The Quick Read: Borrowable equity is not your home’s value minus your mortgage balance. Lenders start with a maximum loan, which is a leverage cap multiplied by the appraised value, then subtract your existing liens and financed closing costs. What remains is your cash. On a conventional cash-out refinance, the cap is 80% of value on a one-unit primary residence and 75% on two- to four-unit homes, second homes and investment property, subject to lender guidelines and full file review.
What a Cash-Out Refinance Actually Is
A cash-out refinance replaces your current mortgage with a larger one and hands you the difference. Fannie Mae’s Selling Guide defines it by the use of proceeds: there is no restriction on what you do with the money. It even treats a new loan on a home with no mortgage as cash-out, so owning your house free and clear does not exempt you from the rules.
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.
A refinance of the limited cash-out kind is different. It pays off the existing first mortgage and closing costs and returns only incidental cash. Fannie Mae’s limit is the lesser of 2% of the new loan amount or $2,000. Go beyond that and the loan is reclassified as cash-out, with the lower leverage that comes with it.
Lendmire’s cash-out refinance programs page covers the programs a broker can place. This article covers the arithmetic underneath them.
Key Terms Defined
Appraised value: the opinion of value from the appraisal. It sets the ceiling for the new loan.
Loan-to-value (LTV): the new loan divided by the home’s value, shown as a percentage.
Payoff: the amount needed to retire your existing first mortgage and any other lien being cleared at closing.
Seasoning: the time you have held title, or the age of the loan being paid off, before a cash-out is allowed.
Net proceeds: the cash that actually reaches you after payoffs and financed costs.
Debt-to-income ratio (DTI): your total monthly debt payments divided by your gross monthly income.
How Is Borrowable Equity Calculated?
The formula has three moves, and the order matters.
1. Maximum loan = leverage cap × appraised value.
2. Subtract the required uses. Your existing first mortgage payoff comes out first. So do any other liens being paid, plus financed closing costs, points and prepaid items.
3. What is left is your cash.
Notice that closing costs come out of the same cap as the payoff. Finance them and your cash shrinks dollar for dollar. Pay them out of pocket and the loan has more room, but you spend your own money.
Here is a scenario in percentages only. Say a home on a one-unit primary residence has an existing mortgage equal to 50% of its value. The conventional cap is 80%. That leaves 30% of value as the theoretical ceiling for cash and costs combined. If financed costs and prepaids use a few percentage points of that, the borrower’s cash is what remains. Gross equity was 50% of value, but borrowable cash is far smaller. That gap is the whole point.
The Underwriting Sequence, Step by Step
Across the wholesale programs placed through a broker, files move through roughly the same order. Each step can change the answer at the next.
1. Classify the loan. The first question is whether this is cash-out or limited cash-out. That decides the leverage cap and the pricing tier.
2. Check the seasoning clocks. Two clocks run on a conventional cash-out. The first mortgage being paid off must be at least 12 months old, counted note date to note date. And a borrower must have been on title for 6 months. Delayed financing, inheritance and legal awards such as divorce settlements are the recognized exceptions to the title clock.
3. Order the appraisal. The appraisal controls the number. Where a recent purchase is involved, the lender uses the lesser of value or price. A low appraisal lowers the maximum loan before anything else is considered.
4. Apply the leverage cap. Occupancy and unit count set it. Per the Fannie Mae Eligibility Matrix, a one-unit primary residence cash-out tops out at 80%, and a two- to four-unit property at 75%. Texas homestead cash-out is capped by the state constitution at 80% of the home’s value.
5. Subtract payoffs and costs. Existing first lien, other liens being cleared, financed closing costs and prepaids all come out of the cap. Judgments and other liens that attach to title must be cleared as well, so they reduce cash too.
6. Qualify the borrower. Income, assets and credit are documented in full. Wholesale conventional programs generally start at a 620 decision score, and the automated findings govern most files, with a total ratio ceiling of 50%. Manually underwritten files use tighter ratios of 36% or 45%, with reserve and score factors from the Eligibility Matrix. The matrix also calls for minimum reserves on automated-underwriting cash-out files with a DTI above 45%.
7. Reconcile to the final figure. Title, escrows and any mortgage insurance adjust the final cash number. Mortgage insurance is generally required above 80% LTV, though the wholesale no-MI cash-out lane described below is the exception.
Which Binds First: Equity or Income?
Two tests run side by side, and the tighter one wins. The leverage test asks how much the home can support. The income test asks how much payment you can carry. A borrower with 60% equity but a stretched DTI may find income, not equity, is the limit. A borrower with strong income but a low appraisal hits the leverage wall instead.
This is why an online equity calculator rarely matches a final figure. It usually runs only the first test, and with estimated value.
Why the Estimate Differs From the Final Number
| What changes | Effect on cash |
|---|---|
| Appraisal below your estimate | Lowers the maximum loan |
| Financed closing costs and prepaids | Reduce cash dollar for dollar |
| A second lien or other lien to clear | Reduces cash by the payoff |
| DTI above the program ceiling | Caps the loan below the leverage limit |
| Occupancy or unit count | Changes the cap itself |
Where Leverage Changes by Occupancy and Program
| Scenario | Conventional cash-out cap |
|---|---|
| One-unit primary residence | 80% |
| Two- to four-unit primary residence | 75% |
| Second home | 75% |
| Investment property | 75% |
| One-unit primary, wholesale no-MI lane | Up to 89.99% |
That last row deserves a closer look. A wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence and a conforming balance, with its own six months of seasoning. It is not written on Texas homesteads. Whether a file fits depends on the full profile, not the headline number. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Occupancy decides leverage: a second home or an investment property is capped at 75%, the same as a two- to four-unit primary residence, while a one-unit primary residence is capped at 80%.
Where the General Rule Breaks
Delayed financing. Cash buyers can borrow against a recent purchase without waiting six months. Fannie Mae’s guide allows this exception, but cash-out pricing and the other cash-out requirements still apply. Lenders generally tie the cash returned to the documented purchase cost rather than the current appraisal, and they want the settlement statement and source-of-funds paperwork.
Inherited homes. Inheritance is a recognized exception to the title-time clock. Occupancy history can still matter on some government programs.
Buying out a co-owner. A refinance to buy out an owner under a written agreement is a limited cash-out transaction at both agencies. The person staying on the loan must qualify on their own.
LLC or LP title. Freddie Mac’s Guide Bulletin 2021-16 addresses cash-out when no borrower has been on title for six months, such as title held in an LLC or LP. Expect title questions before the appraisal is even ordered.
Student loan cash-out. Fannie Mae has a special path for paying off student debt with the proceeds of a refinance. The standard cash-out leverage caps still apply to it, so the path does not raise the amount you can borrow.
Liens that must be cleared. Fannie Mae’s archived guidance made cash-out ineligible when a borrower had enough equity to pay off a PACE assessment but chose not to. Rules change, so a lender’s current guidance governs.
FHA and VA. Both let you take cash out of a primary residence, with their own caps and rules. The FHA Streamline and VA IRRRL are not cash-out products. They refinance an existing government loan and put no equity in your hands. The VA IRRRL carries a 0.5% funding fee unless exempt and a seasoning requirement of the later of 210 days and six payments.
Jumbo. Above the conforming limit, jumbo lanes take over, with a 660 decision score, leverage to 90% on some lanes, loans to $5,000,000 and a 50% ratio ceiling on fixed lanes. Cash-out jumbo leverage is its own matrix.
What Shrinks Your Cash
- A low appraisal.
- Financed closing costs, points and prepaids.
- A second mortgage or HELOC that must be paid off at closing.
- A DTI near the program ceiling.
- A seasoning clock that has not run out.
- Mortgage insurance, when leverage runs above 80% and no exception applies.
What It Means for Your Monthly Budget
A cash-out loan replaces your balance with a larger one. The CFPB’s guide to using home equity notes that the payment may rise and the payoff period may lengthen. If you hold a low-rate first mortgage today, giving it up is the largest trade-off in the decision. Compare the full loan against what you have, not just the cash.
What borrowers do with the cash matters too. A CFPB study of paydown behavior examines how cash-out borrowers handle non-mortgage debt afterward. Consolidating cards into a mortgage helps only if the balances stay down.
How to Self-Estimate Before You Apply
Start with a realistic value, not a hopeful one. Multiply it by 80% for a one-unit primary residence, or 75% for other occupancy. Subtract your payoff and every other lien. Then take off a cushion for costs and prepaids. The result is a rough ceiling for cash, before income testing. A broker can then run the same math across lenders and tell you which cap applies and whether income or leverage will bind first.
Mortgage lenders that write these loans differ on overlays, so the best program for your situation depends on property type, credit, leverage need and documentation. Lendmire arranges consumer mortgage loans as a broker through wholesale lenders in 16 states: Alabama, California, Colorado, Florida, Georgia, Indiana, Michigan, Montana, New Mexico, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia and Washington. For homeowners who prefer a different tool, its piece Cash-Out Refinance Lenders to Fund Home Improvements With Home Equity walks through a common use of the proceeds.
Frequently Asked Questions
Can I borrow all of my home equity?
No. The leverage cap leaves an equity cushion, and payoffs and financed costs come out before any cash reaches you. On a conventional one-unit primary residence, the cap is 80% of value. Even a wholesale no-MI lane stops short of 90%. Eligibility is subject to lender guidelines and full file review.
Does a free-and-clear home count as cash-out?
Yes. Fannie Mae treats a new loan on a home with no existing mortgage as cash-out. The cash-out leverage cap and pricing tier apply, even though there is no payoff to subtract.
What happens if the appraisal comes in low?
The maximum loan drops, because the cap is applied to the appraised value. Cash falls by the same amount. Some borrowers reduce the amount requested, or wait and reappraise; the lender’s review process governs what is possible.
How long must I own my home before a cash-out?
Conventional guidelines look at two clocks: a borrower on title for six months and a first mortgage at least 12 months old, counted note date to note date. Delayed financing, inheritance and legal awards are recognized exceptions to the title clock.
Can I get cash back on a rate-and-term refinance?
Only incidental cash. More than that reclassifies the loan as cash-out.
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.
For your own numbers, request a scenario review with Lendmire.
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: Cash-Out Refinance Transactions
2. Fannie Mae Eligibility Matrix
3. Freddie Mac Guide Bulletin 2021-16
4. CFPB: Using Your Home Equity guide
5. CFPB: Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt
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 Lenders Underwrite a Cash-Out Refinance for Renovations and the Appraisal Requirement · How Lenders Underwrite a Cash-Out Refinance to Consolidate Debts and Lower Payments · How Lenders Underwrite a Cash-Out Refinance With Typical Closing Costs on a Family Home
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.