The Quick Read: On a one-unit primary residence, a conventional cash-out refinance lets the new loan reach 80% of the appraised value, and you keep whatever is left after the old loans and costs are paid. That is always less than your headline equity, because the lender requires you to leave a cushion in the home. Payoffs of any second lien, financed closing costs, and sometimes a loan-size ceiling shrink the cash further. The worked examples below show how to get from appraised value to the money you actually receive.
Key Takeaways
- The cap is a limit on the new loan as a share of appraised value. It is not a limit on how much of your equity you can take.
- Cash released = appraised value × the cap, minus every payoff, minus financed costs.
- The standard cap is 80% on a one-unit primary residence. It is 75% on two- to four-unit homes and second homes.
- Waiting periods apply: the loan you are paying off must be at least 12 months old, and you must have been on title for six months.
- The appraisal, not your own estimate of value, sets the number. A lower appraisal cuts your cash faster than most people expect.
The Short Formula Behind Every Release
Start with the appraised value and multiply by the cap. That gives you the largest new first mortgage the lender can write. Now subtract what must be paid off: your existing first mortgage and any HELOC or second loan. Subtract the closing costs and prepaid items you choose to roll in. What remains is your net cash.
Here is the catch most online estimators skip. The cap applies to the whole new loan, not to the “extra” money. So the cash you receive depends on how much you already owe. A homeowner with a small balance gets a large release. A homeowner with a large balance and a second lien may get very little.
Across the wholesale programs Lendmire places files with, the borrower who is surprised at the end almost always started from “I have X of equity” instead of “the cap minus my payoffs.” The second framing is the one the underwriter uses. If you want the program side of this, Lendmire’s cash-out refinance programs page lays out how these loans are arranged.
One more point on terms. A refinance counts as true cash-out when you take more than incidental cash back. A refinance that only pays off the old loan and finances costs sits in the limited cash-out category, which allows far higher leverage and far less cash back. We compare the two later.
Key Terms Defined
Appraised value: The value a licensed appraiser assigns to the home for this loan. Every ratio in the file uses it.
Loan-to-value (LTV): The new loan balance divided by the appraised value, shown as a percentage.
Equity: The appraised value minus everything you owe against the home.
Payoff: The balance of an existing mortgage or lien that the new loan must clear at closing.
Net cash: The money that actually reaches you after payoffs and financed costs come out of the new loan.
Seasoning: A required waiting period, such as how long you have held title or how old the loan being paid off is.
Debt-to-income ratio (DTI): Your total monthly debts divided by your gross monthly income.
Loan-level price adjustment: A pricing add-on that rises with leverage and falls with stronger credit. It is usually built into the interest terms, not shown as a separate line.
How the Loan Is Underwritten, Step by Step
Underwriting a cash-out refinance follows the same order on most files.
1. Loan type is set. If you take more than incidental cash, the file is cash-out and the lower caps apply.
2. The appraisal sets value. The ratio is measured on the appraised figure. A ratio that lands just over the cap is rounded up to the next whole number and fails.
3. Payoffs are listed. The new first mortgage must pay off the existing first mortgage. Any HELOC or second lien on the home gets paid off too, and paying off a second lien counts as cash-out, whatever its age.
4. Costs are decided. Closing costs and prepaid items can be rolled into the new loan. They come out of your cash, dollar for dollar.
5. Seasoning is tested. The existing first mortgage must meet a minimum age, counted from note date to note date. At least one borrower must also meet a minimum time on title before closing. Exact timing varies by file and lender.
6. Credit and ratios are checked. 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% ceilings, tied to the reserve and score factors in the agency Eligibility Matrix. Higher ratios can also trigger a reserve requirement, meaning cash left in the bank after closing.
7. Price adjustments apply. Cash-out loans carry pricing adjustments that rise as leverage climbs and credit scores fall. Both Fannie Mae and Freddie Mac publish these in their pricing matrices.
8. Disclosures and closing. You receive a Loan Estimate after you apply and a Closing Disclosure before you sign.
The 12-month and six-month tests both apply. Meeting one does not excuse the other.
Fannie Mae’s Selling Guide section on cash-out refinance transactions sets the seasoning tests, the acceptable uses of proceeds, and the rule that the new first mortgage must pay off the old one. It also lets you take cash out of a home you own free and clear, which is still priced as cash-out.
The Release Waterfall: Two Worked Examples
Here are two modeled examples. They use shares of appraised value instead of dollars, so you can map them to any home. The inputs are assumptions for illustration, not market data.
Example one: a first mortgage only. Assume the home appraises at 100% of value and the cap is 80%. The existing first mortgage is 55% of value, and there is no second lien.
| Step | Share of appraised value |
|---|---|
| Appraised value | 100% |
| Maximum new loan (80% cap) | 80% |
| Pay off first mortgage | −55% |
| Cash before costs | 25% |
| Financed costs | Subtract from the 25% |
| Equity left in the home | 20% |
Example two: a second lien on the home. Same value and cap, but the first mortgage is 50% of value and a HELOC adds another 10%.
| Step | Share of appraised value |
|---|---|
| Maximum new loan (80% cap) | 80% |
| Pay off first mortgage | −50% |
| Pay off HELOC | −10% |
| Cash before costs | 20% |
| Financed costs | Subtract from the 20% |
In both cases, 20% of the home’s value stays as your equity. In example two, you started with 40% equity, because you owed 60% in total. You released half of it. That is the reason “I can take out 80% of my equity” is a myth. The 80% sets how much debt the home can carry, not how much equity you can take.
What a lower appraisal does. Take example two and assume the appraisal comes in 5% below your estimate. The home is now worth 95% of the figure you expected. The new loan can reach 76% of the original figure (80% of 95). Your payoffs, now 60% of that figure, stay the same. Cash before costs drops from 20% to 16%. A modest appraisal miss takes a fifth of your cash, because the cap multiplies the miss while payoffs stay fixed.
Cap by Occupancy and Unit Count
Occupancy and unit count decide the cap. The figures below are the conventional cash-out caps across the wholesale programs Lendmire places files with.
| Property use | Cash-out cap |
|---|---|
| One-unit principal residence | 80% |
| Two- to four-unit principal residence | 75% |
| Second home | 75% |
| Investment property | 75% |
Manufactured homes sit lower still. Freddie Mac also publishes lower caps by property type, and its guide notes that Section 4203.1 rounds the ratio up to the next whole number. That rounding is why files “at 80.01%” do not squeak through.
Compare this with purchase leverage. A first-time buyer on a one-unit principal residence can reach 97%, and others reach 95%. Cash-out is far tighter because you are converting equity to cash, not buying with a down payment. Occupancy, not the type of loan, decides most of the difference.
Which Limit Binds First?
Several limits apply at once. The lowest one wins, so here they are in the order they usually bite.
| Limit | What it caps | When it bites |
|---|---|---|
| Value cap (80% or 75%) | New loan vs. appraised value | Most files |
| Conforming loan limit | Dollar size of the new loan | Higher-priced homes |
| Ratios and reserves | What your income and savings support | Larger existing debts |
| Seasoning | Whether you can refinance at all yet | Recent purchases or loans |
| Pricing by score and LTV | What the cash costs you | Lower scores, higher leverage |
The conforming loan limit is set each year by the Federal Housing Finance Agency. It has a baseline for most counties and a higher ceiling for high-cost areas. If your home is valuable enough that 80% of its worth exceeds your county’s limit, the dollar limit binds before the percentage does. Your cash then comes from the smaller of the two numbers. Above the limit, the jumbo lanes take over, with their own credit and leverage rules.
Ratios deserve a note. A file can fit under the value cap and still fail on income. If your total monthly debts, including the new payment, push past the program’s ratio ceiling, the loan amount shrinks or the file stops. Cash-out raises your debt, so check this before you start.
Structures and Variations
The 89.99% lane with no mortgage insurance. Mortgage insurance is normally required above 80% LTV. It cancels at your request at 80% of the original value, and the servicer must end it at 78%. One wholesale lane Lendmire arranges reaches 89.99% on a cash-out with no mortgage insurance. It needs a 680 score, a 50% ratio, a thirty-year fixed loan, a primary residence, a conforming balance, and its own six months of seasoning. In Texas, a cash-out on a homestead is capped by the state constitution at the agency figure, so this lane is not written there. Subject to lender guidelines and full file review, it is the one structure that lets an owner release more than the standard cap.
Delayed financing. A buyer who paid cash can sometimes refinance inside six months of purchase. The purchase must be arm’s length, and the settlement statement must show no mortgage financing. The new loan is capped at the documented initial investment plus financed costs, and still sits under the cash-out LTV cap. If an unsecured loan or a loan on another asset funded the purchase, the proceeds must pay it off or down. Gift funds cannot be reimbursed. It is still priced as cash-out.
Student loan cash-out. Fannie Mae waives the cash-out pricing adjustment when proceeds pay off student loans and the requirements are met. These loans run through the agency’s automated underwriting.
Limited cash-out (rate-and-term) as the alternative. If you only want to change the loan and not take cash, the cap is much higher: 95% on a one-unit principal residence, 97% where the existing loan is agency-owned and the first-time-buyer program allows. The new loan pays off the first mortgage, closing costs, and a purchase-money second lien, with only incidental cash back. Mortgage insurance applies above 80%. A borrower who wants cash cannot use this lane. A borrower who only wants a better structure may prefer it.
Where the General Rule Breaks
The 80% cap, 12 months, and six months cover most files. These are the cases where they change.
- Inheritance or a legal award. After a divorce, separation, or dissolution, there is no six-month title wait. Inheriting the home works the same way. Freddie Mac lists the same exception in its cash-out refinance section.
- Home held in an LLC or trust. Time in an LLC you majority-own can count toward the six months, but title must move to you personally before closing. Time in a revocable trust can count if you are the primary beneficiary.
- Temporary buydowns. A loan with a temporary interest buydown is not eligible for cash-out.
- Free-and-clear homes. You can borrow against a home with no mortgage, but it is treated as cash-out and priced that way.
- Second homes and rentals. Occupancy decides leverage. Both fall to the 75% cap, as the table above shows.
- High-balance homes. The loan limit may bind before the percentage does.
- A recent HELOC. The second lien may be paid off at any age. But if you drew on it right before refinancing, the cash it provided is part of what the lender reviews.
When the Cash Arrives
For a refinance of your primary residence, federal rules give you a short cancellation window after you sign. The CFPB’s guidance on the right of rescission explains that the window runs from the last of three events: signing the note, receiving accurate disclosures, and receiving the notice of your right to cancel. Funds are disbursed after that period ends. Plan any use of the money, such as a contractor deposit or a debt payoff, around that, not around the signing date.
Is It Worth It? The Decision in Practice
Three questions decide most cash-out choices.
Does the cash justify the costs? Financed costs come out of your cash. A small release can be mostly absorbed by them. If the net cash is a thin slice of the home’s value, a different product may fit better.
What do you give up? A cash-out resets your whole first mortgage. If your current loan has favorable interest terms, you give those up on the entire balance, not just the new money. That is the most common thing borrowers overlook. A second lien can leave your first mortgage alone, though it carries its own terms.
What is the money for? The CFPB’s research on cash-out borrowers reports that paying off other debts is the most common reason for a cash-out. It also warns that turning non-mortgage debt into mortgage debt can raise the risk of foreclosure. Missing a credit card payment is unlikely to cost you the house. Missing a mortgage payment can. Using equity for a repair that raises value is a different decision from using it to cover a spending gap.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Before You Apply: What to Gather
A good estimate needs real numbers. Pull these together before you talk to anyone.
- Your current first mortgage balance and the date it was originated.
- The balance and origination date of any HELOC or second lien.
- The date you took title, and whether the home is in a trust or LLC.
- Your best estimate of value, held loosely. The appraisal decides.
- A list of monthly debts, for the ratio check.
- Your credit score range and the date of any past credit event. The agencies set waiting periods after credit events: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu, shorter with documented extenuating circumstances.
- What you plan to do with the cash, so the amount you request is the amount you need.
An online estimate can overstate your proceeds because it often leaves out the second lien, financed costs, or prepaid items. Run the waterfall above with your own shares and treat the result as a ceiling.
Frequently Asked Questions
Can I take out 80% of my equity in a cash-out refinance?
No. The 80% limits the new loan relative to the home’s value, so at the cap you must keep 20% equity in the home. Your cash is what remains after your existing mortgage, any second lien, and financed costs come out of that 80%.
How long do I have to own the home before I can do a cash-out refinance?
You generally need at least one borrower on title for six months. If you are paying off an existing first mortgage, it must also be at least 12 months old, counted note date to note date. Exceptions cover inheritance, legal awards, and delayed financing for cash buyers.
Why is my cash lower than the online estimate said?
Estimates often skip a second lien, financed costs, and prepaid items. A lower appraisal also cuts the cap’s dollar result. Subtract every payoff and cost from the capped loan amount, and expect the figure the lender gives you to be the lower one.
Does paying off my HELOC count as cash-out?
Yes. Paying off a second lien counts inside the cash-out category, whatever its age. That payoff uses up part of the capped loan amount, leaving less for you.
Can I get more than 80% on a cash-out?
On standard programs, no. One wholesale lane reaches 89.99% with no mortgage insurance on a primary residence, but it needs a 680 score, a 50% ratio, a thirty-year fixed rate, a conforming balance, and six months of seasoning. It is not written on Texas homesteads. All figures are subject to lender guidelines and full file review.
If You Are Weighing Your Options
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. Final terms depend on the appraisal, your credit, and the lender’s review of the full file.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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. Fannie Mae Selling Guide, Cash-Out Refinance Transactions
2. Freddie Mac Guide, Section 4203.1
3. FHFA, conforming loan limit values
4. Freddie Mac Guide, Section 4301.5, Cash-out refinance Mortgages
5. CFPB, right of rescission on a refinance
6. CFPB, cash-out refinance borrowers and credit scores
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Fannie Mae Cash Out Refinance LTV Investment · Refinance Appraisal Came In High: Can You Borrow More Or Drop PMI Sooner? · Conventional Refinance Debt-to-income Limits: 45%, 50% And The Compensating Factors
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.