The Quick Read: The cap applies to the new loan, not to your equity. On a one-unit primary home, the new loan can reach 80% of the appraised value. On a two- to four-unit primary home, it reaches 75%. The cash you receive is that ceiling minus everything the loan must pay off or cover.
Those numbers surprise people. A home with a lot of equity does not hand you all of it. The cap leaves a slice of value untouched on purpose.
This article walks through the whole process. You will see how the ceiling works, how the cash gets calculated, where the rule bends, and how to decide whether the number is worth taking. Every figure below is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Key Takeaways
- The loan-to-value cap limits the new loan, not the equity you can pull out.
- Cash equals the ceiling minus payoffs, liens and closing costs.
- A second mortgage or HELOC you keep still counts toward the cap.
- Two clocks apply: how long you have owned the home, and how old your current mortgage is.
- A low appraisal can shrink the cash to zero.
Key Terms Defined
Loan-to-value (LTV): the new loan divided by the home’s appraised value, shown as a percentage.
Combined loan-to-value (CLTV): the same idea, but it adds every loan secured by the home, including a second mortgage or HELOC.
Cash-out refinance: a new first mortgage that pays off your old one and gives you cash beyond a small allowance.
Limited cash-out (rate-and-term) refinance: a refinance that pays off the old loan and closing costs, with only incidental cash back.
Seasoning: the waiting period a loan or ownership must meet before a refinance qualifies.
Appraised value: the value a licensed appraiser assigns, which is what the lender uses for a refinance.
What Does the Cap Actually Limit?
The cap limits the size of the new first mortgage as a share of the home’s value. It does not limit what share of your equity you can take. This is a common mistake homeowners make.
Picture a home you own with a balance equal to 60% of its value. Your equity is 40% of value. The 80% cap means the new loan can reach 80% of value. That leaves 20 points of value as the most you could pull out, before costs. You have taken half your equity, and the other half stays in the house.
Now picture a balance equal to 75% of value. Your equity is 25%. The ceiling is 80%, so the most you can pull out is 5 points of value. Same cap, very different cash.
The more you already owe, the less the cap leaves you. The lender wants a cushion of equity to remain after closing. The cap guarantees that.
Conventional loans follow rules set by the two big mortgage agencies, Fannie Mae and Freddie Mac. The Fannie Mae Eligibility Matrix lists cash-out on a principal residence at 80% for one unit and 75% for two to four units. Across the wholesale programs a broker places files with, those are the working numbers. Lendmire’s cash-out refinance programs are built around them.
How Is the Cash Calculated, Step by Step?
The cash is the appraised value times the cap, minus every payoff and cost the new loan covers. Run it in this order:
1. Take the appraised value.
2. Multiply by the cap for your property (80% for a one-unit primary home).
3. That gives the maximum new loan.
4. Subtract the balance on your current first mortgage.
5. Subtract any second mortgage or HELOC you are paying off.
6. Subtract closing costs and prepaid items rolled into the loan.
7. What remains is your cash.
Many homeowners stop at step four. They assume “80% of value minus what I owe” is the answer. Costs and liens come out of that figure as well, so the real number is lower.
Here is a table in percent of value, so it fits any home:
| Line | Single mortgage | With a HELOC payoff |
|---|---|---|
| Maximum new loan | 80% of value | 80% of value |
| First mortgage payoff | 55% | 55% |
| HELOC payoff | none | 5% |
| Closing costs and prepaids | a small slice | a small slice |
| Cash to you | 25% minus costs | 20% minus costs |
The HELOC matters even if you do not pay it off. A second lien you keep counts toward the combined ratio, so it shrinks the room under the cap. Freddie Mac’s Seller/Servicer Guide section 4203.1 counts a HELOC at its full credit line, not just the amount you have drawn. Calculated ratios also round up to the next whole number, so a fraction of a percent near the cap can matter.
Can You Work Backward From the Cash You Need?
Yes. Add the cash you want, your payoffs and the costs. That total is the new loan you need. Divide it by the cap, and you get the minimum appraised value.
For a one-unit primary home, the cap is 80%, so the home must appraise at 1.25 times the loan you need. Say your payoffs equal 70% of what you expect the home to be worth. You want cash equal to 10% of that value, plus costs. The loan must be at least 80% of expected value plus the costs. That means the appraisal has to come in at or above expectation, and even then, costs can push you a little short.
That is the practical test. If the math only works at the best possible appraisal, it does not really work.
What Happens If the Appraisal Comes in Low?
A low appraisal can erase the cash entirely. For a refinance, the lender uses the appraised value only. There is no purchase price to fall back on.
Take a homeowner who owes 70% of what they expect the home to be worth:
| Appraisal outcome | Value vs. expectation | Max loan at 80% | Cash before costs |
|---|---|---|---|
| As expected | 100% | 80% | 10% |
| Somewhat low | 95% | 76% | 6% |
| Low | 87.5% | 70% | none |
A drop of 12.5% in value wipes out the cash. The payoff alone uses up the whole ceiling. Costs would then leave a shortfall.
Treat any pre-appraisal estimate as a guess. Build your plan on a range, not a single number.
Where Does the Cap Change?
Occupancy and unit count change the ceiling. A primary home with one unit gets 80%. Two to four units get 75%. Second homes and investment properties carry their own limits, and occupancy decides the leverage. For second homes, see Lendmire’s separate piece How Much a Conventional Cash-Out Refinance Lends on a Second Home.
Manufactured homes carry a lower cap than site-built homes, and the rules differ by home type. Confirm eligibility against the live Eligibility Matrix before you plan around one.
Why Do Rate-and-Term Refinances Reach Higher?
Because they give you almost no cash. A limited cash-out refinance on a one-unit primary home can reach 95% LTV, and up to 97% where the existing loan is agency-owned and the first-time-buyer program allows. The Fannie Mae Eligibility Matrix lists these higher limits for refinances that only pay off the old loan and costs. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
The tradeoff is clear. The lender allows more leverage when the loan stays about the same size. The moment you take real cash, the cap drops to 80%.
That is why “I can borrow 95% like on a purchase” is a myth. Purchase and limited cash-out leverage do not carry over to cash-out. Mortgage insurance applies above 80% on those higher-leverage loans. It can be cancelled when you request it at 80% of the original value (with good payment history, no subordinate liens and no decline in value), and the servicer must end it at 78%.
What Else Can Lower Your Number?
The cap is a ceiling, not a promise. Other limits can hold you under it. Check each one before you count on the full figure:
- Seasoning on the old loan. The first mortgage you are paying off must be at least 12 months old, measured from the old note date to the new one. Fannie Mae’s Selling Guide sets this clock.
- Seasoning on your ownership. At least one borrower must have been on title for 6 months. These are two separate clocks. Meeting one does not satisfy the other.
- Credit. Wholesale conventional programs start at a 620 decision score. Some lenders set a higher floor.
- Debt-to-income ratio. The automated finding governs most files, with a total ratio ceiling of 50%. A higher ratio can also trigger a reserve requirement.
- Loan size. The new loan must stay within the conforming limit for your county, or it moves into jumbo territory.
- Listing status. A home listed for sale is not eligible unless the listing is removed by closing.
Underwriting still runs in full. Income, assets, credit and title are all verified. So the real question is whether you pass every test, not just the LTV test.
Where Does the General Rule Bend?
A few situations change the usual limits. Each one is narrow, and each needs a check against the current guide.
Delayed financing for cash buyers. If you bought a home with cash, you can take a cash-out refinance before the usual waiting period ends, under the delayed-financing conditions. The purchase must be arm’s-length. The loan is still classified and priced as cash-out, and the amount is tied to what you documented putting in, plus costs.
Inherited or awarded homes. The waiting period does not apply when the property was inherited or legally awarded, for example in a divorce.
Homes held in a revocable trust. Time in a revocable trust can count toward ownership if you are the primary beneficiary.
Free-and-clear homes. A home with no mortgage can still be a cash-out refinance. A paid-off house is not exempt from the rules. Freddie Mac addresses it in Guide section 4301.5.
Student loan cash-out. Fannie Mae has an option for paying off student loans that can waive certain pricing adjustments. Check the details in the current guide.
Temporary buydowns. These can make a cash-out transaction ineligible. Confirm against the current guide.
A no-mortgage-insurance lane. One wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed loan, a primary residence, a conforming balance and its own six months of seasoning. Texas is an exception. A cash-out on a Texas homestead is capped by the state constitution at the agency figure, so that lane is not written there. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
What Does the Borrower’s Decision Look Like?
The decision is rarely “can I?” It is “should I, and for what?” The loan does more than hand you cash. It replaces your whole existing mortgage.
That matters in three ways:
- The whole balance reprices. The new loan carries its own terms. You can swap a good existing mortgage for a more expensive one, and you pay on the whole amount, not only the cash you took.
- The term often resets. Cash-out loans are usually repaid over a long term, such as 30 years, so payments can rise.
- The 12-month clock restarts. Frequent cash-outs use up equity and trigger new closing costs each time.
Consolidating debt deserves extra thought. The Consumer Financial Protection Bureau reported that more than half of cash-out borrowers cited paying off bills or debts each year from 2014 to 2019. It also found that moving non-mortgage debt onto a mortgage can raise foreclosure risk. Consolidating does not erase the debt. It moves it onto your home. Credit scores in that study rose after the refinance, then slipped, though they stayed above their earlier level.
Here is a simple test. If the cash funds something that adds value or removes costlier debt, the cap may be working for you. If it covers spending with no payoff, the equity you give up is hard to get back.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
A homeowner who wants a smaller adjustment has other tools to compare, such as a home equity line or a second mortgage that leaves the first loan alone. Those keep your existing loan in place. For a broader look at how much of your equity the cap leaves reachable, see Lendmire’s piece How Much Equity a Conventional Cash-Out Refinance Lets You Borrow.
Weighing a Cash-Out Against Keeping Your Loan
Start with three numbers: your expected value, your total balances, and the cash you need. Run the formula above at a range of appraisals. Then check the seasoning clocks and your ratios. If it works across that range, the plan is sound.
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.
Frequently Asked Questions
Can I borrow 90% or more of my home’s value on a cash-out refinance?
Usually not. The standard conventional ceiling is 80% on a one-unit primary home and 75% on two- to four-unit homes. One wholesale lane reaches 89.99% with no mortgage insurance, but it needs a 680 score, a 50% ratio, a thirty-year fixed loan and a conforming balance. Subject to lender guidelines and full file review.
Does my second mortgage or HELOC count toward the limit?
Yes. Combined loan-to-value includes every loan secured by the home. If you keep a second lien, it uses up room under the cap. Freddie Mac counts a HELOC at its full credit line, so an undrawn line still reduces what you can borrow.
How long must I own the home before a cash-out refinance?
At least one borrower must have been on title for 6 months, and the mortgage being paid off must be at least 12 months old. These are separate tests. Exceptions exist for delayed financing after a cash purchase, and for inherited or legally awarded property.
If my home is paid off, is it still a cash-out refinance?
Yes. A home with no mortgage still counts as cash-out when you borrow against it. The same cap and underwriting apply. The new loan simply has no old first mortgage to pay off, so more of the ceiling can reach you as cash.
Why is my actual cash lower than the formula says?
Closing costs, prepaid items and lien payoffs all come out of the ceiling. A low appraisal, a higher debt-to-income ratio, a lender’s stricter score floor or a conforming loan limit can also hold the loan under the cap.
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 Eligibility Matrix
2. Freddie Mac Seller/Servicer Guide Section 4203.1
3. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
4. Freddie Mac Seller/Servicer Guide Section 4301.5
5. 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: Is a Conventional Cash-Out Refinance Worth It for Your Home? · Conventional Cash-Out Refinance Documents for a Primary Home · How Much a Conventional Cash-Out Refinance Lends Against Value
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.