The Quick Read: A conventional cash-out refinance lets you turn part of your home equity into cash, but never all of it. On a one-unit home you live in, the loan generally tops out at 80% of the appraised value, so about 20% equity stays in the house. Your cash is that capped loan, minus what you owe, minus any second liens and financed costs. “Equity share” here means home equity, not business ownership.
Key Takeaways
- The cap applies to the new loan, not to your equity. Equity is value minus what you owe, and the cap decides how much of it you can reach.
- Net cash is always smaller than headline equity, because payoffs, second liens and financed costs come out first.
- The appraisal drives everything. A lower value shrinks the cash by the cap percentage of the lost value, so each dollar of value lost takes less than a dollar of cash, but the loss is still significant.
- Seasoning, occupancy, credit and the debt-to-income ratio can each limit you before the cap does.
- Sizing means choosing an amount, not just finding the maximum.
What Does “Sizing Your Equity Share” Actually Mean?
Sizing means deciding how much of your equity to pull out, which can sit well below the maximum. Equity is what the home is worth minus what you owe on it. The lender’s cap sets the ceiling on the new loan. You choose where to land underneath it.
Think of three numbers. The first is the appraised value. The second is the cap, expressed as a percentage of that value. The third is everything the new loan must pay off: your current first mortgage, any second lien, and costs you choose to finance.
The formula in words: value times the cap percentage, minus payoffs, minus financed costs, equals cash to you.
Most online explanations stop at the maximum. A better question is how much you should take. The sections below answer both.
How Is a Conventional Cash-Out Refinance Underwritten, Step by Step?
Underwriting runs in a fixed order: classify the loan, check seasoning, confirm occupancy, establish value, test your ratios, then disclose and close. Each step can stop the file, so knowing the order helps you spot your own weak point early.
1. Classification. The lender first decides whether this is a limited cash-out (rate-and-term) refinance or a true cash-out. Taking cash above a small incidental amount, or paying off a second lien that wasn’t used to buy the home, makes it a cash-out. Per the Fannie Mae Selling Guide on cash-out refinance transactions, the new loan can pay off existing mortgages, finance closing costs and prepaids, pay off subordinate liens of any age, or put equity in your hands for any purpose.
2. Seasoning. The first mortgage being paid off must be at least 12 months old, measured note date to note date. At least one borrower must also have been on title for six months. Exceptions exist for delayed financing after a cash purchase, inheritance and legal awards.
3. Occupancy. On a primary residence, every borrower on the loan must live in the home. Freddie Mac’s cash-out guide section spells out that requirement. A relative who co-signs but lives elsewhere generally won’t work on this type of loan.
4. Value. Most files need an appraisal. Some qualify for “value acceptance,” which replaces the appraisal when the automated system offers it. Don’t count on that for a cash-out.
5. Capacity. Across the wholesale programs placed through Lendmire, the automated finding governs most files, with a total debt-to-income ceiling of 50%. Manually underwritten loans run 36%, or 45% when the score and reserve factors in the agency Eligibility Matrix are met. The wholesale conventional programs start at a 620 decision score. Cash-out can pull the ratio ceiling lower than 50% on some files, so a borrower at the edge should expect a closer look.
6. Disclosures and closing. You receive a Loan Estimate, then a Closing Disclosure. Compare the two line by line. For a refinance of the home you live in, you generally have a short right-of-rescission window after closing to cancel, and funds are normally disbursed after that window ends. Timing varies by file and lender.
All of this is subject to lender guidelines and full file review.
How Much Cash Can You Actually Reach? The Leverage Caps
For a conventional cash-out on a one-unit primary residence, the cap is 80% of value. For two- to four-unit primary residences, second homes and investment property, it is 75%. Occupancy and unit count decide the number, not the lender’s mood.
The Fannie Mae Eligibility Matrix lists the caps by unit count and occupancy, and the Freddie Mac guide sets matching primary-residence limits. If the property is a rental or second home, the answer is one sentence: the lower 75% cap applies, and the rest of this article is written for the home you live in.
| Property and use | Typical cash-out cap |
|---|---|
| One-unit primary residence | 80% |
| 2-4 unit primary residence | 75% |
| Second home | 75% |
| Investment property | 75% |
One wholesale lane reaches 89.99% on a thirty-year fixed on a primary residence with a conforming balance and no mortgage insurance. It requires a 680 score, a 50% ratio and its own six months of seasoning. It is an exception, not the baseline, and it is not written in Texas, where the state constitution caps a homestead cash-out at the agency figure. Exact terms depend on lender and investor guidelines, credit profile, reserves, and property review.
What Counts Against Your Equity Before You Get Cash?
Anything the new loan must retire reduces your cash, and it all counts toward the cap. That includes the existing first mortgage, any HELOC or second lien, and any closing costs or prepaid items you choose to roll in.
This is where owners get surprised. Say you own a home worth 100 units of value with a first mortgage at 45% of that value. On a primary residence at the 80% cap, the new loan can reach 80, so up to 35 points of value could come back to you. Now add an open HELOC at 10% of value. That second lien must be paid off in the new loan, so cash drops to 25 points. Roll in financed costs and it shrinks again.
Combined loan-to-value (CLTV in Fannie Mae terms, TLTV in Freddie Mac’s) includes subordinate financing. A drawn HELOC, even one you forgot about, comes straight out of your proceeds.
Home equity loans and HELOCs leave your first mortgage in place. A cash-out refinance replaces it. That difference matters when you compare the two, which the decision section below takes up.
How Does the Appraisal Change Your Cash?
A lower appraisal reduces your cash by the cap percentage times the shortfall, so a small miss in value costs more than you might expect. Run it in percentages.
Take the same home at a modeled value of 100 and a modeled first mortgage of 45. At 80% the loan is 80, and cash before costs is 35. If the appraisal comes in 5% lower, the value is 95, the loan cap is 76, and cash before costs is 31. A 5% value miss cost you about 11% of your cash.
The mirror image applies to your own estimate. If you counted on a neighborhood sale price and the appraiser weighs older comparable sales, you may land lower. Size your plan to a value you could live with, not the best case.
Where the General Rule Breaks
The 80% rule is a general rule with named exceptions. These are the ones that come up most.
- Delayed financing. Someone who bought with cash can sometimes take cash out without the usual wait, if the original purchase was an arm’s-length transaction and the source of funds is documented. Check the current agency terms before relying on it.
- Co-owner buyout. Freddie Mac treats a buyout as a special-purpose cash-out and exempts it from the 12-month seasoning rule. Fannie Mae can treat the same buyout as a limited cash-out.
- HELOC that is the first lien. Freddie Mac exempts paying off that kind of HELOC from its seasoning rule.
- LLC or limited partnership title. Special time-on-title rules apply, so talk to your loan officer before closing a transfer.
- Manufactured housing. Single-width manufactured homes are generally not eligible for conventional cash-out.
- Loan size. The new loan must stay within your county’s conforming limit. Above it, you’re in jumbo territory, where different programs take over. Check your county on the FHFA conforming loan limit page.
- Recent credit events. 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.
What About Co-Owners and Title?
Everyone on title has a stake in the decision, and the lender will typically require every titleholder who lives in the home to be on the loan. Ownership shares don’t change the loan cap, which applies to the whole property value. They change who must agree and sign.
If two people own a home together, settle these before applying:
- Who stays on title after closing?
- Is one owner using the loan to buy the other out? That may be a buyout, not a plain cash-out.
- Does anyone on the loan not live in the home? That can cause a problem on a primary-residence cash-out.
An owner holding a partial share can’t size cash alone. The home is valued as a whole, the payoffs come from the whole, and the signatures come from everyone. A disagreement over who gets the proceeds is better solved before the application than at the closing table.
How Much Should You Take? (The Decision Most Guides Skip)
Take the amount the use of funds justifies, not the amount the cap allows. A smaller draw leaves a bigger equity cushion, and the cushion is what protects you if values dip.
Here is a practical way to size it.
Start with the purpose. The CFPB reports that paying off other debts is a common reason borrowers cash out, with home repairs or construction next. A defined project with a known cost is easier to size than “as much as possible.”
Stress-test the cushion. After the loan, a one-unit home at the cap keeps about 20% equity. Now imagine values fall 10%. Your cushion thins to roughly half of what it was. Ask whether you could still sell, refinance or ride it out. If the answer is uncertain, take less.
Watch the unsecured-debt trade. Rolling credit card or personal debt into the mortgage can make the monthly picture feel better. The CFPB’s research cautions that converting non-mortgage debt into debt secured by your home can put the home at risk if payments become unsustainable. Unsecured balances don’t threaten the house. Mortgage balances do.
Compare the alternatives. A HELOC or home equity loan leaves your existing first mortgage untouched. If your current first mortgage has terms you would rather keep, a second lien may beat a cash-out. If you also want to change the term or restructure the loan, a cash-out refinance may fit better. The honest flip point: the more your existing loan is worth keeping, the less a cash-out makes sense.
Count the balance effect. A cash-out replaces your loan with a larger one, so the balance rises, and the term and monthly obligation change. Your loan officer can show you the Loan Estimate for different draw amounts side by side, and that comparison does more than any rule of thumb.
What Do the Costs and Pricing Look Like?
Closing costs can be financed into the new loan, and cash-out carries a loan-level pricing adjustment based on your loan-to-value and credit score. The exact pricing varies by borrower and loan scenario, so it can’t be quoted here.
Two mechanics are worth knowing. First, rolling costs in raises the loan amount and counts against the cap, so it reduces your net cash. Second, paying costs out of pocket keeps the balance lower but means less cash in hand at closing.
Mortgage insurance usually isn’t a factor on a cash-out at 80%, since it’s required above 80% loan-to-value. At the 89.99% lane described earlier, no mortgage insurance applies, which is part of why that lane has tighter score and seasoning conditions.
On your Closing Disclosure, compare the final numbers with your Loan Estimate. According to the CFPB’s home loan toolkit, charges for services you can shop for may rise at closing, generally by no more than 10% of the Loan Estimate figure.
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
Appraised value: the opinion of value an appraiser gives your home, which the lender uses to apply the cap.
Equity: the home’s value minus the total you owe against it.
LTV and CLTV: the loan-to-value ratio compares the new loan to the home’s value, and the combined version adds any other liens.
Seasoning: the minimum time you must have owned the home or held the loan being paid off.
Limited cash-out refinance: a refinance that pays off your existing loan and costs with only incidental cash back.
Right of rescission: your generally three-business-day right to cancel a refinance of the home you live in.
Frequently Asked Questions
How much equity can I take out with a conventional cash-out refinance?
Up to the point where the new loan hits 80% of the appraised value on a one-unit primary residence, or 75% on two- to four-unit homes, second homes and investment property. Your actual cash is that capped loan minus your payoffs, second liens and financed costs. It is subject to lender guidelines and full file review.
Does an open HELOC reduce my cash?
Yes. A HELOC or other second lien must be paid off in the new loan, and it counts toward the combined loan-to-value. Every point of value it takes up comes straight out of your proceeds.
Can I refinance soon after buying my home?
Usually not. The first mortgage being paid off generally must be 12 months old, and one borrower needs six months on title. Delayed financing after a cash purchase, inheritance, legal awards and co-owner buyouts are the main exceptions.
Can a family member who doesn’t live here co-sign?
Generally no on a primary-residence cash-out, because Freddie Mac requires every borrower to occupy the home. A non-occupant borrower can also face a lower debt-to-income limit on manually underwritten loans.
Can I cancel after closing?
For a refinance of the home you live in, you generally have three business days to cancel, per the CFPB’s rescission guidance. Waiving it is allowed only for a bona fide personal financial emergency, and canceling the new loan means you still owe the original one.
Where to Go From Here
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. Its cash-out refinance programs page lays out the options, so you can check them against the equity you would need before you pick a number. Pick the amount your plan needs, test it against a value dip, and then let the appraisal confirm it.
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. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
2. Freddie Mac Guide Section 4301.5, Cash-out refinance Mortgages
3. Fannie Mae Eligibility Matrix
4. FHFA Conforming Loan Limit data
6. CFPB, Can I ever waive my right to rescind?
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: How to Apply for a Conventional Cash-Out Refinance Step by Step · Can You Cash Out Refinance a Vacation Home Under Conventional Rules? · Bank vs Wholesale Lender for a Conventional Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.