The Quick Read: The maximum new loan is capped at 80% of the appraised value on a one-unit primary residence, and that cap covers the whole new loan, not just your equity. Your cash is that maximum, minus the payoff of your current mortgage and any other liens, minus any closing costs you finance. A home that is paid off releases the most. A home with a large balance may release little or nothing.
The Formula, in One Line
Appraised value × the cap for your occupancy = the maximum new loan. Maximum new loan − payoff of existing liens − financed costs = cash to you.
That is the whole mechanism. Everything else here is about what moves each piece.
A cash-out refinance replaces your current first mortgage with a new, larger one. The new loan pays off the old one, and you receive the difference. Lendmire’s cash-out refinance programs follow the conventional (conforming) rules, the same ones that sit behind most mortgages bought by the big housing agencies.
The cap is a loan-to-value ratio, or LTV. LTV is the new loan divided by the home’s appraised value. Across the wholesale programs I place conventional files with, a one-unit primary residence tops out at 80% LTV on a cash-out. Two- to four-unit primary residences, second homes and investment property sit at 75%. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Equity Is Not Cash
Here is the misunderstanding I hear most: “I have a lot of equity, so I can borrow 80% of it.” Not how it works.
The 80% applies to the home’s value, and the whole new loan must fit under it. On a $500K home, 80% of value is the ceiling for the new loan. Your old mortgage payoff fits under that ceiling first. Only what remains is yours.
Think of it as a bucket. The bucket holds 80% of the home’s value. Your old loan fills part of it. Any second mortgage or HELOC you must pay off fills more. Financed closing costs fill more still. What is left over is your check.
So equity and cash are different numbers. A homeowner with 40% equity and a homeowner with 20% equity may both think they can pull out a lot. The second one can pull out almost nothing.
The $500K Balance Ladder
The table below shows how much of the home’s value reaches you at different existing balances. Balances are shown as a share of the $500K value, and all figures assume the 80% cap on a one-unit primary residence. These are modeled assumptions, not market data. They show cash before closing costs.
| Existing balance (% of value) | Max new loan | Cash before costs | Equity left after |
|---|---|---|---|
| 0% (paid off) | 80% of value | 80% of value | 20% of value |
| 30% | 80% of value | 50% of value | 20% of value |
| 50% | 80% of value | 30% of value | 20% of value |
| 60% | 80% of value | 20% of value | 20% of value |
| 70% | 80% of value | 10% of value | 20% of value |
| 80% or more | 80% of value | — | Not a cash-out |
Look at the last column. You leave the transaction with 20% of the home’s value in equity, no matter where you start. The lender keeps that cushion in place by design.
Closing costs come out of your side of this ledger. Pay them in cash and your check stays whole, though your pocket is lighter. Roll them into the loan and they use up part of the 80% bucket, so your check shrinks. The Loan Estimate shows the exact figure for your file. Cash-out closing costs are generally higher than for some alternatives, as the Consumer Financial Protection Bureau notes in its guidance on home equity borrowing.
What the Appraisal Does to the Number
The appraised value is the base of the whole calculation. Not your purchase price. Not an online estimate.
An appraisal lower than you expected hurts less than you might fear, though it still hurts. At the 80% cap, each dollar of appraisal shortfall removes 80% of that dollar from the maximum loan. Say you expected a $500K appraisal and the report lands 4% lower. The maximum loan falls by 80% of that 4% gap, so your cash falls by the same amount.
A low appraisal can also push a thin-equity file under the line entirely. If the balance ladder says you clear by only a small margin, a modest appraisal miss can erase the cash. Run your own numbers with a cushion before you plan around the money.
How the Loan Is Underwritten, Step by Step
This is how a conventional cash-out file moves from application to closing, as I see it every week.
1. Confirm it is a cash-out. The Fannie Mae Selling Guide defines a cash-out refinance as a new first mortgage that pays off existing loans on the same property, or one placed on a home with no lien. A free-and-clear home counts too.
2. Check seasoning. Seasoning is the waiting period before you can refinance. The mortgage being paid off must be at least 12 months old, measured note date to note date. At least one borrower must also have been on title for six months. Exceptions exist for delayed financing, inheritance and legal awards.
3. Confirm occupancy. On a primary residence, every borrower must live in the home.
4. Run automated underwriting. The lender’s system reviews your credit, income, assets and the property. Wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total debt-to-income ratio ceiling of 50%.
5. Order the appraisal. The appraised value fixes your LTV.
6. Review the Loan Estimate. It shows the new loan, the payoff and the cash you receive. Compare it to your own ladder.
7. Close. The new loan pays off the old first mortgage and any required liens. You receive what is left.
Pricing also climbs with leverage. Cash-out loans carry risk-based pricing that rises as LTV rises and varies with credit score, per the agencies’ published Fannie Mae price adjustment matrix. A loan at the 80% cap prices differently than one at 60%. I will not quote numbers here, but ask for both scenarios on your Loan Estimate.
What Shrinks Your Check
The maximum is a ceiling. Several things push you below it.
- A second lien. A HELOC or second mortgage you must pay off uses up the same 80% bucket. The cap counts all liens on the property, so keeping a second mortgage still counts against it.
- Financed closing costs. Every dollar you roll in is a dollar you do not receive.
- Reserves. Higher debt ratios can trigger a requirement to show cash reserves after closing. The Fannie Mae Eligibility Matrix ties reserve requirements on cash-outs to higher ratios in automated underwriting.
- Credit and ratios. A weaker score or heavy debt can shrink the loan or move the file out of this lane.
- Delinquent property taxes. Delinquent property taxes can affect eligibility, and how they are handled depends on the lender’s guidelines and the specifics of the file. A qualified local tax professional or your title company can explain what applies to your property.
- The conforming limit. At $500K in value, this rarely binds. Eighty percent of value sits well under the baseline limit. It matters on much more expensive homes. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Where the General Rule Breaks
The 80% rule is the headline. These are the named exceptions.
Two- to four-unit homes, second homes and rentals. The cap drops to 75%. If your $500K property is a second home, your maximum is 75% of value, so the ladder above gets 5 points tighter.
Manufactured housing. The cap is lower still, and single-width homes face further limits. Ask before you assume.
A higher-leverage lane without mortgage insurance. One wholesale lane reaches 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio ceiling, a thirty-year fixed loan, a primary residence, a conforming balance and its own six months of seasoning. It is a narrow lane. Not every borrower fits, and it is not written in Texas, where a cash-out on the homestead is capped by the state constitution at the agency figure. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Delayed financing. If you bought with cash, you may skip the six-month title wait, as long as the purchase documentation shows no mortgage was used.
Trust and entity ownership. Time held in a revocable trust can count toward the six-month title requirement when the borrower is the primary beneficiary.
A limited cash-out refinance. This one is a different product. A rate-and-term refinance pays off the existing first mortgage, closing costs and any purchase-money second lien, with only incidental cash back. Its leverage runs higher: 95% LTV on a one-unit primary residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows. Mortgage insurance applies above 80%. If you pull out real cash, you are back in the cash-out category and the 80% cap. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Cash-Out vs. Other Ways to Reach Equity
| Option | What it does | Cap or leverage |
|---|---|---|
| Cash-out refinance | Replaces first mortgage with a larger one | 80% LTV, one-unit primary |
| Limited cash-out refinance | Replaces loan, minimal cash back | Up to 95% LTV (97% in some cases) |
| Second loan or HELOC | Adds a loan, keeps your first mortgage | Set by the lender, counts toward combined LTV |
The right choice depends on your current loan, what you need the money for, and how much equity you hold. A second loan leaves your first mortgage untouched. A cash-out replaces it, so the new loan’s terms apply to the whole balance.
What It Costs You Beyond the Check
A larger loan can mean a larger monthly payment. It can also stretch the time it takes to pay off the home. The CFPB’s home equity guide says lenders typically require you to keep at least 10% to 20% of your home value as equity, and that upfront costs reduce the equity you can use. It also warns that your home is the collateral, so you could lose it to foreclosure if you miss payments.
The Federal Reserve adds two points. When you take equity out, you own less of your home and it takes time to rebuild it. Refinancing late in a loan restarts amortization, so most of the payment goes to interest again. It also notes that many financial advisers caution against using cash-out refinancing to pay down unsecured or short-term debt.
Your terms change too, because the new loan replaces the old one. That is the mechanics of a refinance, not a reason to refinance or avoid it.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
How the Decision Looks in Practice
Start with the ladder. Find your balance as a share of the appraised value. Subtract it from 80. That is your ceiling before costs.
Then ask three questions.
1. Is the number big enough after costs? Closing costs scale with the loan, not the cash. A small cash-out on a big loan can be an expensive way to borrow.
2. Does the new loan make sense on its own? Compare your current loan’s terms with the new one. If the old loan is a strong one, a second loan may be the better route.
3. Do you need the maximum? Often not. A smaller cash-out leaves more equity and keeps the payment lower. This one is a genuine toss-up for many borrowers. The maximum is available, but the best number is often smaller.
If your numbers sit near the 80% line, the file is fragile. An appraisal miss or a financed cost can erase the cash.
Key Terms Defined
LTV (loan-to-value): The new loan divided by the home’s appraised value, expressed as a percentage.
CLTV (combined loan-to-value): The same ratio, but counting every lien on the home, including second mortgages.
Seasoning: The waiting period required before you can refinance, counted from the date of the existing loan or your title.
Appraised value: The value a licensed appraiser puts on the home. It sets the base for the LTV cap.
Limited cash-out refinance: A refinance that pays off your existing loan and costs, with only small cash back.
Delayed financing: An exception that lets a cash buyer refinance without waiting out title seasoning.
Frequently Asked Questions
Can I take out 80% of my equity on a conventional cash-out?
No. The 80% limit applies to your home’s value, and it caps the entire new loan. Your existing mortgage payoff, any liens and financed costs all come out of that same limit. Many homeowners are surprised to find that they can release much less than 80% of their equity.
Does the purchase price or my online estimate set the amount?
Neither. The appraised value does. If the appraisal lands lower than expected, the maximum loan falls by 80% of the shortfall, and your cash falls with it.
How soon after buying can I do a cash-out refinance?
Usually not right away. At least one borrower must be on title for six months, and the mortgage being paid off must be at least 12 months old. A cash buyer may use the delayed financing exception instead, subject to lender guidelines.
What changes if the $500K home is a second home?
The cap drops from 80% to 75% of value. Occupancy decides the leverage, so a primary residence reaches further than a second home.
Is a cash-out refinance the same as a limited cash-out refinance with extra cash?
No. The caps, pricing and seasoning differ. A limited refinance allows much higher leverage but permits only incidental cash back. Once you take real cash, you are in the cash-out category and the 80% cap on a one-unit primary residence applies.
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.
For the program’s current guidelines, see conventional loan programs.
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References
1. Consumer Financial Protection Bureau
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. Fannie Mae Loan-Level Price Adjustment Matrix
4. Fannie Mae Eligibility Matrix (singlefamily copy)
5. CFPB, Using Home Equity to Meet Financial Needs
6. Federal Reserve, Refinancing Guide
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Conventional Cash-Out Refinance Costs for a Primary Home · How Much a Conventional Cash-Out Refinance Lends on a Second Home · How Much Cash You Receive From a Conventional Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- 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.