The Quick Read: On a cash-out refinance, the real rule is a ceiling on the new loan, not a minimum you must own. On a one-unit primary residence, conventional programs cap the new loan at 80% of appraised value. So at least 20% of the value stays in the home as equity after closing. Two- to four-unit homes, second homes, and investment property are capped at 75%. Everything on your current mortgage and any second liens counts against that cap before you see a dollar.
Key Takeaways
- “Minimum equity” is the other side of a loan-to-value cap. Cap at 80%, equity left at 20% or more.
- Your cash is the cap amount minus every payoff and closing cost. Having equity does not mean having that much cash.
- Waiting periods can block you even when the equity is there: 12 months on the loan being paid off, 6 months on title.
- FHA Streamline and VA IRRRL have no equity test, because they do not pay out cash.
- An appraisal that comes in low shrinks your cash. Plan a buffer.
Why “Minimum Equity” Is the Wrong Question
Lenders do not ask whether you own at least some amount. They ask how big the new loan is compared to the appraised value.
That ratio is loan-to-value, or LTV. It is the loan balance divided by the home’s value. An 80% cap means the new loan can be at most 80% of what the appraiser says the home is worth.
Combined loan-to-value, or CLTV, adds any other liens that stay on the home. The cap applies to the total, not just the first mortgage. Agency rules, such as the Fannie Mae Eligibility Matrix, set LTV, CLTV, and the combined home-equity measure together.
So the question to ask is: how much room is left under the cap after what I owe today? That room is your starting point for cash.
What Does a Cash-Out Refinance Actually Do?
A cash-out refinance replaces your existing first mortgage with a new, larger one. The new loan pays off the old one, any junior liens you choose to clear, and the closing costs. You keep what is left.
Fannie Mae’s Selling Guide topic on cash-out transactions describes it this way: a new first mortgage on the same property, or a new mortgage on a home you own free and clear. Proceeds can go to any purpose.
One point surprises people. The new terms apply to the whole balance, not just the new money. If your current first mortgage is a good one, you are giving it up for everything you borrow. Weigh that before chasing the cash.
If you want to see the program family, Lendmire’s cash-out refinance programs page lays out the options Lendmire arranges through wholesale lenders.
How Is the Loan Underwritten, Step by Step?
Here is the path a file follows. Each step can change how much cash you walk away with.
Step 1: Value. An appraisal sets the value. Freddie Mac requires a new appraisal and inspection report on a cash-out. Your own estimate, an online estimate, or a neighbor’s sale does not count. The appraiser’s number does.
Step 2: The cap. Multiply the appraised value by the program cap. On conventional loans for a one-unit primary residence, that cap is 80%. For two- to four-unit primary residences, second homes, and investment property, it is 75%.
Step 3: Payoffs. Subtract what must be paid off: the first mortgage, any junior liens you are clearing, and the closing costs if you finance them. Costs financed into the loan use up cash and cap room both.
Step 4: Title and seasoning tests. Seasoning is the waiting period a lender wants between two events. For conventional cash-outs, the first mortgage being paid off must be at least 12 months old, counted note date to note date. You also need to have been on title for 6 months. There are exceptions, covered below.
Step 5: Occupancy. On a primary residence, the borrowers must live in the home. Freddie Mac’s Guide section 4301.5 says all borrowers must occupy it.
Step 6: Credit and income. The file goes through automated underwriting or a manual review. Across the wholesale programs Lendmire places files with, the automated finding governs most files. A higher debt-to-income ratio can also trigger reserve requirements. Reserves are cash or assets you hold after closing.
Step 7: Disclosures. You receive a Loan Estimate and, before closing, a Closing Disclosure. Compare the two. They show how the loan is built.
Everything above is subject to lender guidelines and full file review. None of it is a commitment to lend.
A Worked Example: Value, Cap, Payoffs, Cash
These are made-up percentages to show the arithmetic. They are not a quote.
Say your home appraises at 100% of value in the example. You live in it as a one-unit primary residence.
- Program cap: 80% of value.
- Existing first mortgage: 55% of value.
- Room under the cap: 25% of value.
- Financed closing costs come out of that 25%.
What remains is your cash. If costs are a few percent of value, your cash lands somewhat below the 25% headline. Equity of 45% sounds like a lot. Only part of it is reachable.
Second scenario: you have a junior lien
Now add a home equity line balance of 10% of value. The cap covers the combined debt.
- Program cap: 80%.
- First mortgage plus the line: 65%.
- Room under the cap: 15%, before costs.
If the new loan clears both, the 15% is your cash minus costs. If you leave the line in place, it still counts against the cap, and the lender will want it subordinated. That means the line holder agrees to stay behind the new first mortgage. Most borrowers in this spot simply pay the line off at closing.
And when the appraisal comes in low?
Take the first example again. Suppose the appraiser lands 5% below your estimate. The cap shrinks with it. Because your payoffs stay fixed, the cut comes straight out of your cash. A small value miss can erase a large share of the proceeds.
Build a buffer. Plan the project or payoff around a number lower than the one you hope for.
The Equity You Hold vs. the Equity That Must Stay
Think of two different numbers.
The first is the equity you have today: value minus all liens. The second is the equity the program requires you to leave behind: at least 20% of value on a one-unit primary residence, at least 25% on the other property types above.
Your cash is the gap between those two, less closing costs. If you have 45% equity and must leave 20%, you are looking at up to 25% of value before costs. If you have 22%, you can reach almost nothing.
The CFPB’s home equity guide says lenders typically require borrowers to keep at least 10% to 20% of the home’s value as equity. The conventional cash-out caps sit at the strict end of that range.
How Does the Minimum Change by Program and Property?
Occupancy and property type decide the cap more than anything else. This table covers the conventional cash-out lane Lendmire arranges.
| Property | Cash-out cap | Equity left |
|---|---|---|
| One-unit primary residence | 80% | 20% or more |
| Two- to four-unit primary residence | 75% | 25% or more |
| Second home | 75% | 25% or more |
| Investment property | 75% | 25% or more |
This article is about the home you live in, so the first row of the table is the one that applies here.
Manufactured homes carry lower caps than site-built homes. Some lenders also add their own stricter rules, called overlays. The agency cap is the ceiling, not a promise.
The lane
One wholesale lane stretches further. It reaches 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence, a conforming loan balance, and its own six months of seasoning. It is a narrow lane, and eligibility still depends on the full file. It is not written in Texas, where the state constitution caps a homestead cash-out at the agency figure. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Where the General Rule Breaks
Here are the edge cases that change the answer.
Owning the home free and clear still counts as cash-out. Freddie Mac treats a new mortgage on a property previously owned free and clear as a cash-out refinance. An owner who wants only a small loan on a paid-off house still faces the cash-out cap and rules.
Delayed financing. A cash buyer who wants to borrow right after purchase can use an exception to the six-month title wait. The original purchase has to have been an arm’s-length transaction with documented funds. Confirm the exact conditions against the current Selling Guide.
Inheritance and legal awards. Seasoning does not apply to inherited properties. Freddie Mac says there is no seasoning requirement for eligible mortgages and inherited properties. Divorce awards also have their own treatment.
Ineligible transactions. Some situations cannot be done as a cash-out at all, such as paying off an installment land contract. Certain PACE loan payoffs have extra conditions too.
Student loan cash-out. Fannie Mae offers a version that waives a pricing add-on when its conditions are met. It is a specific feature for paying off student debt, not a general discount.
Non-occupant co-borrowers. On a primary residence, a co-signer who lives elsewhere may not help. Occupancy rules can exclude that income.
State rules. Some states add their own home-equity rules. Texas is the well-known example. Lendmire’s comparison of a Texas homestead cash-out refinance versus a HELOC covers that case.
Why Streamlines Have No Equity Test
FHA Streamline and the VA IRRRL are separate programs. They refinance an existing government loan, and neither pays out meaningful cash.
The FHA Streamline needs an existing FHA loan that is current. It also needs a net tangible benefit, which means the change must actually help you. HUD’s streamline page limits cash back to a small amount. On Lendmire’s files, the Streamline typically skips the appraisal and uses a limited credit review.
The VA IRRRL works for an existing VA loan. It carries a 0.5% funding fee unless you are exempt, requires no VA appraisal, and requires a net tangible benefit and seasoning of the later of 210 days and 6 payments.
Neither has a minimum-equity test, because neither is a way to tap equity. A VA cash-out is a different loan from an IRRRL. It follows its own rules, including a Certificate of Eligibility and living in the home.
If your goal is cash, the streamline is the wrong tool. If your goal is a better loan on what you owe, it may be a better fit than a cash-out.
What Does the Decision Look Like in Practice?
Most owners fall into one of three spots. Each row compares the same thing: what you owe today against the cap.
| Your situation | What it usually means | Next step |
|---|---|---|
| Comfortable: debt today well below the cap | Real cash is available | Price the full terms on the whole balance |
| Borderline: debt today just below the cap | Cash is thin after costs | Test a lower request; check the appraisal risk |
| Short: debt today at or above the cap | No cash-out possible | Wait, pay down, or consider another product |
If you are short, you have options. You can pay down the balance and reapply. You can wait for appreciation or finish improvements that raise the appraised value. You can look at a home equity loan or line, which sits behind your first mortgage and leaves it untouched. That last choice keeps a good first mortgage intact, which a cash-out cannot do.
If you are comfortable, resist taking the maximum. Equity left over is your cushion against a price drop. The CFPB’s research says converting non-mortgage debt into mortgage debt can put the home at risk if payments become unsustainable. Credit card balances you roll into a mortgage are now secured by the house.
Paying off other debts is the top use of cash-out proceeds, per CFPB survey data. Home repairs come second. Renovation can add value. Debt payoff can help, but only if the habit that created the debt changes.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Five Common Mistakes
1. Treating equity as cash. Payoffs, junior liens, and costs come out first.
2. Using your own value. The appraisal sets the cap. A low one resets the math.
3. Forgetting seasoning. Equity does not beat the 12-month and 6-month tests, apart from the exceptions above.
4. Ignoring the whole-balance effect. The new terms replace your old first mortgage entirely.
5. Assuming a rate-and-term refinance lets you take cash. It allows only incidental cash back. A rate-and-term refinance can reach 95% LTV on a one-unit primary residence precisely because it does not pay out equity. Mortgage insurance applies above 80%. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Key Terms Defined
Loan-to-value (LTV): the new loan balance divided by the appraised value of the home.
Combined loan-to-value (CLTV): all loans against the home added together, divided by its appraised value.
Seasoning: the waiting period a lender requires, such as how long the old mortgage has existed or how long you have been on title.
Limited cash-out refinance: a rate-and-term refinance that pays off the existing mortgage and costs, with only incidental cash back.
Net tangible benefit: a real, measurable improvement to the borrower from a streamline refinance.
Overlay: a lender rule that is stricter than the agency’s own rule.
Frequently Asked Questions
What is the least equity I can have and still do a cash-out refinance?
On a one-unit primary residence under conventional programs, you need to leave at least 20% of the appraised value in the home, because the new loan caps at 80%. To get any cash, your current debt must be below that cap. For two- to four-unit homes, second homes, and investment property, the cap drops to 75%, so you must leave at least 25%.
Can I take out 100% of my equity?
No. The cap holds back a share of value by design. Closing costs and payoffs also reduce the cash. Even an owner with large equity gets less than that equity amount. The leftover is the cushion the program requires.
Does owning my home outright change anything?
It does not exempt you from cash-out rules. A new mortgage on a home you own free and clear is treated as a cash-out refinance. The same cap, appraisal, and seasoning rules apply, with exceptions for inherited homes and delayed financing in the right cases.
Do FHA Streamline and VA IRRRL loans require equity?
No. They are streamlines for existing government loans and pay out little or no cash, so there is no equity test. If you want to tap equity from an FHA or VA loan, you need a cash-out program with its own rules.
What if my appraisal comes in lower than I expected?
The cap is applied to the appraised value, so a lower number lowers your maximum loan. Your payoffs stay the same, so the lost value comes out of your cash. Some owners ask for a smaller loan, wait, or choose a different product instead.
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. Every program is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
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 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.
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References
1. Fannie Mae Eligibility Matrix
2. Fannie Mae Selling Guide, B2-1.3-03 Cash-Out Refinance Transactions
3. Freddie Mac Cash-Out Refinance Product Page
4. Freddie Mac Guide Section 4301.5
5. CFPB, Using Home Equity Guide
7. CFPB, Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Refinance Your Home Without a Cash-Out Refinance? · Cash-Out Refinance for Owners Asking How Much Equity Comes Out · Cash-Out Refinance for Second Home Owners Needing Cash
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- 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.