The Quick Read: Fannie Mae limits the size of the new loan to a fixed percentage of the rental’s appraised value, so a lower existing balance raises the cash left over after payoff but never raises the ceiling itself. A recent cash buyer faces a second, tighter limit based on documented cost. A DSCR cash-out loan sits under a different set of tests.
- On an investment property cash-out refinance, the Fannie Mae Eligibility Matrix shows 75% for a 1-unit property and 70% for 2-4 units.
- Cash to you equals the maximum loan, minus the payoff, minus closing costs.
- A rental bought for cash recently can be sized by cost instead of value. The lower of the two numbers controls.
- Across the DSCR lenders Lendmire works with, a cash-out on a standard rental tops out around 75% LTV, and rent coverage has to clear as well.
What Does the FNMA Cap Actually Limit?
The cap limits the new loan amount as a share of appraised value. That is all it does. It does not say how much cash you can take, and it does not reward you for owning more of the property outright.
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LTV means loan-to-value: the new loan divided by what the appraiser says the property is worth. Fannie Mae is one of the two big agencies that buy conventional mortgages. Its rules apply only to loans delivered to it. They do not govern a DSCR loan, but many investors check them first, so the contrast is useful.
The agency matrix sets the ceiling by transaction and unit count. On an investment property cash-out refinance, 1 unit is capped at 75% and 2-4 units at 70%. A limited cash-out refinance on a 1-4 unit investment property is also capped at 75%. That product allows only a small amount of cash back. The matrix notes that Fannie Mae must already own the existing mortgage for it to apply.
Why Paying Down the Loan Does Not Raise the Cap
The cap is a fixed share of value, so your balance never enters the formula for the ceiling. Your balance only decides what is left after the old loan is paid off.
Here is the step-by-step version:
1. The lender classifies the deal. A refinance that puts cash in your hand is a cash-out refinance, whatever the balance was. That classification picks the row of the matrix that applies.
2. An appraiser sets the value. Agency appraisals use set forms. Form 1025 is the small residential income property report for 2-4 units. Form 1007 is the single-family rent schedule, and the agency requires it on a one-unit investment property only when rent is used to qualify. Fannie Mae’s appraisal forms guidance lists both.
3. The cap is applied to value. Maximum new loan equals the cap times the appraised value.
4. Payoff and costs come out. Cash to you is the maximum loan, minus the existing balance, minus closing costs.
Step 4 is where a paid-down rental shines. A rental with a small balance leaves most of the maximum loan as cash. A rental with a large balance leaves little. The ceiling is the same in both cases.
The Second Limit: Delayed Financing and Documented Cost
A recently bought all-cash rental can be refinanced without the usual waiting period, but the loan is then capped twice. The new loan cannot exceed your documented investment plus certain financed costs, and it still cannot exceed the value-based cap.
This is the agency’s delayed financing exception. The cost limit is the documented initial investment plus financed closing costs, prepaids, and points. You prove it with the settlement statement and proof of where the purchase money came from.
The rule is simple in practice: two numbers get calculated, and the smaller one wins.
- Value-based number: the cap times the appraised value.
- Cost-based number: what you documented putting in, plus eligible costs.
On a 1-unit investment property, the cost limit only binds when the appraisal runs above roughly one-and-a-third times what you paid, since 75% of that value equals your cost. Below that, the value cap is the smaller number. On 2-4 units the break point sits higher because the cap is 70%.
This surprises investors who expect a post-rehab appraisal to unlock more money. On a recent cash purchase under this exception, it does not. Waiting out the standard seasoning period moves you out of the cost limit and into value-based sizing.
Which Limit Controls? A Decision Table
| Situation | Controlling limit | What to document |
|---|---|---|
| Long-held, free and clear | Value cap only | Appraisal, title, insurance |
| Long-held, small balance | Value cap only | Payoff statement, appraisal |
| Recent cash purchase | Lower of cost or value cap | Settlement statement, funds source |
| Recent financed purchase | Value cap after seasoning | Title recording date, appraisal |
| 2-4 unit rental | Lower value cap (70%) | Form 1025 appraisal |
Worked Examples
These are modeled assumptions, not market data. Each uses shares of value so you can see the logic without dollar math.
Example 1: free and clear, long held. A 1-unit rental has no mortgage. The maximum new loan is 75% of the appraised value on an investment property cash-out. Closing costs come out of that, and you keep the rest. The 25% of value left in the property is simply the equity cushion the cap enforces.
Example 2: small balance. Same property, but the old loan equals 20% of value. The maximum loan is still 75%. The payoff takes 20 points of value, so you keep roughly 55% of value before costs. A paid-down rental yields more cash through a smaller payoff, not a bigger cap.
Example 3: recent cash buyer, appraisal 10% above price. The value cap works out to 82.5% of what you paid. The cost limit is about 100% of what you paid, plus eligible costs. The value cap is the smaller number, so it controls.
Example 4: recent cash buyer, appraisal 40% above price. The value cap would be 105% of price. The cost limit is only about 100% plus eligible costs. Now cost controls, and the extra appraisal value does not turn into extra loan.
Example 5: appraisal comes in low, 10% below price. The value cap is 67.5% of price. A short appraisal hurts here more than anywhere, because the cap multiplies a smaller number.
Other Tests That Can Shrink the Loan
The cap is a ceiling, and several other tests can put the actual loan below it. On the agency track, these are the usual ones:
- Seasoning. The agency has a title-seasoning requirement for cash-out, with the delayed financing exception for cash purchases. Check the current guide text for the exact period.
- Financed-property count. The agency limits how many financed properties one borrower can hold. That limit removes many active investors from the path entirely.
- Personal income. Agency underwriting is built on your income and debt-to-income ratio. A new, larger payment on the rental can push that ratio past what the lender allows.
- Reserves and credit. Both vary by borrower profile and loan size.
Each of these can lower the loan below the cap. Run them all before you plan around the headline percentage.
Where the FNMA Path Ends and DSCR Cash-Out Begins
If you hold several financed rentals, the agency path often stops working. DSCR cash-out loans are the usual next step. They size the loan on the property rather than on your personal income.
DSCR means debt service coverage ratio: monthly rent divided by the full monthly obligation (PITIA, which is principal, interest, taxes, insurance, and any association dues). DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage.
- Cash-out leverage: around 75% LTV on a standard investment rental. On short-term-rental collateral, the cash-out ceiling is 70%.
- Seasoning: about six months of ownership, measured from title recording.
- Coverage: the minimum DSCR is 1.00. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios open better pricing and leverage.
- Credit: a 620 floor exists in parts of the network, most programs want around 660, and 700 or higher unlocks the strongest tiers.
- Reserves: commonly around six months of PITIA, stepping up to about nine months above $1,500,000. Some conservative files at modest leverage can see reserves waived.
- Loan size: up to $3,000,000 on standard programs (smaller balances available through select lenders). Above $2,500,000, the network generally holds to 30-year fixed structures.
The structural difference from the agency track is worth saying plainly. A DSCR cash-out clears two tests at once: enough equity under the LTV ceiling, and enough rent to cover the new payment. A big paydown helps the first test and can help the second, because less debt means a lower payment. It never erases the credit floor, reserve rule, or property eligibility.
Clearing 1.00 also does not mean positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation.
DSCR appraisals commonly use the same rent schedule and income forms mentioned earlier. The lender’s file stays centered on what the property earns. Manufactured homes, log homes, and barndominiums are not offered in these programs.
For the broader picture of how these loans work, see Lendmire’s complete DSCR loans guide. If you want the equity-test details on a rental with little debt left, Lendmire’s piece on whether a paid-down rental qualifies for a max-LTV cash-out refinance, does a paid-down rental qualify for FNMA max LTV cash-out refinance, goes deeper.
Edge Cases Where the General Rule Bends
Free and clear is still cash-out. With no payoff, any cash you take is still a cash-out refinance. Owning the property outright does not skip the cap.
The limited cash-out label does not stretch. It applies only when you take little or no cash back, and on the agency track only when Fannie Mae owns the existing loan.
Unit count changes the number. On the agency track, a duplex through fourplex drops to 70% on cash-out, against 75% for a single unit. Across the DSCR network, leverage depends on the program and borrower profile, so confirm the figure for your property type.
Short-term rentals run lower. Short-term-rental cash-out tops out at 70% LTV, and lenders expect a 640 or higher score and about 12 months of hosting history. The coverage floor on a refinance is 1.00. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Lender practice varies. Some lenders want a longer seasoning period than the minimum. Others size off appraised value soon after a rehab and lease-up. Ask before you assume.
Common Mistakes
- Treating the cap as the cash amount. The cap is the whole new loan. Payoff and costs come out of it.
- Expecting a rehab appraisal to raise a delayed-financing loan. Under that exception, cost controls once the appraisal runs high enough.
- Assuming no balance means no limit. The cap still applies to the new loan.
- Applying agency numbers to a DSCR file. Those caps govern loans sold to Fannie Mae only.
- Forgetting the second test. On a DSCR cash-out, the rent has to cover the new payment, not just the equity.
Key Terms Defined
Cash-out refinance: a new mortgage that pays off the old one and returns the difference to you as cash.
Limited cash-out refinance: an agency refinance that allows only a small amount of cash back, with a higher cap on investment property than full cash-out would suggest for some borrowers.
Delayed financing: an agency exception that lets a recent all-cash buyer refinance without the normal waiting period, with loan size tied to documented cost.
Seasoning: the waiting period a lender wants between buying a property and refinancing it.
PITIA: principal, interest, taxes, insurance, and any association dues, the full monthly obligation on a property.
Reserves: liquid savings, counted in months of PITIA, that a lender wants you to hold after closing.
Frequently Asked Questions
Does owning a rental free and clear raise the FNMA cash-out cap?
No. The cap is a fixed share of appraised value, and your balance never enters that formula. A free-and-clear rental simply leaves the full maximum loan, less costs, as cash. On the agency track, that is still classified as a cash-out refinance.
What is the FNMA cash-out cap on a rental?
On an investment property cash-out refinance, the current Eligibility Matrix shows 75% for a 1-unit property and 70% for 2-4 units. Those caps apply only to loans delivered to Fannie Mae. Confirm the current edition before you plan around them.
How does delayed financing change the loan size?
It adds a second limit. The new loan cannot exceed your documented investment plus eligible financed costs, and it still has to fit under the value-based cap. The smaller of the two controls. If you wait out normal seasoning, you can usually be sized on appraised value instead.
How is a DSCR cash-out different from the FNMA version?
A DSCR cash-out is sized on the property’s rent against its payment, not on your personal income, subject to lender guidelines. Across the network Lendmire works with, leverage tops out around 75% LTV on a standard rental, with about six months of seasoning. Coverage below 1.00 is available through select lenders, with leverage and terms adjusted.
Can a DSCR cash-out on a rental ever exceed 75% LTV?
Not on a cash-out for a standard rental in this network. Higher leverage exists on some purchases, but a refinance that returns cash stays at 75% or lower. Short-term-rental cash-out is lower still, at 70%. Every figure here varies by lender and program, and guidelines, property type, leverage, and credit profile all apply.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Lendmire is a mortgage broker arranging investor financing through select lenders across 41 markets, including Washington, D.C. Qualification is subject to lender guidelines, and nothing here is a commitment to lend.
For how equity extraction works on an investment property, see Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire is a DSCR-focused mortgage brokerage, NMLS# 2371349, placing investor loans across 41 markets, including Washington, D.C. DSCR eligibility is generally reviewed by the lender around a property’s rental income rather than personal income documentation, which fits LLC-held rentals, self-employed investors, and portfolios scaling past conventional financed-property limits. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Eligibility Matrix
2. Fannie Mae’s appraisal forms guidance
This article is part of Lendmire’s investment property cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Qualify and Apply for a Short-Term Rental Cash-Out Refinance on a Home You Own · How to Get a Rental Ready for a Cash-Out Refinance Appraisal · How to Qualify and Apply for a DSCR Cash-Out Refinance Without Disrupting Rental Income
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.