The Quick Read: A lender sets a ceiling, then subtracts everything the new loan has to pay. The ceiling is the appraised value times the maximum loan-to-value (LTV) for the occupancy and unit count. What is left after the payoff, other liens and closing costs is the cash that reaches the borrower. Gross cash and net cash are not the same number.
Across the wholesale programs Lendmire places files with, the sizing sequence is the same on nearly every conventional file. Value comes first. The cap comes second. The payoff and costs come third. The borrower’s cash is the remainder, and it often comes in lower than the borrower expected going in.
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: 7.40% as of October 15, 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 “Sizing” Actually Means
Sizing is a test of need against capacity. The borrower has a need: pay off the first mortgage, clear any liens, cover costs, and take a target amount of cash. The program has a capacity: appraised value times the cap. If the need is larger than the capacity, the draw shrinks. That is mechanical.
Most online explainers start from the cap and subtract. That works for a rough estimate. On a real file, it helps to add up the need first and then test the total against the ceiling. You see the shortfall sooner.
Who sets the ceiling matters too. Fannie Mae and Freddie Mac set the maximum LTV for each loan purpose. A lender can add stricter limits of its own, but it cannot go above the agency number. Two lenders can differ on a file. They cannot differ upward.
The cap is a share of value, not a share of equity. Equity is value minus what you owe. The cap says how much total debt the home may carry against its value. The 20% left over is the lender’s cushion if values fall.
If you want the program overview first, Lendmire’s cash-out refinance programs page lays out the loan type this article walks through.
Step 1: The Value the Lender Uses
The lender uses an appraised or accepted value. Your own estimate does not count. Every percentage in the file is measured against that one number, so a miss on value moves everything.
Fannie Mae’s appraisal age rules say the appraisal must be dated within 12 months of the note date. If it is older than four months, an update is needed. An origination appraisal from a past purchase can be reused only on a limited cash-out refinance, not a cash-out loan. So a cash-out file needs its own valuation.
Some files may qualify for a hybrid appraisal or a DU value acceptance, which skips the full appraisal. Do not assume a cash-out loan gets that waiver. Eligibility is narrower for cash-out than for a rate-and-term refinance, and it depends on the automated findings.
Two practical points on value:
- A low appraisal shrinks the ceiling. Every drop in value cuts the maximum loan by the cap percentage of that drop.
- Rounding can matter at the edge. When a file sits right at the cap, the lender’s LTV rounding rule decides whether it passes. Freddie Mac’s LTV section is where that testing is set out.
Step 2: The Cap by Occupancy and Unit Count
The cap for a conventional cash-out refinance is 80% LTV on a one-unit principal residence. It is 75% on two- to four-unit principal residences, second homes and investment property. Compare that with a rate-and-term refinance, which reaches 95% on a one-unit principal residence. Subject to lender guidelines and full file review, those are the figures across the programs Lendmire works with.
| Loan purpose | Property | Typical maximum LTV |
|---|---|---|
| Cash-out refinance | 1-unit principal residence | 80% |
| Cash-out refinance | 2-4 unit principal residence | 75% |
| Cash-out refinance | Second home | 75% |
| Rate-and-term refinance | 1-unit principal residence | 95% |
The gap between 80% and 95% is why lenders classify the loan purpose so carefully. Taking extra cash moves the file into the lower cap and adds price adjustments by credit score and LTV.
One wholesale lane goes further on the right file. It reaches 89.99% LTV with no mortgage insurance. That needs a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence and a conforming balance. It has its own six months of seasoning. Texas homestead cash-outs are the exception. The state constitution caps them at the agency figure, and that lane is not written there. Exact terms depend on lender guidelines, property type, leverage, and a full review of the borrower’s file.
The cap counts all liens. If a second mortgage stays open, the lender tests the combined LTV, called CLTV. Fannie Mae’s Eligibility Matrix uses one ceiling for LTV, CLTV and HCLTV. The undrawn part of a HELOC is handled differently in the price adjustment, but the open balance counts against the ceiling.
Step 3: Totaling What the New Loan Must Pay
The new loan has to cover every use of funds before the borrower sees a dollar. This is where most borrower estimates go wrong. The formula “value × 80% minus balance” leaves out everything below.
Here is the list lenders add up:
- The first mortgage payoff, including interest accrued up to the payoff date.
- Junior liens being paid off, such as a second mortgage or a HELOC.
- Delinquent real estate taxes, where the file allows it. Fannie Mae’s cash-out rules make loans that finance taxes more than 60 days delinquent ineligible in most cases, unless an escrow account is in place or the law bars requiring one.
- Closing costs, when the borrower chooses to finance them.
- Prepaids and escrows, such as the first insurance premium and the starting tax and insurance balances.
The sum is the “need” before any cash to the borrower. If that sum already sits close to the cap, there is little or no room for cash.
Costs reach the borrower in one of two ways. Either they are paid in cash at closing, or they are financed into the loan. Financed costs raise the balance and cut the cash. The Loan Estimate and Closing Disclosure both show “Estimated Cash to Close” and any costs financed, so the borrower can see the final reconciliation line by line.
Step 4: Gross Cash Versus Net Cash
Gross cash is the maximum loan minus the payoff and liens. Net cash is what is left after the costs, prepaids and escrows come out too. Borrowers plan around gross and receive net.
Take a modeled file with no dollar figures. Say a one-unit principal residence is appraised at a round 100 units of value. At the 80% cap, the maximum loan is 80 units. The existing first mortgage and accrued interest take 55 units. That leaves 25 units of gross cash. Financed costs and prepaids run 3 units. Net cash is 22 units.
Now run the same file with a lower appraisal. Value comes in at 95 units. The cap gives a maximum loan of 76 units. The payoff stays at 55. Gross cash falls to 21 units, and after the same 3 units of costs, net cash is 18. A 5% miss in value cut the check by almost a fifth.
| Case | Value | Max loan (80%) | Payoff | Costs | Net cash |
|---|---|---|---|---|---|
| Base | 100 | 80 | 55 | 3 | 22 |
| Low appraisal | 95 | 76 | 55 | 3 | 18 |
| Higher costs | 100 | 80 | 55 | 5 | 20 |
These are modeled units, not market data. They show the direction of each change, and they show why value is the most sensitive input.
Reverse sizing works the same math backward. To net a target amount of cash, add the payoff, liens, costs and target together. Divide that total by the cap. The answer is the minimum appraised value the file needs. If the likely appraisal falls short of that number, the target draw does not fit.
Beyond Leverage: The Gates That Can Shrink or Stop the Loan
Many files fail on a gate that has nothing to do with the cap. The ceiling math can be right and the file can still be ineligible. Fannie Mae’s cash-out topic and Freddie Mac’s cash-out guide section set these out.
Seasoning on the first mortgage. An existing first mortgage being paid off must be at least 12 months old, measured note date to note date. This test does not apply to subordinate liens being paid off or to a co-owner buyout under a legal agreement.
Time on title. At least one borrower must have been on title for six months before the disbursement date. Exceptions exist for inheritance, a legal award in a divorce or separation, and delayed financing for a home bought with cash. Appreciation does not shorten either clock. A new appraisal at a higher value does not let a borrower refinance early.
Occupancy. The occupancy on the file sets the cap before anything else. A principal residence reaches the highest cash-out leverage. Second homes carry the lower cap noted above, and the lender confirms occupancy early.
Credit and ratios. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. On Fannie Mae’s automated findings, a ratio above 45% adds a six-month reserve requirement on a cash-out loan. Reserves are the borrower’s liquid assets left after closing.
The conforming limit. The new loan must fit under the county conforming limit, which the FHFA sets each year. In a high-value area the limit can bind before the 80% cap does. Check the county figure on fhfa.gov. A loan above it moves to the jumbo lanes, which have their own rules.
Property type. Some property types face tighter caps. Single-width manufactured homes, for example, carry a much lower cash-out limit under Fannie Mae’s product rules, and some structures are not eligible at all.
Loan structure. A temporary buydown can make a loan ineligible as a cash-out refinance under some versions of the guide, and so can certain PACE-lien situations. Verify against the current text for the specific file.
Price adjustments apply to cash-out loans too. They vary by credit score and LTV, and they change with the matrix and the file, so they cannot be quoted in advance.
Where the General Rule Breaks
The 80% rule is a good starting point. These cases are where it stops working:
- Free-and-clear homes. A new first mortgage on a home with no existing loan is treated as cash-out regardless of how the money gets used.
- Recently bought homes. A borrower who paid cash can use the delayed-financing exception. It is a separate path with its own conditions.
- Inherited or awarded homes. No six-month title wait applies. The 12-month rule still runs on any existing first mortgage.
- Trust or LLC ownership. Time held in certain entities may count toward the six months, subject to conditions. Check the current guide language on the specific structure.
- “Using it for the house.” The use of funds does not change the loan’s classification. Spending the cash on a remodel does not make it a rate-and-term loan.
- Co-owner buyouts. These carry their own treatment and may not count as cash to the borrower.
When the Numbers Don’t Fit
When the need runs past the capacity, the borrower has three options. The first is a smaller draw. Cutting the target cash lowers the total the new loan must cover. The second is to wait out a gate, such as a seasoning clock, and then reapply. The third is to compare the structure against a different product.
A home equity line or second mortgage leaves the first mortgage in place. The CFPB’s HELOC brochure notes that closing costs on a cash-out refinance are generally higher than on other options. A cash-out refinance also replaces the whole loan. The CFPB’s home equity guide says lenders typically want borrowers to keep 10% to 20% of their home value as equity. It also warns that a cash-out refinance may lengthen the payoff time and raise the monthly payment, since the new terms apply to the full balance. A lower rate does not guarantee a lower payment when the balance goes up.
The decision comes down to two questions. How much cash do you need? And is it worth resetting the entire loan to get it? If the answer to the second is no, a smaller draw or a different structure is the better file.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
LTV (loan-to-value): The loan balance divided by the appraised value, shown as a percentage.
CLTV (combined loan-to-value): All liens on the home added together, divided by the appraised value.
Seasoning: The minimum time a loan or ownership must have been in place before a new loan is allowed.
Prepaids and escrows: Up-front amounts for items like the first insurance premium and the starting tax and insurance balances.
Gross cash: The maximum loan minus the payoff and any liens being paid.
Net cash: Gross cash minus financed costs, prepaids and escrows. This is the amount the borrower actually receives.
Payoff: The exact balance needed to close out an existing loan, including accrued interest.
Frequently Asked Questions
Why isn’t my cash-out just 80% of my home’s value minus what I owe?
Because the 80% is a ceiling on the total new loan, not on your proceeds. Payoff interest, financed closing costs, prepaids and escrows all come out first. The check you receive is the remainder, which is usually lower than the simple subtraction.
What happens if the appraisal comes in low?
The ceiling drops by the cap percentage of the shortfall, and your cash drops with it. A small miss in value can cut the check by a larger share. You may be able to request an appraisal reconsideration with recent nearby sales. Otherwise the choices are a smaller draw or waiting.
Does the 95% or 97% leverage figure apply to cash-out?
No. Those figures belong to purchases and to rate-and-term refinances that give only incidental cash back. A conventional cash-out refinance on a one-unit principal residence is capped at 80% LTV, subject to lender guidelines and full file review.
Can I do a cash-out refinance right after buying or after my home’s value jumps?
Not usually. The first mortgage being paid off must be at least 12 months old, and one borrower must have been on title for six months. A higher appraisal does not shorten either clock. Exceptions exist for inheritance, certain legal awards and delayed financing.
Does the loan amount have any other limit besides the 80% cap?
Yes. The new loan must fit under the county conforming limit set by the FHFA. In expensive counties that limit can bind first. A loan above it moves into jumbo lending, which has its own rules.
Next Step for Homeowners
If you are weighing a cash-out refinance against keeping the loan you have on your home, 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
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. 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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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 B4-1.2-04 Appraisal Age and Use
2. Freddie Mac Guide 4203.1, LTV/TLTV/HTLTV
3. Fannie Mae Eligibility Matrix
4. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
5. Freddie Mac Guide 4301.5, Cash-out refinance Mortgages
6. FHFA 2026 Conforming Loan Limit Values
8. CFPB, Using Home Equity to Meet Financial Needs
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 for Borrowers Shopping Lenders · How a Lender Disburses Cash on a Conventional Cash-Out Refinance · Can You Get a Conventional Cash-Out Refinance With Little Equity?
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
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.