The Quick Read: The rule is a cap on the whole new loan, measured against your home’s appraised value. It is not a share of your equity that you get to borrow. On a one-unit home the cap is typically 80% of value, so you keep at least 20% equity after closing. Your cash is whatever room is left under that cap once the old loan and financed costs are paid off. Program figures here are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
What the Rule Actually Says
Most people hear “minimum equity” and picture a bar to clear before they can apply. That is half right. The better picture is a ceiling on the new loan.
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: 7.24% as of October 29, 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.
Equity is your home’s value minus everything secured against it. A cash-out refinance replaces your current mortgage with a bigger one. The new loan pays off the old one, covers financed costs, and hands you the difference.
The lender then asks one question: is the new loan, divided by the appraised value, at or under the cap? That ratio is loan-to-value, or LTV. If it is, there is room to pay you cash. If it is not, the cash shrinks or disappears.
Flip the cap around and you get the “minimum equity” version. An 80% LTV cap means you must still own at least 20% of the home after closing. Same rule, two ways of saying it. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Across the wholesale programs Lendmire places consumer files with, the caps run like this on a conventional loan:
- One-unit principal residence: 80% LTV.
- Two- to four-unit principal residence: 75% LTV.
- Second home or investment property: 75% LTV. Occupancy sets the leverage, so the same house can carry a different cap depending on how you use it. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
You will find more on how these loans are arranged on Lendmire’s cash-out refinance programs page.
Key Terms Defined
Loan-to-value (LTV): the new loan amount divided by the appraised value of the home.
Equity: the home’s value minus all loans secured by it.
Cash-out refinance: a new, larger first mortgage that pays off the old one and gives you the difference in cash.
Seasoning: the waiting period a loan or your ownership must age before it counts, such as months on title.
Note date: the date on the signed loan document, used to measure how old a mortgage is.
Limited cash-out refinance: a refinance that pays off the old loan and costs, with only a small amount of cash back. Lenders often call it rate-and-term.
The Math, Step by Step
The formula is short. Appraised value times the cap, minus what you owe, minus financed costs, equals your maximum cash.
Walk through it in order.
1. The appraisal sets the denominator. Everything is measured against appraised value. Your purchase price, your tax assessment and the online estimate you checked last night do not count.
2. The payoff comes first. The new loan must cover your current first-mortgage payoff, any other liens being paid, and any costs rolled into the loan. Cash to you is what remains under the cap.
3. The cap applies to the whole new loan. If you keep a second mortgage in place, it counts toward the combined ratio the lender measures.
4. Other tests run alongside. Seasoning, credit, income ratios and occupancy all apply. Passing the equity test does not clear the rest.
Three Worked Examples (in Percentages)
The table below uses a one-unit home at an 80% cap. Every figure is a percentage of appraised value, and these are modeled assumptions, not quotes.
| Scenario | Payoff plus financed costs | Cap | Maximum cash |
|---|---|---|---|
| Comfortable | 42% of value | 80% | 38% of value |
| Borderline | 76% of value | 80% | 4% of value |
| Short | 81% of value | 80% | None; short by 1% |
Look at the borderline row. The owner has plenty of equity on paper, roughly a quarter of the home. Yet only a sliver is available, because the cap protects 20% and the payoff eats nearly everything else.
The short row is not a rejection of the home’s value. It just means the numbers do not fit under this cap today.
How Low Appraisals Eat Your Cash
The appraisal moves your cash dollar for dollar at the cap percentage. Say the borderline owner above, whose payoff is 76% of value against an 80% cap, gets an appraisal 5% below what they expected. The same payoff now works out to roughly 80% of the new, lower value, so the margin that was there before is essentially gone. Maximum cash drops from a small amount to about zero.
That is why cash-out files can feel fragile. A small miss on value does not trim your cash a little. It can wipe out the thin margin you were counting on.
Working Backward From the Cash You Need
Most borrowers start with a number, not a formula. They need cash for a project, so work it in reverse.
Add your payoff and financed costs to the cash you want. Divide that total by the cap, written as a decimal: 0.80 for a one-unit principal residence, 0.75 for the other occupancy types. The answer is the appraised value you need.
If your likely appraisal falls short of that value, you have four honest choices:
- Take less cash.
- Pay the balance down first.
- Wait for the value to rise.
- Pick a different product.
Why You Need More Equity Going In Than the Minimum
A common surprise: “I have 25% equity, so I can pull out 5%.” Close, but costs are rolled in the same loan and count under the cap. Your usable cash is smaller than the gap between your equity and the minimum.
There is also a mortgage insurance wrinkle. Mortgage insurance is a monthly charge that protects the lender when your equity is thin. On the agency path it is required above 80% LTV, except in the wholesale no-mortgage-insurance cash-out lane described below. Because the standard conventional cash-out sits at or below 80%, it usually avoids that charge. The cap and the mortgage insurance threshold line up.
When mortgage insurance does apply to a loan, you can ask to cancel it at 80% of the original value with good payment history, no subordinate liens and no decline in value. The servicer must end it automatically at 78%, under the Homeowners Protection Act.
The Rule by Loan Type
Conventional is only one lane. Here is how the major types differ in plain words.
| Loan type | How the equity test works |
|---|---|
| Conventional cash-out | Cap of 80% (one unit) or 75% (two to four units, second homes, investment) |
| Conventional limited cash-out | Much higher cap, with only incidental cash back |
| FHA cash-out | Its own cap set by HUD, with owner-occupancy and ownership rules |
| VA cash-out | VA’s ceiling is high, but many lenders set their own lower cap |
| FHA Streamline / VA IRRRL | No cash-out equity cap, and no meaningful cash back |
A few details sit behind that table.
Conventional rules come from the agencies. Fannie Mae’s eligibility matrix lists the maximum ratios by transaction type and unit count. The cash-out caps match the figures above. Matrices get updated, so a lender confirms the current version at the time of your file.
Limited cash-out is a different animal. On a one-unit principal residence, rate-and-term reaches 95% LTV, and 97% where the existing loan is agency-owned and the first-time-buyer program allows it. The new loan pays off the existing first mortgage, closing costs and a purchase-money second lien. Cash back is incidental only: Fannie Mae allows the lesser of 2% of the new loan amount or $2,000, while Freddie Mac allows the greater of 1% of the new loan amount or $2,000. Buying out a co-owner under a written agreement is also treated as limited cash-out at both agencies. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Government loans follow their own books. FHA standard cash-out and VA cash-out each have a ceiling set by their agency, and a lender can set a lower one. The VA’s own guidance in VA Pamphlet 26-7, Chapter 6 draws a hard line between a cash-out and an IRRRL, the VA’s streamline. The IRRRL cannot put cash in your hand and only refinances an existing VA loan. The FHA Streamline works the same way for an existing FHA loan, with no appraisal and a limited credit review. Both require a net tangible benefit, meaning the new loan must improve your position in a way the program recognizes.
Jumbo is a separate lane. Above the conforming loan limit, jumbo programs take over, with their own leverage and score rules.
The One Exception to the 80% Ceiling
One wholesale lane reaches 89.99% LTV on a cash-out with no mortgage insurance. It has tight conditions: a 680 score, a 50% total ratio, a thirty-year fixed rate, a primary residence, a conforming loan balance and its own six months of seasoning. It is the exception, not the baseline, and it is subject to lender guidelines and full file review.
Texas is the other exception worth knowing. A cash-out on a Texas homestead, known as a Section 50(a)(6) loan, is capped at 80% of the home’s value by the state constitution. That cap is state law, not an agency preference. The 89.99% wholesale lane is not written there.
Other Tests That Sit Next to the Equity Rule
Equity is one gate. Plenty of borrowers clear it and stall on another.
Two separate clocks. On a conventional cash-out, the first mortgage being paid off must be at least 12 months old, measured note date to note date, per Fannie Mae’s cash-out guide. Separately, at least one borrower must have been on title for six months. Freddie Mac’s cash-out section carries the same six-month title test.
Those clocks are independent. You can have enormous equity and still wait.
A recent refinance resets the loan-age clock. A new rate-and-term loan creates a new note. Before it can be paid off in a conventional cash-out, it needs to reach 12 months.
Exceptions exist. Delayed financing helps someone who bought a home with cash and wants to recover that money. Inheritance and legal awards are other exceptions to the title wait. A delayed-financing loan still sizes and prices as a cash-out.
Credit and ratios. The wholesale conventional programs start at a 620 decision score, and 640 on an adjustable rate under manual underwriting. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45% ratios along with the reserve and score factors in the eligibility matrix. After a credit event, the agencies set waiting periods: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
A paid-off home still counts. Taking a new loan on a house with no mortgage is a cash-out refinance. It is not a “no-cash-out” transaction, and the same equity cap applies.
One Practitioner Note on How Files Actually Stall
What stalls a file is knowable before you apply. Pull your payoff statement, check the dates on your current note and on your title, and run the formula with a value 5% under your hope. If the answer still works, you have margin.
What to Do If You Fall Short
A shortfall is information, not a verdict. Your options, roughly in order of how often they fit:
1. Take less cash. A smaller request at the same value may clear the cap.
2. Pay the balance down. Every point of payoff you remove frees a point of cash under the cap.
3. Wait out a clock. If seasoning is the issue and not equity, time solves it.
4. Improve the value. A project that raises the appraisal can lift your ceiling, though the appraiser decides what counts.
5. Switch products. A home equity line or home equity loan sits behind your existing first mortgage and leaves it alone.
The tradeoff between the last option and a cash-out is real.
| Factor | Cash-out refinance | HELOC or home equity loan |
|---|---|---|
| What it replaces | Your first mortgage | Nothing; adds a second lien |
| When cash arrives | Once, at closing | Lump sum or as drawn |
| Equity cap applies to | The whole new loan | Combined balance of both loans |
| Existing first loan | Paid off and replaced | Stays in place |
Risks, and When It Is Not Worth It
Taking cash out means you own less of the home afterward. Rebuilding that equity takes time. The CFPB’s home equity guide says a cash-out can lengthen the time it takes to pay off your mortgage, and that lenders generally want you to keep some equity afterward.
Three situations deserve a hard second look:
- Your current loan is the better product. Replacing a good first mortgage to fund a smaller need can cost more than it gives.
- You are paying off other debt. Moving credit card or auto balances into a mortgage lowers the monthly squeeze but secures that debt against your home.
- Your margin is thin. If a modest appraisal miss ends the deal, you may spend on an appraisal for nothing.
Common Misconceptions, Corrected
“I can borrow 80% of my equity.” No. The cap is on the whole loan against value. With 50% equity, you are not borrowing 40% of anything. You are borrowing up to the point where 20% remains.
“Six months on title is the only wait.” Conventional loans also test the age of the loan you are paying off.
“A high appraisal guarantees cash.” The cap is one test. Credit, income and reserves still apply.
“VA lets everyone borrow to the maximum.” VA’s ceiling is not the lender’s ceiling. Many lenders set a lower cap.
“The IRRRL can pay out cash.” It cannot.
A Self-Check Before You Apply
Run this list at the kitchen table:
1. Find your current payoff.
2. Estimate value, then subtract 5% as a stress test.
3. Multiply by 0.80, or 0.75 if the home is multi-unit or not your primary residence.
4. Subtract the payoff and a margin for financed costs.
5. Check the age of your current loan and your time on title.
6. Compare the result to the cash you need.
If the number is positive and the clocks have run, you have a file worth starting. If not, you now know which lever to pull.
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
What is the minimum equity I must keep after a cash-out refinance?
On a conventional one-unit principal residence, typically 20%, since the cap is 80% LTV. For two- to four-unit principal residences, second homes and investment property, it is typically 25%. One wholesale no-mortgage-insurance lane goes to 89.99% under tight conditions, subject to lender guidelines.
Can I take out 80% of my home’s value?
Not as cash. The 80% cap covers the entire new loan, including your payoff and financed costs. What you can take is the room left after those come out.
Does a low appraisal change how much cash I get?
Yes, dollar for dollar at the cap percentage. A modest drop in value can turn a thin cash-out into zero, which is why a stress test before applying helps.
Does a house I own free and clear count as a cash-out?
Yes. A new loan on a home with no mortgage is a cash-out refinance and follows the same equity cap and title rules.
How does a limited cash-out differ from a cash-out?
A limited cash-out pays off the old loan and costs and returns only incidental cash. It reaches much higher leverage, up to 95% on a one-unit principal residence and 97% in a qualifying case, but it will not fund a large cash need.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
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 Eligibility Matrix
2. VA Pamphlet 26-7, Chapter 6: Refinancing Loans
3. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
4. Freddie Mac Guide §4301.5: Cash-Out Refinance Mortgages
5. 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: Cash-Out Refinance Requirements on a Co-Owned Home · Cash-Out Refinance Requirements for How Much Home Equity You Can Borrow · Best Cash-Out Refinance Program for First-Time Home Equity Borrowers
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
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.