The Quick Read: A lender calculates debt-to-income by adding your new housing payment to your other monthly debts and dividing the total by your gross monthly income. On a cash-out refinance, the new loan replaces your current mortgage, so the housing payment usually rises. Debts paid off at closing can leave the calculation, and the ceiling depends on the program, the automated underwriting finding, and the lender’s own rules. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Key Takeaways
- Debt-to-income (DTI) is total monthly debts divided by gross monthly income, before taxes.
- On a cash-out, the old mortgage payment drops out and the new, larger one goes in.
- Debts paid directly at closing may be removed, but the file has to document the payoff.
- The ceiling that applies to your file depends on the program and the underwriting finding, so the limits are laid out in full further down.
- DTI is a separate test from loan-to-value (LTV). Both have to pass.
Key Terms Defined
Debt-to-income ratio (DTI): Your monthly debt payments divided by your gross monthly income, shown as a percentage.
Gross monthly income: What you earn each month before taxes and other deductions.
Automated underwriting: Software that reviews the file and returns a finding, which sets the ratio limit for that loan.
Manual underwriting: A person reviews the file against fixed limits, usually tighter than the automated ones.
Loan-to-value (LTV): The new loan balance as a percentage of the appraised value.
Seasoning: The minimum time you have owned the home and held the mortgage being paid off.
Residual income: What is left each month after major obligations. Some government programs weigh it alongside DTI.
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.
What Is DTI, and Why Does a Cash-Out Lender Check It?
DTI answers one question: after this loan, how much of your gross income is already spoken for? The CFPB’s explanation of debt-to-income defines it as all monthly debt payments divided by gross monthly income, and notes that different loan products and lenders set different limits.
The CFPB’s own illustration shows the shape of it. A $1,500 mortgage, a $100 auto payment and $400 of other debt total $2,000. Against $6,000 of gross monthly income, that is 33%. That is the agency’s teaching example, not a quote for any loan.
Cash-out lenders watch this number closely because the loan puts more debt on the home. The new balance is larger than the old one. The lender wants evidence you can carry it.
How Is DTI Calculated on a Cash-Out Refinance, Step by Step?
Here is the order of operations a file typically follows, even though the limits differ from one program to the next.
1. Pick the qualifying income. The lender uses stable, documented monthly income, and cash-out proceeds are never part of it. Fannie Mae bases DTI on the total monthly income of all borrowers, to the extent that income is used to qualify, per its Selling Guide section on debt-to-income ratios.
2. Pull the debts from the credit report. Installment loans, credit cards, and other reported payments come in at their monthly amounts.
3. Swap the housing payment. Your current mortgage payment comes out. The proposed payment goes in: principal, interest, property taxes, homeowners insurance, and any HOA dues or mortgage insurance. Because the balance is bigger, this line usually grows. It is the main reason DTI moves on a cash-out.
4. Remove debts paid off at closing. If part of the cash pays a card or loan directly at closing, that payment can leave the ratio. The payoff has to show on the closing disclosure. Cash handed to you does not count. Only payments made at the table do.
5. Add what remains and divide. Total the remaining debts plus the new housing payment. Divide by gross monthly income. Money you borrow does not go in the denominator.
6. Run automated underwriting. The system returns a finding. On a cash-out, the allowed ratio can come back lower than the headline cap.
7. Order the appraisal. The appraised value sets LTV. That is a separate test from DTI.
8. Re-check before closing. New debt or lower income triggers a recalculation. A file that was clean at application can fail here.
What Changes Between the Old Loan and the New One?
The comparison below shows which lines move on a typical cash-out. It uses no dollar figures because the direction matters more than the amounts.
| Line item | Before refinance | After cash-out |
|---|---|---|
| Housing payment | Current mortgage | New, larger loan |
| Paid-off debts | Counted | Removed if paid at closing |
| Other debts | Counted | Still counted |
| Gross income | Unchanged | Unchanged |
| Net DTI effect | Baseline | Housing up, debts down |
The result can go either way. Say a homeowner consolidates two credit cards and a car loan into the new mortgage. The housing payment rises, but three payments disappear. Total obligations may fall even though the mortgage line grew. Another homeowner takes cash for a remodel and pays off nothing. Their DTI only goes up.
What Counts and What Doesn’t?
| Item | In the ratio? |
|---|---|
| New principal and interest | Yes |
| Property taxes and insurance | Yes |
| HOA dues | Yes |
| Mortgage insurance | Yes, when required |
| Car, student, personal loans | Yes |
| Credit card minimums | Yes |
| Utilities, groceries, phone | No |
| Debt paid directly at closing | Generally removed |
Alimony and child support need care. Fannie Mae’s guide treats support payments that continue for a meaningful stretch as debt, and alimony may alternatively be handled as a reduction to income. Confirm the current treatment with your loan officer, because it affects the result.
Income works the same way. Salaried and hourly pay is verified with pay stubs and W-2s. Self-employed borrowers are typically documented with tax returns or other approved methods, and the lender converts the result to a monthly figure. The CFPB’s Qualified Mortgage page explains that lenders must verify income or assets and monthly debt.
What Limits Apply, and Who Sets Them?
Three layers set the ceiling: the program, the automated finding, and the lender’s own overlay. The first thing to know is that there is no single national DTI limit. The old 43% general-QM standard was replaced by a price-based test, but lenders still must consider DTI or residual income. The real ceilings now come from each program and each lender.
Across the wholesale conventional programs, the automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans sit at 36% or 45%, depending on the credit score and reserve factors in the Fannie Mae Eligibility Matrix. Fannie Mae also publishes the same manual-underwriting 36% and 45% structure in a second copy of the Eligibility Matrix.
Here’s the catch on cash-outs. The Fannie Mae guide on debt-to-income ratios lists cash-out refinances among the transactions where the maximum ratio may be lower than the headline number. So 50% is a ceiling, not a promise. The finding on your file can be tighter.
Credit matters too. The wholesale conventional programs start at a 620 decision score. A wholesale lane reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% ratio on a thirty-year fixed, primary residence, conforming balance, with its own six months of seasoning. Standard conventional cash-out is 80% LTV on a one-unit principal residence and 75% on two- to four-unit principal residences, second homes, and investment property. Occupancy sets the leverage. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Government loans work differently. FHA uses a base ratio with more room when compensating factors exist. VA treats residual income as the controlling test, with DTI as a guide. Both are handled in general terms here, because the exact limits depend on the lender and the file.
How Do DTI and LTV Work Together?
They are two separate gates. You can pass DTI and fail LTV, or the reverse.
DTI looks at your monthly capacity. LTV looks at the equity left in the home. A homeowner with a low ratio but a thin equity cushion may not reach the amount of cash wanted, because the appraisal caps the loan at the LTV limit. A homeowner with plenty of equity but a high ratio may have to take less cash, or pay off more debt at closing, to get under the line.
Seasoning is a third gate. 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. Exceptions exist for delayed financing, inheritance and legal awards. On the agency side, Freddie Mac’s cash-out section states the same six-month and 12-month tests.
In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution, and the wholesale no-mortgage-insurance lane is not written there.
Mortgage insurance enters the DTI math too. On the agency path it is required above 80% LTV, except in the wholesale no-MI cash-out lane described earlier. Where it applies, it is part of the housing payment. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Where Does the General Rule Break?
Several situations change the math.
- Manual versus automated review. The same borrower can face 36% to 45% under manual review and up to 50% on an automated finding. Which path your file takes depends on the finding and the lender.
- Nontraditional credit. Borrowers with no credit score may face a lower manual maximum.
- Non-occupant co-borrower. Adding a co-borrower who does not live in the home can change how income is counted. Have the loan officer confirm the current rule before relying on it.
- Limited cash-out versus cash-out. A rate-and-term refinance allows only incidental cash back. Fannie Mae’s limit is the lesser of 2% of the new loan amount or $2,000, and Freddie Mac’s is the greater of 1% of the new loan amount or $2,000. A file that goes past those limits is treated as a full cash-out and tested that way. Fannie Mae’s limited cash-out rules spell out the criteria.
- Student-loan cash-out. Fannie Mae allows a variant for paying off student loans. It must be underwritten through the automated system, proceeds go directly to the servicer at closing, and cash back is capped at the greater of 1% of the new loan amount or $2,000. See the cash-out refinance section.
- FHA Streamline and VA IRRRL. These are not cash-out loans. They exist for borrowers who already hold an FHA or VA loan and run lighter underwriting. If you want meaningful cash, they are the wrong tool.
One tolerance trap deserves its own line. Past the program ceiling, the loan can fall out of eligibility if a recalculation pushes the ratio over.
What Does the Decision Look Like in Practice?
Consider a homeowner with a higher-than-comfortable ratio who wants cash for a renovation. The options on the table usually look like this:
- Smaller draw. Taking less cash keeps the new balance, and the payment, down. Retest at a smaller amount to find the largest loan that still passes.
- Pay off debts at closing. Directing proceeds to specific accounts can pull their payments out of the ratio. The tradeoff is real: unsecured debt becomes debt secured by your home, which puts the home at risk if payments are missed.
- Add a qualifying borrower. More documented income raises the denominator.
- Switch the program path. A different program can carry a different ceiling, and the right fit depends on credit profile, occupancy, leverage need and documentation.
- Raise documented income. Income that exists but isn’t documented doesn’t count.
Two lenders can report different DTI figures for the same borrower. Different overlays, different treatment of an income type, or different handling of a debt payoff can all do it. That is one reason a broker shops more than one wholesale lender and matches the file to the program.
For a file already near the ceiling, see Lendmire’s piece Top Cash-Out Refinance Providers With a Debt-to-Income Ratio Near the Lender Limit.
Lendmire’s cash-out refinance programs page lays out the loan types in one place.
Common Mistakes
- Using take-home pay instead of gross income.
- Assuming the 43% figure is still a federal cap.
- Assuming 50% is guaranteed on a cash-out.
- Counting on a debt payoff that isn’t documented on the closing disclosure.
- Opening new credit between application and closing.
- Forgetting HOA dues or mortgage insurance in the new payment.
- Skipping seasoning checks. Six months on title and a 12-month-old first mortgage both matter.
- Assuming DTI affects your credit score. The ratio does not appear on the credit report.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Self-Check Before You Apply
Write down your gross monthly income. List every reported monthly debt. Estimate the new housing payment, including taxes, insurance and any HOA dues. Mark which debts you would pay off at closing. Divide the remaining total by gross income. If the answer sits near the ceiling, plan for a smaller draw or a different program before you apply. Program figures are subject to lender guidelines and full file review.
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.
Frequently Asked Questions
Does the cash-out refinance payment replace my old mortgage payment in the DTI?
Yes. The old payment drops out and the new one goes in, including taxes, insurance, HOA dues and mortgage insurance where they apply. Because the balance is larger, the housing line usually rises.
Can paying off credit cards with the cash fix a high DTI?
Sometimes. Debts paid directly at closing can leave the ratio, but only if the payoff appears on the closing disclosure. The new, larger mortgage payment still has to fit. Whether it helps depends on the size of the payoff against the increase in the housing payment.
Is 43% still the maximum DTI?
No. That was the old general Qualified Mortgage cap. The federal rule now uses a price-based test, though lenders must still consider DTI or residual income. The working limits come from each program and lender.
Why would my DTI limit be lower on a cash-out than on a rate-and-term refinance?
Cash-out loans carry more risk, and Fannie Mae flags them as a transaction where the maximum ratio may be lower. The automated finding on your file sets the actual number.
Does DTI hurt my credit score?
No. DTI is not reported on your credit file, though the debts that feed it are. A lender calculates it from your income and obligations at application.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
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.
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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. CFPB’s explanation of debt-to-income
2. Fannie Mae Selling Guide B3-6-02, Debt-to-Income Ratios
3. CFPB’s Qualified Mortgage page
4. Fannie Mae Eligibility Matrix
5. Fannie Mae Eligibility Matrix, second copy (manual-underwriting 36% and 45% structure)
6. Freddie Mac Guide Section 4301.5, Cash-out refinance Mortgages
7. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
8. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Debt Payoff vs Cash in Hand on a Cash-Out Refinance at Closing · How Much Cash Comes Out of a Cash-Out Refinance With High Equity and Low Income? · How to Retitle an Inherited 2-4 Unit for a Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.