The Quick Read: On a cash-out refinance, the base loan is the new first mortgage before anything extra gets layered on. It has to cover your current payoff, any liens being paid off, and the costs you choose to finance, and the cash you receive is what remains. The ceiling is a percentage of your home’s appraised value, and on a conventional loan for a one-unit primary residence that ceiling is 80%. Program figures here are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
What Is the Base Loan Amount?
The base loan amount is the principal of the new first mortgage, before any financed add-ons are counted. Think of it as the number the lender tests against the leverage limit. It is not the same as your equity, and it is not the same as the “borrowing base” you may see in business lending. Different thing entirely.
Equity is value minus what you owe. Borrowing capacity is smaller, because the program only lets you borrow a share of value, and your payoff comes out of that share first.
Across the wholesale programs Lendmire places files with, the sizing step is where most borrowers’ expectations break. People assume they can pull out the gap between balance and value. They can’t. Lendmire’s cash-out refinance programs all work from the same logic: value sets the ceiling, and obligations come out of it before cash does.
The Sizing Formula, Step by Step
Here is the forward formula, in order:
1. Start with appraised value. The appraisal, not your estimate or an online guess, is the number that counts.
2. Multiply by the maximum LTV. For a conventional cash-out on a one-unit primary residence, that is 80%. For two- to four-unit primary residences, second homes and investment property, it is 75%.
3. The result is your maximum new loan. This is the ceiling.
4. Subtract the payoff. The existing first mortgage balance and any liens being paid off come out first.
5. Subtract financed costs and prepaids. Anything rolled into the loan sits inside the same ceiling.
6. What remains is your cash.
Compare that with the much higher loan-to-value available on a rate-and-term refinance of the same home. The gap is the price of taking cash.
Base Loan Versus Total Balance
Here is how the pieces line up:
| Item | Counts toward the ceiling? | Changes your cash? |
|---|---|---|
| Existing first mortgage payoff | Yes | Reduces it |
| Liens being paid off | Yes | Reduces it |
| Financed closing costs and prepaids | Yes | Reduces it |
| Costs paid out of pocket | No | Not through the loan |
| Remaining second lien or HELOC | Yes, in combined LTV | Uses up room |
Some programs add financed items, such as mortgage insurance on certain government loans, on top of the base. Those raise the total balance without putting a dollar in your hand. Ask early which add-ons your program uses.
A Forward Example, No Dollars Needed
Say a home appraises at a round 100 units of value. On a conventional one-unit primary residence, the ceiling is 80 units. Suppose the existing mortgage is 50 units, and financed costs are 3 units. That leaves 27 units of cash.
Same home, but with a remaining HELOC of 10 units that stays in place? Combined leverage is tested, so the room shrinks. The new first loan can only reach 70 units, and cash drops to 17 units. This is why a lingering second lien surprises people.
Working Backward From the Cash You Need
Most explainers only run the formula forward. In practice, borrowers start with a need: a repair budget, a debt payoff, a tuition bill. Run it in reverse.
1. Write down the cash you actually need.
2. Add the payoff on the existing first mortgage and any liens being cleared.
3. Add the costs you plan to finance.
4. The total is the base loan you need.
5. Divide by appraised value. If the result is at or under the program maximum, the request fits. If it is over, something has to give.
What gives? Take less cash. Pay costs out of pocket. Choose a different structure. Or skip the refinance. Treat the appraisal as uncertain, too. A modest cushion between your needed loan and the ceiling protects you if the value comes in lower than hoped or the payoff figure shifts before closing.
Which Limit Actually Binds?
The LTV ceiling is the famous limit, but it is not the only one. Check them in this order:
| Constraint | How to check |
|---|---|
| LTV ceiling | Appraised value times the program maximum |
| Loan limit | Whether the base loan falls in conforming or jumbo territory |
| Qualifying ratios | Whether income supports the larger payment (the automated finding governs most files, with a total ratio ceiling of 50%) |
| Credit score | Wholesale conventional programs start at a 620 decision score |
| Seasoning | Whether the current mortgage and title are old enough |
For many borrowers, income or credit binds before leverage does. A bigger loan means a bigger payment, and that payment feeds your debt-to-income ratio. Lenders also look at reserves. Under Fannie Mae’s cash-out rules, a DTI above 45% on Desktop Underwriter loans calls for six months of reserves. Qualifying on paper at 80% LTV does not mean the file clears. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Seasoning: The Clock That Can Block the Loan
Seasoning is a waiting period, and it catches recent buyers. Per the same Fannie Mae guide, the first mortgage being paid off must be at least 12 months old, measured note date to note date, and at least one borrower must have been on title for six months. A property that was listed for sale has to be off the market by disbursement.
There are exceptions. Inherited property and property awarded in a divorce or separation have no waiting period. Delayed financing covers a recent all-cash purchase. The older Fannie Mae text lays out delayed financing and the student-loan variant, though specifics have since been updated, so confirm current terms.
Where the General Rule Breaks
The 80% figure is a rule of thumb, not a universal. Here are the named edge cases.
The 89.99% lane. One wholesale lane reaches 89.99% LTV with no mortgage insurance on a conforming, thirty-year fixed, primary-residence loan. It requires a 680 score, a 50% ratio and its own six months of seasoning. Not every borrower fits, but it changes the ceiling math when one does. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Texas. A cash-out on a Texas homestead is capped by the state constitution at the agency figure, and the wholesale lane above is not written there.
Government loans. FHA cut its cash-out cap from 85% to 80% of adjusted value in Mortgagee Letter 2019-11. VA cash-out requires a Certificate of Eligibility and that you live in the home, per VA.gov. Confirm VA and FHA limits with the lender, since those figures sit outside this article’s scope.
Streamlines are not cash-out. The FHA Streamline and VA IRRRL exist to improve an existing FHA or VA loan. They allow only token cash back. The IRRRL is VA-to-VA only.
Rate-and-term has a cash cap too. A limited cash-out refinance allows only incidental cash back. Fannie Mae’s SEL-2025-08 announcement sets it at the greater of 1% of the new balance or $2,000.
Occupancy. A second home or rental lowers the ceiling to 75%. The leverage follows the use of the property.
What Reduces Your Proceeds
Run through this checklist before trusting any estimate:
- A second lien or HELOC that stays in place
- Financed closing costs and prepaid items
- Liens being paid off at closing
- A payoff that has grown by closing due to accrued interest
- An appraisal below your expectation
Pay costs from savings and the loan stays smaller, but you spend more cash up front. Finance them and you borrow, and pay interest on, more. Neither is wrong. It depends on your reserves.
Common Sizing Mistakes
- Using an estimated value. Only the appraisal counts.
- Ignoring a second lien. It uses up combined leverage.
- Confusing equity with borrowing power. They are different numbers.
- Borrowing the maximum by default. The ceiling is a limit, not a target.
- Skipping seasoning checks. A recent purchase or refinance can stop the file.
Should You Borrow the Maximum?
Not necessarily. A larger base loan means a larger payment and more interest over time, and resetting the term can stretch total repayment. The Consumer Financial Protection Bureau found in its research on cash-out borrowers that paying off other bills or debts was the most common reason, with repairs second, and it notes that paying non-mortgage debts with mortgage debt can raise foreclosure risk. A January 2025 CFPB paper explains why: you convert unsecured debt into debt secured by your home. Missing a card payment rarely costs you the house. Missing a mortgage payment can.
So the right-sized loan is often smaller than the ceiling. Size it to the need, then check that the payment sits comfortably inside your budget. If it doesn’t, a smaller cash amount or keeping the loan you have may be the better call than a refinance.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
If you are comparing ways to draw on equity, Lendmire’s piece on cash-out refinance versus a HELOC covers where each one fits.
Key Terms Defined
Base loan amount: The principal of the new first mortgage before financed add-ons are counted.
Loan-to-value (LTV): The loan balance divided by the appraised value of the home.
Combined LTV: Leverage that includes the new first mortgage plus any second lien that stays in place.
Seasoning: The minimum time a loan or ownership must exist before a refinance is allowed.
Prepaids: Upfront amounts for items like interest and escrow deposits, collected at closing.
Frequently Asked Questions
How much equity do I need to take cash out?
Enough that your payoff plus costs sits below the ceiling with room left over. On a conventional one-unit primary residence, you must keep at least 20% of the value as equity, since leverage tops out at 80%. The lower your payoff relative to value, the more cash is possible.
Does a HELOC reduce how much I can borrow?
Yes, if it stays open. Combined leverage counts the new first mortgage plus the second lien, so every unit of the HELOC uses up room under the ceiling. Paying it off through the refinance removes that constraint but adds the payoff to the base loan.
Are closing costs added to the base loan or subtracted from my cash?
Either, depending on how you pay them. Financed costs sit inside the same ceiling and shrink your cash. Costs paid from savings don’t touch the loan. Your Loan Estimate shows the figures for your file.
Can I cash out right after buying my home?
Usually not. On conventional loans, the mortgage being paid off must be at least 12 months old and a borrower must have been on title for six months. Inheritance, divorce awards and delayed financing for recent cash purchases are the named exceptions.
Is borrowing the maximum a good idea?
Rarely by default. The maximum is a ceiling, not a recommendation. Size the loan to your actual need, then test the payment against your budget before committing.
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
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.3-03
2. Fannie Mae B2-1.3-03 (2023 archive)
3. HUD Mortgagee Letter 2019-11
4. VA.gov
5. Fannie Mae SEL-2025-08 announcement
6. Consumer Financial Protection Bureau
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 a Lender Allow Higher Loan-to-Value on a Cash-Out Refinance? · Can You Do a Cash-Out Refinance in the Last Year of Your Loan? · Cash-Out Refinance for Borrowers Awaiting Funds: When Cash Is Released
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.