The Quick Read: A conventional limited cash-out refinance replaces your existing first mortgage, finances the closing costs, and pays off a purchase-money second lien, with only incidental cash back to you. Across the wholesale programs Lendmire places files with, it is available at 95% LTV on a one-unit principal residence, and up to 97% where the existing loan is agency-owned and the first-time-buyer program allows. Mortgage insurance applies above 80% LTV. Everything is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
What a Limited Cash-Out Refinance Is
A limited cash-out refinance is a refinance whose purpose is changing the loan, not pulling equity. The new loan pays off the old one. Closing costs and prepaids can be rolled in. You walk away with little or no cash.
The terminology is messy. Fannie Mae calls it a “limited cash-out refinance.” Freddie Mac calls essentially the same product a “no cash-out refinance.” Lenders and borrowers often say “rate-and-term refinance” for both. The FHFA Office of Inspector General treats the two limited-cash-back products as separate from true cash-out refinances in its analysis. Same idea, different labels. The rules live in Fannie Mae’s Selling Guide section B2-1.3-02 and Freddie Mac’s Guide Section 4301.4.
Why does the label matter? Because the file gets classified, and the class drives leverage, seasoning and cost. A limited cash-out file lands in a much more forgiving bucket than a full cash-out file.
Key Takeaways
- The new loan may pay off the first mortgage, closing costs, prepaids and a purchase-money second. Nothing else.
- Cash back is capped at a small amount set by the agencies.
- Leverage runs to 95% on a one-unit principal residence, and to 97% in the agency-owned, first-time-buyer case.
- The 12-month first-mortgage seasoning rule belongs to cash-out, not limited cash-out.
- Paying off a non-purchase second lien or HELOC turns the deal into a cash-out refinance.
Key Terms Defined
Limited cash-out refinance: A refinance that pays off the existing first mortgage and costs with only a small amount of cash back to the borrower.
Purchase-money second lien: A second loan taken at the time of purchase to help buy the home, not to borrow against equity later.
LTV (loan-to-value): The new loan balance divided by the home’s value.
Seasoning: The minimum age of a loan, or the minimum time on title, before a given refinance is allowed.
Principal curtailment: A payment applied directly to the loan balance, used when excess proceeds must go back into the loan.
Cash-out refinance: A refinance where the borrower takes out equity, or pays off liens that were not used to buy the home.
What the New Loan Can and Cannot Pay For
The test is what the proceeds do. That one question sorts nearly every file.
Allowed: payoff of the existing first mortgage, closing costs, points, prepaids, and a second lien that financed the purchase of the home.
Not allowed without turning it into cash-out: paying off a HELOC or second mortgage that was not used to buy the property, taking meaningful cash for other uses, or paying off a home owned free and clear. A mortgage on a home owned outright is treated as cash-out by Freddie Mac, and Fannie Mae treats it the same way.
Freddie Mac’s rule is that if a junior lien is paid off, the file must show the full amount of that lien was used to buy the property. A borrower is not required to pay off a junior lien that meets the secondary-financing rules. Leaving a compliant second in place and having it resubordinated is a common structure.
Picture a homeowner with a first mortgage and a HELOC opened years after purchase to remodel a kitchen. Rolling both into one new loan feels like a simple rate-and-term refinance. It isn’t. The HELOC wasn’t purchase money, so the file is cash-out, with lower leverage and a seasoning requirement on the first mortgage.
How Much Cash Back Is Allowed?
Cash back is capped, and the cap is small. Fannie Mae’s older cap was the lesser of 2% of the new loan or $2,000. The current figure, effective in October 2025, is the greater of 1% of the new loan’s unpaid principal balance or $2,000. Freddie Mac’s figure is also the greater of 1% or $2,000, as FHFA’s inspector general documented.
Older web pages still show the lesser-of-2% version. If a page quotes it, the page is stale. Check the live Fannie Mae guide before relying on any cap, because lenders can apply their own overlays on top.
Excess proceeds above the cap don’t go to the borrower. Under Freddie Mac’s rule they are applied as a principal curtailment to the new loan and shown on the settlement statement or Closing Disclosure. On the file side, settlement reconciliation matters here: an escrow refund or overpayment left over at closing is the kind of item that gets reviewed against the cap.
Who Qualifies: The Core Requirements
These are the tests a file runs through, in the order they usually surface.
Occupancy and property. The strongest leverage is on a one-unit principal residence. Two- to four-unit principal residences sit below the one-unit figure. Second homes and investment properties are allowed under agency rules, but occupancy decides the leverage, and the ceilings are lower.
Leverage. On the wholesale programs Lendmire works with, a one-unit principal residence refinance reaches 95% LTV. It reaches 97% where the existing loan is agency-owned and the first-time-buyer program allows. For comparison, a conventional cash-out refinance on a one-unit principal residence tops out at 80% LTV. That gap is the main reason borrowers care about the classification. Lendmire’s piece What Is The Maximum LTV For A Conventional Cash Out Refinance? covers the cash-out side in detail. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Credit and ratios. The wholesale conventional programs start at a 620 decision score, and the automated underwriting finding governs most files, with a total debt-to-income ceiling of 50%. Manually underwritten loans run to 36% or 45%, with the reserve and score factors of the Eligibility Matrix. Higher leverage tiers generally ask for more from the file. Subject to lender guidelines.
Mortgage insurance. Required above 80% LTV. You may request cancellation at 80% of the original value with a good payment history, no subordinate liens and no decline in value, and the servicer must terminate it automatically at 78%. A limited cash-out refinance at high leverage starts the insurance clock fresh, so the file should show it. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Underwriting method. Most files run through automated underwriting. The 95.01% to 97% tier must use it. Manual underwriting is not an option there.
The 97% Tier: The Existing Loan Must Be Agency-Owned
Anything above 95% LTV on a limited cash-out refinance depends on who owns your current loan. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The Fannie Mae Eligibility Matrix says Fannie Mae must own the existing mortgage for the highest tier. Fannie Mae’s High LTV Refinance Option describes the path for on-time borrowers whose new LTV exceeds 95% on a one-unit principal residence.
How does the lender prove it? The application and the automated system carry an “Owner of Existing Mortgage” field. If that finding can’t confirm ownership, the lender documents it from the servicing system, the current servicer, or Fannie Mae’s Loan Lookup tool. Fannie Mae spells out this proof in its HomeReady eligibility section of the Selling Guide, which is where the ownership-verification steps are written.
A file that assumes 97% and then finds a privately held or portfolio loan falls back to the lower tier. Ownership documentation up front prevents that.
Title, Ownership and the Clocks That Apply
Three different clocks get confused. Keeping them apart clears up most of the conflicting advice online.
| Clock | Limited cash-out | Cash-out |
|---|---|---|
| Age of loan being paid off | Freddie Mac: 30 days if it is itself a refinance | 12 months, note date to note date |
| Time on title | Borrower on title at application | At least 6 months, with exceptions |
| Cash back | Small cap | Meaningful equity access |
The 12-month first-mortgage rule is a cash-out rule, per Fannie Mae’s cash-out section. It does not govern limited cash-out. That is exactly why some borrowers choose this product when they want to refinance sooner and don’t need cash.
Title. Fannie Mae requires at least one borrower on the new loan to be on title at the time of initial application. The named exceptions are:
- an inheritance or legal award, such as a divorce, separation or dissolution of a domestic partnership
- a revocable trust where the borrower is the primary beneficiary
- a borrower who is obligated on the loan being paid off but not on title
- an LLC majority-owned or controlled by the borrower, which must be transferred into the individual’s name
Clearing title issues before the file goes in saves rework. A vesting problem found at the end sends the file backward.
Where the General Rule Breaks
Limited cash-out refinance rules have a handful of named edge cases.
Buying out a co-owner. Both agencies provide a path. Fannie Mae includes refinances to buy out an owner’s interest in the same section. The borrower keeping the home must qualify on their own. Freddie Mac handles buyouts under a separate cash-out category, so the classification differs by agency. Divorce buyouts are the common case, and the paperwork is the legal award or agreement.
Construction-to-permanent. Single-closing loans can be processed as purchases or limited cash-out refinances, and may pay off the lot lien. Two-closing loans are processed as limited cash-out or cash-out refinances, per the Fannie Mae matrix notes. An installment land contract signed more than 12 months before application can also be paid off.
Renovation loans. Under a Fannie Mae announcement, a HomeStyle Renovation limited cash-out refinance allows no cash proceeds at all, not even the small amount a standard limited cash-out file would permit.
HomeReady. Limited cash-out refinances are allowed. High-balance and adjustable-rate loans are not.
Manufactured homes. Leverage is lower than on site-built homes, and some structures are ineligible.
Limited Cash-Out vs. Cash-Out: A Side-by-Side
| Factor | Limited cash-out | Cash-out |
|---|---|---|
| Purpose | Change rate or term | Take out equity |
| LTV, one-unit primary | 95%, or 97% in the agency-owned case | 80% |
| First-mortgage seasoning | Generally none beyond 30 days on a prior refinance | 12 months |
| Cash back | Small cap | Open to equity |
| Second-lien payoff | Only if purchase-money | Any |
Leverage headroom is the real cost of crossing the line. A homeowner who is a few thousand dollars over the cash-back cap, or who pays off one non-purchase second, can lose well over ten points of available leverage. Pricing also differs by transaction type, and that varies by lender and loan scenario.
If the goal is real equity access, the cash-out side applies, and Lendmire’s cash-out refinance programs cover it.
Documentation Lenders Ask For
A clean file here is mostly about proving the classification. Expect to supply:
1. The current mortgage statement, showing the payoff and the loan’s note date.
2. Evidence of how any second lien began, if it is being paid off. A closing disclosure from the purchase usually does it.
3. Title and vesting documents, plus anything supporting an exception such as a divorce decree, trust or death certificate.
4. Proof that the existing loan is agency-owned, for the 95.01% to 97% tier. The lender pulls this.
5. Income, asset and reserve documentation as the automated findings or the Eligibility Matrix require.
6. An appraisal, unless the automated finding allows a waiver. That depends on the underwriting message, so it varies file to file.
The borrower then receives the standard Loan Estimate and Closing Disclosure. The CFPB explainer shows how they separate loan costs from other costs.
How to Tell Which Transaction You Are
Run these questions in order. Questions 1 through 4 should each be a “yes” for a limited cash-out candidate. A “yes” to question 5 or 6 moves the file to cash-out.
1. Is the home your principal residence, and is it one unit? If not, expect lower leverage.
2. Is anyone on the new loan on title now, or covered by a named exception?
3. Does the new loan only pay off the first mortgage, financed costs and a purchase-money second?
4. Is the cash back within the cap?
5. Is the home free and clear? If yes, it is cash-out.
6. Is any HELOC or second being paid off that wasn’t used to buy the home? If yes, it is cash-out.
If you answer “yes” to the first four and “no” to the last two, the file is a limited cash-out candidate.
Common Misreads
“Limited means no cash.” Some cash back is allowed, within the cap.
“Paying off my HELOC is always rate-and-term.” Only if that lien financed the purchase.
“Both agencies use the same rules.” The names and seasoning details differ.
“Anyone can get 97%.” It needs a one-unit principal residence and an agency-owned existing loan.
“The old cap still applies.” The cap changed in late 2025. Older pages are stale.
Closing costs also deserve a note. The balance of a limited cash-out loan sits close to the payoff plus financed costs, so financing costs raises the balance. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Can I roll closing costs into a limited cash-out refinance?
Yes. Closing costs, points and prepaids can be financed into the new loan. The balance rises accordingly, and LTV is measured on the larger amount. That matters most near the 95% and 97% ceilings, where financed costs can push the file over.
Does a limited cash-out refinance have a waiting period?
Not the 12-month first-mortgage rule. That belongs to cash-out refinances. Freddie Mac asks that a refinance being paid off be at least 30 days old by note date. Title requirements still apply, and lenders can add their own overlays.
What happens if I have a HELOC?
It depends on the HELOC’s origin. A second lien that financed the purchase can be paid off in a limited cash-out file. A HELOC opened later, or any non-purchase second, makes the file a cash-out refinance if it is paid off. A compliant second can often stay in place.
Is the cash-back cap the same everywhere?
The agency figure is the greater of 1% of the new loan balance or $2,000, but lenders can set stricter limits. Older pages quote a lesser-of-2% rule that no longer reflects the current guide.
Can I get 97% LTV on any home?
No. The top tier applies to a one-unit principal residence where the existing loan is agency-owned and the first-time-buyer program allows. Ownership has to be documented, and the file runs through automated underwriting. All terms 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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program 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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References
1. FHFA Office of Inspector General, Recent Trends in Enterprise Cash-Out Refinances
2. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
3. Freddie Mac Guide Section 4301.4, “No cash-out” Refinance Mortgages
4. Freddie Mac Guide Section 4301.5
5. Fannie Mae Eligibility Matrix
6. Fannie Mae High LTV Refinance Option
7. Fannie Mae Selling Guide B5-6-01, HomeReady Mortgage Loan and Borrower Eligibility
8. Fannie Mae Selling Guide B2-1.3-03
9. Fannie Mae (document 20786)
11. CFPB Loan Estimate explainer
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: Conventional Cash-Out Refinance Requirements for Buying Out Your Spouse · Conventional Cash-Out Refinance Credit Requirements by Occupancy and LTV · How Much Cash a Conventional Cash-Out Refinance Should Release
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.