The Quick Read: Your equity limit is a cap on the total new loan, set as a percentage of the home’s appraised value. On a conventional loan for a one-unit primary residence, that cap is 80%. Your cash is what’s left after the cap amount covers your payoff, closing costs and any program fees. Exact figures depend on the program, subject to lender guidelines and full file review.
What Does a Cash-Out Refinance Actually Do?
A cash-out refinance replaces your current first mortgage with a new, larger one. The difference between the new balance and what you owe, after costs, comes to you as cash. It’s a different animal from a home equity loan or HELOC, which leave your first mortgage alone and add a second lien on top. The CFPB’s research office draws the same line: a cash-out refinance takes an amount well above what you owe, while those other products keep the original lien in place.
Either way, the house is the collateral. Missed payments can lead to foreclosure. Keep that in mind as you read the numbers.
Lendmire arranges cash-out refinance programs through wholesale lenders for consumer borrowers in 16 states. The mechanics below come from how those files are built week to week.
Key Terms Defined
Equity: The home’s appraised value minus everything you owe against it.
Loan-to-value (LTV): Your total loan balance divided by the appraised value, shown as a percentage.
Combined LTV (CLTV): The same idea, but it adds every lien on the home, including a second mortgage.
Seasoning: The waiting period a lender requires before you can refinance, counted from a purchase or an earlier loan.
Limited cash-out refinance: A refinance that pays off your first mortgage, closing costs and a purchase-money second, with only incidental cash back. Many people call it a rate-and-term refinance.
Mortgage insurance: A premium that protects the lender when your LTV is above 80%.
How Is the Limit Calculated, Step by Step?
The limit is the program’s LTV cap multiplied by the appraised value. That product is the largest total loan allowed. Everything you owe or must pay comes out of it, and only the remainder reaches you.
Here is the sequence:
1. Get the appraised value. The cap applies to the appraisal, not your purchase price or a listing figure.
2. Apply the cap. For a conventional cash-out on a one-unit primary residence, the cap is 80% LTV.
3. Subtract your first mortgage payoff.
4. Subtract any second lien or HELOC that isn’t purchase-money. It gets paid off in the refinance or it counts against your ratio.
5. Subtract financed closing costs and any program fees.
6. What remains is your net cash. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Plain-English version: the cap is the ceiling, and your payoff, costs and fees are the floor boards you stand on before any cash appears.
One consequence surprises people. You need more equity going in than the minimum the lender wants left behind. At an 80% cap, you must keep 20% of the value in the home. Then costs and fees come out of the borrowable 80%, so the cash you hold is smaller than the gap between your balance and the cap.
What Does Comparing Loan Amounts Look Like?
Picture one home, one appraisal, and three target loans. Keep the numbers as percentages of value, since that’s how the lender sees them.
| Scenario | New loan (% of value) | Equity left | Cash result |
|---|---|---|---|
| Modest cash-out | Well under cap | Large cushion | Small net cash |
| Cap-level cash-out | 80% | 20% | Largest net cash |
| Over the cap | Above 80% | Under 20% | Not available on this program |
Net cash always trails the headline number. Closing costs are charged on the full new loan, and they can be financed, which trims your cash further. Compare the Loan Estimate against the Closing Disclosure and check the Estimated Cash to Close line.
Notice what the table doesn’t say. Maximum cash and right-sized cash are different goals. Taking less than the cap leaves a bigger cushion if values dip. It also shrinks the payment increase. A cash-out loan replaces the whole first mortgage with a larger balance, so the payment typically rises even if the rate falls.
Which Limit Actually Applies to You?
Whichever ceiling is lowest sets your number. Several can bind at once, and borrowers often watch only the first.
- The equity cap. The program’s LTV limit, applied to appraised value.
- The loan-size ceiling. Conforming limits apply separately. Above them, jumbo programs take over with their own rules. County limits are set annually, so check yours with your loan officer.
- Debt-to-income and reserves. Your larger payment goes into your ratios. On loans run through Desktop Underwriter, Fannie Mae requires six months of reserves when the DTI ratio exceeds 45%.
- Seasoning. Clocks can delay you even when your equity is ample.
- Credit score. Minimum scores vary by program and scenario, so confirm the requirement for your file before you apply.
Lenders can also add their own stricter rules on top of agency limits. Those are called overlays. The agency maximum is a ceiling, not a promise.
How Do Limits Change by Program and Property?
Occupancy decides leverage more than anything else. The table shows conventional cash-out caps, subject to lender guidelines.
| Property | Conventional cash-out cap |
|---|---|
| One-unit primary residence | 80% LTV |
| Two- to four-unit primary residence | 75% LTV |
| Second home | 75% LTV |
| Investment property | 75% LTV |
Why do the caps step down? Lenders see more default risk when the home isn’t a one-unit place you live in, so they require a thicker equity cushion. That’s the whole logic.
There is one wholesale lane that goes further. It reaches 89.99% LTV with no mortgage insurance, but only at a 680 score, a 50% ratio ceiling, a thirty-year fixed, a primary residence, a conforming balance, and its own six months of seasoning. Texas is the exception. A cash-out on a Texas homestead is capped by the state constitution at the agency figure, so that lane isn’t written there. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
For FHA, HUD cut the cash-out limit. Mortgagee Letter 2019-11 lowered the maximum LTV and CLTV from 85% to 80% of adjusted value for case numbers assigned on or after September 1, 2019. HUD cited risk to the FHA Insurance Fund. Because that cap applies to combined liens, any second you leave in place uses up room. FHA mortgage insurance and VA funding fees are added mechanically to the loan, so they reduce your net cash too.
A common belief is that FHA lets you borrow more than conventional. On cash-out, it doesn’t. VA cash-out is the program that can reach higher leverage, though many lenders set a lower cap of their own. Verify the details at va.gov for your situation.
Where the General Rule Breaks
The 80% rule has named exceptions. These are the ones that matter most.
Seasoning rules. On a conventional cash-out, the first mortgage being paid off must be at least 12 months old, measured from note date to note date. At least one borrower must also have been on title for six months. Both are in Fannie Mae’s cash-out guidelines.
Delayed financing. Bought the house with cash? A cash-out can be allowed under six months on title when the purchase funds are documented. Inheritance and legal-award situations also carry exceptions to the title clock.
Listed homes. If the home was listed for sale, it must come off the market on or before the new loan’s disbursement date.
Limited cash-out at high leverage. This isn’t cash-out, but it’s the sibling people confuse. A limited cash-out refinance on a one-unit primary residence reaches 95% LTV. It reaches 97% where the existing loan is agency-owned and the first-time-buyer program allows. The new loan pays off your first mortgage, closing costs and a purchase-money second, with only incidental cash back. Mortgage insurance applies above 80%, can be requested off at 80% of the original value, and must end automatically at 78%.
Streamlines. The FHA Streamline and the VA IRRRL are for people who already hold those loans. Neither is cash-out. The VA describes the IRRRL as a way to lower or stabilize payments on an existing VA loan.
Pricing by LTV. Conventional pricing adjustments depend on credit score and LTV, so a lower target loan can change the cost of the loan. The Fannie Mae LLPA matrix shows how those adjustments work, including that the undrawn part of a HELOC isn’t counted in CLTV.
What Can Shrink Your Number?
Most borrowers lose cash in a few predictable places.
- A low appraisal. The cap runs off appraised value, so a lower appraisal lowers your ceiling dollar for dollar. A 5% shortfall in value takes 5% of 80% off the top line.
- A second lien you didn’t plan for. A HELOC or non-purchase-money second has to be paid off or counted. FHA counts it against the combined ratio.
- Financed costs. Every cost you roll into the loan reduces cash and uses cap room.
- Mortgage insurance trade-offs. Going above 80% on a limited cash-out brings mortgage insurance. Published typical annual premiums run from 0.58% to 1.86% of the balance. That’s a range, not a quote.
- Program fees. FHA and VA add an upfront premium or funding fee.
Here is a practical read. If the extra cash only adds a few points of LTV but pushes you into a higher pricing tier or a higher payment ratio, the smaller loan may be the better deal. This is a genuine judgment call, and it depends on what the money is for.
Cash-Out Refinance or a Home Equity Loan?
| Factor | Cash-out refinance | Home equity loan or HELOC |
|---|---|---|
| First mortgage | Replaced | Stays in place |
| Liens after closing | One | Two |
| Your whole balance resets | Yes | No |
| Best when | Current loan is worth replacing | Current loan is worth keeping |
If you’re keeping a first mortgage you like, a second lien may leave it alone. If you’re replacing the first anyway, one larger loan can be simpler. Either choice puts your home at risk. The CFPB also notes that turning non-mortgage debt into mortgage debt secured by the home can put the home at risk if payments become unsustainable.
What Should You Bring to a Quote Conversation?
Gather these first, and your loan officer can compare loan amounts accurately:
- Your latest mortgage statement, showing the payoff and note date.
- Your deed or title evidence, and the settlement statement if you bought recently.
- Statements for any second mortgage or HELOC.
- Income and asset documents.
- A target cash figure and what it’s for.
- Your honest value estimate, since the appraisal will decide it.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
How much equity do I need for a cash-out refinance?
On a conventional loan for a one-unit primary residence, you must keep 20% of the appraised value, since the cap is 80% LTV. For two- to four-unit homes, second homes and investment property, the cap is 75%. You need more equity going in than that, because payoff, costs and fees come out first. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
How much cash can I actually get?
Take the program cap times the appraised value, then subtract your payoff, any second lien being paid off, financed closing costs and program fees. What remains is net cash. It’s always smaller than the gap between your balance and the cap.
How long do I have to wait before taking cash out?
For a conventional cash-out, the mortgage being paid off must be at least 12 months old, and a borrower must have been on title six months. Delayed financing, inheritance and legal-award situations carry exceptions. Subject to lender guidelines and full file review.
What happens if my appraisal comes in low?
Your ceiling drops with it, since the cap is applied to appraised value. Your payoff stays the same, so the cash shrinks by the full shortfall times the cap. You can borrow less, wait, or reconsider the refinance.
Can I use a cash-out refinance on a second home or rental?
Yes, but occupancy decides the leverage. Second homes and investment property carry a 75% conventional cap, versus 80% on a one-unit primary residence.
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. Nothing here is a commitment to lend.
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 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.
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References
1. CFPB Office of Research: A look at cash-out refinance mortgages
2. Fannie Mae Selling Guide B2-1.3-03 Cash-Out Refinance Transactions
3. HUD Mortgagee Letter 2019-11
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How to Choose Card and Personal Loan Debt for a Cash-Out Refinance · Cash-Out Refinance vs Parent PLUS Loan for Tuition on a Texas Homestead · Cash-Out Refinance Documentation for a Borrower Tapping Equity
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.