The Quick Read: The cash you get is a net number, not a share of your equity. Start with the new loan amount, subtract the payoff of your current first mortgage, then subtract any costs paid out of the proceeds. What is left is your cash. The new loan is capped by three things: the maximum loan-to-value ratio for your property, the appraised value, and the conforming loan limit for your county. On a one-unit primary residence, the conventional ceiling is 80% of appraised value, subject to lender guidelines and full file review.
Key Takeaways
- Your cash is the new loan, minus your old payoff, minus costs. It is always smaller than the equity you see on paper.
- The appraisal sets the value. Your own estimate does not.
- A two- to four-unit home, a second home, or a lower credit profile can shrink the number further.
- You need a first mortgage at least 12 months old and a borrower on title for 6 months, with a few exceptions.
- The check does not arrive at the signing table.
What Is the Formula Behind the Cash?
The formula has three moving parts, and most online guides blur them. First, the lender multiplies the appraised value by the maximum loan-to-value ratio (LTV). LTV is the loan balance divided by the home’s value, shown as a percentage. That product is the ceiling on your new loan.
Second, the new loan pays off your existing first mortgage, including interest that has built up since your last payment. Third, closing costs, prepaid items, and any other liens you pay off come out of what is left.
A cash-out refinance replaces your current mortgage with a bigger one. The difference, after those deductions, is what you receive. A home equity loan or a HELOC works differently, because it sits beside your first mortgage and leaves it alone. Lendmire’s cash-out refinance programs cover the replace-the-first-mortgage version, and that is the one this article walks through.
Here is the catch. People often subtract the payoff from the home’s value and call the result “my equity.” Then they expect that amount in cash. Not how it works. The 80% ceiling means the lender leaves a cushion of equity in the home, and costs come out of what remains.
How Does the Lender Underwrite It, Step by Step?
Underwriting a cash-out refinance follows a fixed sequence. Knowing the order helps you see where your number can change.
1. Classification. The lender labels the loan either limited cash-out (often called rate-and-term) or cash-out. The cash-out label brings lower LTV caps, a pricing adjustment grid, and seasoning rules.
2. Eligibility checks. Under the Fannie Mae Selling Guide, a cash-out refinance must pay off existing mortgage liens with a new first mortgage on the same property. The home must be your principal residence if you want the best leverage.
3. Seasoning. The first mortgage being paid off must be at least 12 months old, counted from note date to note date. At least one borrower must also have been on title for 6 months.
4. Underwriting. The file runs through an automated underwriting system or gets reviewed by hand. The lender checks income, assets, credit, and your total debt-to-income ratio. Across the wholesale conventional programs Lendmire places files with, the usual starting point is a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Some lenders set a higher floor, and credit-score minimums tighten as leverage rises.
5. Appraisal. Most cash-out loans need a full appraisal. The appraiser’s value, not a Zillow-style estimate and not your purchase price, drives the ceiling.
6. Sizing the loan. Appraised value times the maximum LTV gives the cap. The lender then subtracts payoff, costs, and other liens.
7. Disclosures and signing. You receive a Loan Estimate and a Closing Disclosure that itemize the costs. You sign, and a right-to-cancel window follows, which I cover below.
Higher debt ratios can also trigger reserve requirements. Reserves are the cash or liquid assets you still hold after closing. On cash-out files, a stretched ratio often means the lender wants to see more of them.
Run the Numbers: One Borrower, Three Appraisals
Picture a homeowner with a one-unit primary residence. The numbers below are modeled assumptions, expressed as points where the expected appraised value equals 100. No dollars, just the mechanics.
Assume the existing first mortgage payoff equals 55 points. The ceiling is 80% of appraised value. Now watch what happens when the appraisal moves.
| Appraised value | 80% ceiling | Payoff | Cash before costs |
|---|---|---|---|
| 95 (low) | 76 | 55 | 21 |
| 100 (expected) | 80 | 55 | 25 |
| 105 (high) | 84 | 55 | 29 |
Closing costs and prepaids then come out of that last column. A 5% miss on value cuts cash by 4 points here, because only 80 cents of every value dollar can be borrowed. And the payoff does not move when the appraisal does. So a low appraisal hits the cash line harder than people expect. For a deeper look, Lendmire’s piece How Much a Low Appraisal Cuts Renovation Cash From a Cash-Out Refinance works through the same effect.
Reverse the math if you need a target amount. Take your payoff, add the cash you want, add a cushion for costs, and divide by 0.80. The result is the appraised value you need. If your home is unlikely to appraise that high, the plan changes before you apply.
Does Property Type Change the Cash?
Yes. Occupancy and unit count set the LTV cap, and the cap sets the ceiling. The table shows the conventional maximums for a cash-out refinance, per the Fannie Mae Eligibility Matrix and the programs Lendmire places.
| Property and occupancy | Maximum LTV | Note |
|---|---|---|
| One-unit principal residence | 80% | Best standard leverage |
| Two- to four-unit principal residence | 75% | Extra units, lower cap |
| Second home | 75% | Lower cap than a primary |
| Primary, wholesale no-MI lane | 89.99% | Strict conditions, see below |
Investment property also carries the lower 75% cap, but this article stays with the home you live in.
Manufactured homes get a lower cash-out cap than site-built homes, and some single-width homes are not eligible at all. The agency wording on that is mixed, so ask your broker about your specific home.
The 89.99% lane deserves a closer look. It needs a 680 score, a 50% ratio ceiling, a thirty-year fixed loan, a primary residence, a conforming balance, and its own six months of seasoning. It carries no mortgage insurance. It exists in the wholesale market but not everywhere, and it is subject to lender guidelines. In Texas it is not written. A Texas homestead cash-out is capped by the state constitution at the agency figure instead.
Individual lenders can also add overlays on top of the agency rules. So the maximum is “up to the agency ceiling, depending on the lender and loan program.” Two borrowers with the same house can see different caps.
Why Your Cash Can Land Below the Ceiling
The ceiling is a limit, not an entitlement. Four things commonly pull the number down.
The conforming loan limit. Your new loan cannot exceed the limit set for your county by the Federal Housing Finance Agency. Limits are higher for two- to four-unit homes and higher in designated high-cost counties. If 80% of your value would exceed the county limit, the loan becomes a jumbo question and the agency LTV rules no longer apply. For a home worth a lot in a pricey market, this cap can bind before the 80% does.
Credit and ratios. A lower score or a higher debt ratio can reduce the leverage a lender will offer, or push you toward a different program.
Other liens. A second mortgage or HELOC usually has to be paid off from proceeds, and every dollar that does so is a dollar not in your account.
Costs. Origination charges, appraisal fees, title insurance, taxes and prepaid items all reduce what lands in your account. Fees vary by lender and state, so ask for a Loan Estimate early and compare line by line.
One more piece of pricing matters. Many cash-out loans carry a loan-level price adjustment (LLPA), a charge Fannie Mae builds into pricing based on credit score and LTV. It does not show up as a separate line on your closing statement. Instead it works its way into the loan’s terms. Lower scores and higher LTVs make that pricing costlier.
What Comes Out Before You Get Paid?
Think of the new loan amount as a pot, then count the dips.
- Payoff of the existing first mortgage, plus interest accrued to the payoff date.
- Payoff of any second lien you choose, or are required, to clear.
- Origination, appraisal, title, and other closing charges that are financed rather than paid in cash.
- Prepaid items, such as the first stretch of homeowners insurance and the escrow cushion.
- Real estate taxes that the lender includes in the new loan amount.
What remains is the net cash. Fannie Mae’s guide allows proceeds to cover the existing first mortgage, plus closing costs, points, and prepaids, so those items can be rolled in. Rolling them in raises the balance, and so you pay for them over time.
When the General Rule Bends: Edge Cases
Every rule above has a corner where it behaves differently. These come up in real files.
Delayed financing for cash buyers. Say you bought a home with cash and want that money back. Fannie Mae’s guide waives the six-month title wait in this case, and only that wait. The loan is still a cash-out refinance with the cash-out caps. Expect the lender to ask for a settlement statement showing no mortgage financing was used. Proceeds are generally tied to what you documented paying, plus costs. Confirm the current limit with your loan officer.
Inherited or legally awarded property. Ownership exceptions to the six-month rule exist for situations like inheritance and divorce awards. Your lender checks the current guide text before applying one.
Buying out a co-owner. Some programs treat a co-owner buyout as a special-purpose cash-out. Fannie Mae can treat it as limited cash-out when specific conditions are met. The treatment changes the LTV and pricing, so raise it at the start.
Student loan payoff. Fannie Mae waives the cash-out LLPA when student loan debt is paid off through the refinance and the program requirements are met. That can matter if debt payoff is the real goal.
Limited cash-out. If you only need a small, incidental amount of cash back, a rate-and-term refinance may fit better. It allows leverage up to 95% on a one-unit primary residence, and the new loan pays off the first mortgage, the closing costs, and any purchase-money second lien. The cap on cash back is an agency rule that has changed, so check the limited cash-out section of the Selling Guide through your lender. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Texas. Some states have special cash-out rules. Texas is the best-known, and its homestead rules are a topic of their own. Lendmire covers one angle in its piece Can a Texas Homestead Move From FHA to Conventional Cash-Out Refinance?.
What Does It Do to Your Monthly Budget?
The new loan is bigger than the old payoff, and the term may reset to a fresh thirty years. Both facts push the monthly obligation up.
Something else catches people out. The entire balance gets repriced at today’s terms, not just the cash you pulled. A borrower sitting on a very low existing rate is not paying more only on the new money. They are paying new terms on all of it. For that borrower, a HELOC or home equity loan, which leaves the first mortgage in place, may leave a smaller footprint (though it brings its own tradeoffs).
Mortgage insurance matters only if the new loan sits above 80% LTV. Most cash-out loans stop at 80%, so it rarely applies. In the 89.99% lane, no mortgage insurance is charged. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Using the cash to pay off credit cards or other debts has a hidden cost. The CFPB has cautioned that paying non-mortgage debt with mortgage debt can increase the risk of foreclosure, because unsecured balances become secured by your home. Also, equity takes time to rebuild once you take it out.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Why Doesn’t the Cash Arrive at the Table?
On a refinance of your primary home, federal rules give you a short right to cancel after signing. The CFPB’s guidance on rescission explains that the clock starts only after consummation, delivery of the required disclosures, and delivery of the rescission notice. Funds are normally disbursed after that window closes. So plan for your cash to arrive after signing, not during it, and confirm funding timing with your lender before you commit the money to a contractor or a payoff.
Common Mistakes That Shrink the Check
- Treating a home-value estimate as the appraisal. The appraiser sets the value.
- Forgetting costs and prepaids, then budgeting against the gross figure.
- Applying before the first mortgage is 12 months old or before six months on title.
- Ignoring the county loan limit on a higher-priced home.
- Assuming every lender offers the agency maximum.
- Skipping the HELOC comparison when the existing loan carries low-cost terms.
Key Terms Defined
LTV (loan-to-value): The loan balance divided by the home’s appraised value, shown as a percentage.
Seasoning: The waiting period a lender requires, such as how long you have held title or how old your current mortgage is.
LLPA (loan-level price adjustment): A pricing adjustment based on credit score and LTV that is built into the loan’s terms rather than shown as a separate fee.
Conforming loan limit: The maximum loan size Fannie Mae and Freddie Mac will buy, set by county. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Delayed financing: A cash-out exception for people who bought with cash, which waives the six-month title wait.
Limited cash-out refinance: A refinance that pays off the old loan and costs with only a small amount of cash back.
How Does the Decision Look in Practice?
Start with three numbers: your realistic appraised value, your payoff, and the cash you actually need. Multiply value by the cap for your property type. Subtract payoff. Then take away a fair allowance for costs. If the result covers your goal with room to spare, the refinance can work on paper. If it barely clears, tighten the plan or compare a HELOC.
This one is a genuine toss-up for borrowers with a very low existing balance and terms. The cash-out gives a single clean loan, while the HELOC keeps the old terms intact. Neither wins on every file.
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. Reach out at 828-256-2183 to talk through your numbers. Everything here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Frequently Asked Questions
How much of my home’s value can I take out in a conventional cash-out refinance?
Up to 80% of appraised value is the new loan ceiling on a one-unit primary residence, and 75% on two- to four-unit homes and second homes. You do not receive the full ceiling. Your existing payoff and costs come out first, so the cash is the leftover amount.
Does a low appraisal reduce my cash?
Yes, and by more than you might guess. Because the loan ceiling is a percentage of appraised value while your payoff stays the same, any shortfall in value reduces your borrowing power and the cash you receive. A modest miss on value can cut your cash noticeably, so run a low-appraisal version of the math before you rely on a figure.
Can I cash out right after I buy or refinance?
Usually not. The first mortgage being paid off must be at least 12 months old, and at least one borrower must have been on title for 6 months. Exceptions exist, including delayed financing for cash buyers, inheritance, and legal awards.
Are closing costs taken out of my cash?
They can be, depending on how they are paid. Costs paid out of the loan proceeds reduce the net amount you receive, while costs financed into the new loan raise the balance. Your Loan Estimate itemizes every charge, so compare it line by line.
Why is the maximum different from lender to lender?
Lenders can set tighter rules, called overlays, on top of the agency limits. So the maximum is up to the agency figure, depending on the lender and loan program. Credit score, debt ratios, and property type also change what a lender will offer you.
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. Fannie Mae Eligibility Matrix
3. FHFA Conforming Loan Limit Addendum
4. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
6. CFPB: How long do I have 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
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.