannie Mae Eligibility Matrix
4. CFPB: Closing Disclosure explainer
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 Cash Comes Out of a Cash-Out Refinance on One Income? · How Much Cash Comes Out of a Cash-Out Refinance on a Rural Home With USDA Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.