The Quick Read: A conventional cash-out refinance replaces your current mortgage with a bigger one, and the extra money comes to you only after everything else is paid. The lender takes the appraised value, applies the loan-to-value cap, and subtracts your old loan, any liens being paid off, and costs you finance. What is left is your cash. The cap limits the new loan, not the share of equity you can take.
Key Takeaways
- On a one-unit primary residence, the new loan generally tops out at 80% of the appraised value. Two- to four-unit homes, second homes and investment property generally top out at 75%.
- The order is fixed: the old first mortgage and other liens are paid first, financed costs come next, and you receive what remains.
- A lower appraisal shrinks your cash, but not dollar for dollar. The cap applies to the appraisal, so the new loan drops by only about 80% of the appraisal drop on a one-unit primary residence.
- Waiting periods can block or delay a cash-out loan. Check them before you apply.
Program figures here are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
What Is a Conventional Cash-Out Refinance?
It is a new first mortgage on the home you already own. The new loan pays off your existing mortgage and hands you the leftover equity. Fannie Mae’s Selling Guide describes it the same way. It can also be a new mortgage on a home with no existing lien, meaning one you own free and clear.
“Conventional” means the loan follows Fannie Mae or Freddie Mac guidelines instead of FHA or VA rules. A lender can set stricter rules than either agency, so two lenders can give two different answers on the same file.
Brokers like Lendmire arrange these loans through wholesale lenders. The cash-out refinance programs Lendmire places are explained on its page for cash-out refinance programs.
One common mix-up: this is not a home equity loan or a HELOC. Those add a second lien and leave your first mortgage alone. A cash-out refinance replaces the first mortgage entirely.
How Much Equity Can a Lender Actually Pay Out?
The cap is on the new loan, not on your equity. On a one-unit primary residence, conventional cash-out generally allows a new loan up to 80% of the appraised value. That means you keep at least 20% equity in the home after closing.
The Fannie Mae Eligibility Matrix sets the caps by occupancy and unit count. Here is how they stack up:
| Property and occupancy | Cash-out cap (LTV) |
|---|---|
| Primary residence, 1 unit | 80% |
| Primary residence, 2-4 units | 75% |
| Second home | 75% |
| Investment property | 75% |
Those are the standard figures. Individual lenders may set tighter limits.
Occupancy decides leverage. If the property is not your main home, expect the lower cap.
Across the wholesale programs Lendmire works with, there is also a special lane that reaches 89.99% LTV with no mortgage insurance. It requires a 680 score and a 50% ratio on a thirty-year fixed rate, a primary residence and a conforming balance. It carries its own six months of seasoning. In Texas, a cash-out on a homestead is capped by the state constitution at the agency figure, so that lane is not written there. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
The Payout Waterfall, Step by Step
The money moves in a set order, and you are last in line. Here is the sequence.
1. Appraisal sets the value. The appraised value is the base for every number that follows. The lender applies the cap to the appraisal, not to what you think the home is worth.
2. The maximum loan is calculated. Appraised value times the cap for your occupancy and unit count gives the biggest new loan allowed.
3. Your old first mortgage is paid off. This includes interest that has built up since your last payment.
4. Other liens come next. A HELOC or second mortgage being paid off comes out of the proceeds before you see anything.
5. Financed costs are subtracted. Closing costs and prepaid items (such as the first deposits to your escrow account) reduce the cash if you roll them into the loan. Pay them out of pocket and the cash stays larger, but you spend money at the table.
6. You receive what is left. That remainder is your net cash.
In plain math: maximum loan, minus payoffs, minus financed costs, equals cash to you.
A Worked Example in Percentages
Take a one-unit primary residence appraised at 100% of value. The cap allows a new loan of 80% of that value. Say your old mortgage balance is 50% of value and you have no second lien. Financed costs run a few percent of the loan.
The new loan is 80%. The payoff takes 50%. That leaves 30% of the home’s value before costs. Subtract the financed costs, and your cash lands somewhat under 30%.
Now add a second lien equal to 10% of value. The payoff total rises to 60%. Your cash falls to roughly 20% of value, before costs.
Now run the low-appraisal version. If the home appraises lower than expected, the 80% cap applies to a smaller number. The maximum loan shrinks by 80% of the drop, not by the full drop. Your old payoff stays the same, so your cash falls by that same 80% share. The estimate you see early is not a promise.
Why is your cash lower than your equity? Because you do not get 100% of equity. You get the gap between the capped loan and everything that has to be paid.
What Has to Be True Before You Can Cash Out
Conventional cash-out has “clocks.” Each one can delay or block a loan. The Fannie Mae Selling Guide section on cash-out refinance transactions sets these:
- Loan seasoning. The first mortgage being paid off must be at least 12 months old, measured note date to note date.
- Title seasoning. At least one borrower must have been on title for six months before the disbursement date.
- Listing check. If the home was listed for sale, the listing must be off the market on or before the disbursement date.
- Reserves. For loans run through Fannie Mae’s automated underwriting system, a debt-to-income ratio above 45% calls for six months of reserves. Reserves are money left in the bank after closing.
Freddie Mac’s Seller/Servicer Guide also calls for a 12-month seasoned loan. The two agencies differ on small points, such as how the six-month ownership clock is measured. That is one reason lender overlays matter.
On credit, the wholesale conventional programs Lendmire works with start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45% ceilings, tied to score and reserve factors.
Where the General Rule Breaks
The standard clocks have named exceptions. Each one has its own conditions.
Inherited or awarded property. There is no waiting period when you inherited the home or were legally awarded it in a divorce, separation or dissolution of a domestic partnership.
Delayed financing. A buyer who paid cash can do a cash-out refinance within six months of buying. The loan must meet conditions: an arm’s-length purchase, a documented source of the cash, and no liens on the home. Lendmire’s wholesale programs treat delayed financing as an exception to the six-month title clock.
Buying out a co-owner. The 12-month loan test does not apply when you buy out a co-owner under a legal agreement. It also does not apply to subordinate liens being paid off. Freddie Mac has similar co-owner buyout language, though it is worth confirming with your lender.
Student loan cash-out. Fannie Mae allows a variant where the proceeds go straight to your student loan servicer. The student loan must be paid in full, and at least one borrower must owe on it. The standard cash-out caps still apply.
Property type. Co-op share loans do not permit cash-out refinances on second homes. Manufactured homes carry a much lower cash-out cap in the matrix, at 65%.
Limited cash-out. This is a different product. It pays off your existing first mortgage, the closing costs and any purchase-money second lien, with only incidental cash back. The caps run higher: 95% LTV on a one-unit primary residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows it. Mortgage insurance applies above 80%. If you want real cash, this is not the product. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
When Does the Money Actually Reach You?
Not at the signing table. For a refinance of your primary residence, federal rules generally give you three business days to cancel. The CFPB explains this right of rescission. Business days count Saturdays but not Sundays or legal public holidays.
In general practice, the lender holds the funds until that window closes. Then it funds the loan, the old liens get paid off, and the net equity goes to you. A title or settlement agent typically moves the money. Plan your cash needs around the window.
Before closing, the Closing Disclosure shows where every dollar goes. Check these lines against your early Loan Estimate:
- The payoff of your existing first mortgage.
- Any second liens or HELOCs being paid.
- Closing costs and prepaids that are financed.
- The cash to you at the bottom.
If the cash is lower than you expected, the usual causes are a lower appraisal, a payoff that grew with accrued interest, or costs that moved.
Rolling Costs In or Paying Them Yourself
You have two choices on closing costs. Each trades something.
| Choice | Effect on your cash | Effect on the loan |
|---|---|---|
| Roll costs in | Less cash to you | Bigger balance |
| Pay out of pocket | More cash to you | Smaller balance |
A word of caution: closing costs are charged on the whole new balance, not only the cash you take. Because the new loan is bigger than your old one, a cash-out refinance can raise your monthly payment and stretch your payoff date. Pricing on cash-out also includes loan-level adjustments, which Fannie Mae’s guide addresses in its own section. Your Loan Estimate shows how those play out on your file.
If you borrow with less than 20% equity left, mortgage insurance is a separate topic. On cash-out, the 80% cap generally keeps you above that line.
Cash-Out Refinance Versus a Home Equity Loan
| Feature | Cash-out refinance | Home equity loan or HELOC |
|---|---|---|
| Lien position | Replaces the first mortgage | Adds a second lien |
| Your current loan | Paid off | Stays in place |
| What you get | One new loan, one payment | A second loan, second payment |
| Cap | Set by agency LTV | Set by the second lender |
This is a decision about structure. If you like your current first mortgage terms, a second lien keeps them. If you want to reset the whole loan and take cash, a cash-out refinance does that in one step.
There is one thing worth weighing: the honest answer to “which is better” depends on what you hold now. Keeping an existing first mortgage you like and adding a second lien can beat resetting the whole loan. For some homeowners the reverse is true. Run both before choosing.
What a Borrower’s Decision Looks Like
Picture a homeowner who has owned for several years, owes a little over half the home’s value, and wants cash for a major repair. The first question is the clock check: has the loan seasoned 12 months, and has she been on title six months? Then comes the cap: 80% of appraised value, less the payoff, less financed costs. Last is the question that matters most: is the extra balance worth carrying?
If the number is thin, a lower-appraisal case could erase it. Some borrowers then compare a second lien or a smaller cash-out.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Lendmire’s article How Much Equity a Conventional Cash-Out Refinance Releases takes the same math further.
Key Terms Defined
Appraised value: The value an appraiser assigns to your home. It is the base for the loan-to-value cap.
Loan-to-value (LTV): The new loan divided by the appraised value, shown as a percentage.
Seasoning: The waiting period a lender requires, such as how long you have owned the home or held the loan.
Payoff: The amount needed to clear an existing mortgage or lien, including accrued interest.
Financed costs: Closing costs and prepaid items that you roll into the new loan instead of paying in cash.
Reserves: Money you still have in the bank after closing, counted by lenders as a safety cushion.
Rescission: The right to cancel certain refinances during a limited window after signing; the exact timing depends on the loan type and the lender’s disclosures.
Frequently Asked Questions
Do I get a check or a wire?
Usually the settlement agent sends the net cash after the rescission window closes. The method, such as a check or an electronic transfer, depends on the lender and the title company. Ask which one they use before closing so you can plan for the deposit.
Why is my cash lower than my equity?
Because the new loan stops at the cap, commonly 80% of value on a primary residence. Your old mortgage, any liens and financed costs come out of that capped loan first. You keep the remainder, not the full equity.
Can I cash out right after buying my home?
Usually not. The loan being paid off must be at least 12 months old, and a borrower must have been on title six months. Exceptions exist, including delayed financing after a cash purchase, inheritance, and legal awards in a divorce.
Does a home I listed for sale still qualify?
Yes, if the listing is off the market on or before the disbursement date. It is a one-date check, not a permanent bar.
Is a cash-out refinance the same as limited cash-out?
No. Limited cash-out pays off your first mortgage and costs, with only incidental cash back, and it allows higher leverage. A cash-out refinance is the one designed to put real equity in your hands.
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 brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see conventional loan programs.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
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 Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
2. Fannie Mae Eligibility Matrix
3. Freddie Mac Seller/Servicer Guide §4301.5
4. CFPB: Right of Rescission on a Refinance
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How a Conventional Lender Structures a Cash-Out Refinance · Do You Qualify for a Conventional Cash-Out Refinance? · How Much Equity a Conventional Cash-Out Refinance Requires You to Keep
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
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.