Limited Cash-Out Refinance: Your Complete Guide for 2026

With a limited cash-out refinance, you get a new loan that pays off your current mortgage. The new loan may also give you a small amount of cash back, usually no more than 1% of the new loan balance or $2,000.

Author: Casey Foster

Published on: 3/16/2026|14 min read

Fact Checked

Author: Casey Foster|Published on: 3/16/2026|14 min read

Fact Checked

Key Takeaways

With a limited cash-out refinance, you can trade in your old mortgage for a new one and get a small amount of cash back at closing.
Fannie Mae recently changed the cash-back limit from the lower of 2% (or $2,000) to the higher of 1% or $2,000.
You can add your closing costs to the new loan balance, so you won't need cash up front to refinance.
Fannie Mae may be able to help people who own a home with as little as 3% equity get this type of refinance.
If you want a better rate or term and don't need a lot of money from your equity, a limited cash-out refi is the best option.
The closing costs for a refinance are usually between 2% and 6% of the loan amount. These costs can be added to the new mortgage.
This choice is different from a full cash-out refinance, which lets you get tens of thousands of dollars but also puts you in a much bigger loan.

What Is a Limited Cash-Out Refinance?

A limited cash-out refinance is a type of conventional mortgage refinance governed by Fannie Mae guidelines. It allows you to pay off your existing first mortgage and replace it with a new loan, all while receiving a small amount of cash back at closing. The cash-back amount is capped, and that cap recently changed in a way that benefits borrowers.

Before October 2025, the cap was the lesser of 2% of the new loan balance or $2,000. Now, under Fannie Mae’s updated Selling Guide, the limit has been raised to the greater of 1% of the unpaid principal balance (UPB) of the new loan or $2,000. That’s a meaningful shift for borrowers with larger loan balances.

Why does this matter to you? If you’re carrying a mortgage and interest rates have dropped since you locked in your original loan, a limited cash-out refi could help you grab a lower rate, adjust your loan term, and pocket a little extra cash. You can also wrap your closing costs into the new loan so you don’t have to bring money to the table.

It sits in a sweet spot between a simple rate-and-term refinance (where you just change the rate or length of your loan) and a full cash-out refinance (where you tap your equity for a large lump sum). For many homeowners, it’s the right-size refinance when you don’t need big money out of your home but want a little financial flexibility.

How a Limited Cash-Out Refinance Works

The mechanics are easy to understand. You apply with a lender, and they look at your credit, income, and home equity to decide if you can get a new mortgage that pays off your old one. You get cash for whatever is left over after paying off the current balance and closing costs. But the leftover amount can't be more than the cash-back limit.

Let's go over the numbers. Let's say you owe $245,000 on your current loan. The value of your home is $320,000. You choose to refinance for $252,000, which pays off the $245,000 loan and $5,000 in closing costs. You get $2,000 back in cash. The new Fannie Mae rule says that your cash-back limit is the higher of 1% of $252,000 ($2,520) or $2,000. So, the cap includes $2,000.

This is where the old rule would have been stricter. The old formula said that the cap was either $2,000 or 2% of $252,000, which is $5,040. The $2,000 limit was the same because $2,000 was less than $5,040. The new formula is more generous, though, for bigger loans. The new rule lets you borrow up to $3,500 (1% of $350,000) on a $350,000 refinance. The old rule would have kept you at $2,000.

At closing, your lender pays off your current loan. You sign new loan papers, pay off the old mortgage, and the new payment amount starts the next month. It usually takes 30 to 45 days from when you apply to when the deal is done.

It's important to think about what happens to your loan's amortization schedule. Your new loan's clock starts over when you refinance. If you refinance your 30-year mortgage after five years, you'll have to make payments for 30 more years instead of 25. That's a total of 35 years of paying off a mortgage. Refinancing into a shorter term will help you avoid this, but your monthly payment will go up. Do the math both ways so you know exactly what you're getting into.

As I've worked on our refinance tools, I've noticed that some borrowers don't know they can negotiate their closing costs or look for title insurance and appraisal services at different places. The CFPB says that you should shop around for settlement services. Getting quotes from several lenders can save you a few hundred dollars, which is important when you're trying to keep your new loan balance as low as possible.

Updated Cash-Back Limits You Should Know About

This is a big deal that a lot of borrowers aren’t aware of yet. Fannie Mae’s Announcement SEL-2025-08, effective for Desktop Underwriter version 12.0 submissions on or after September 27, 2025, changed the cash-back formula from “lesser of 2% or $2,000” to “greater of 1% or $2,000.” The change applies to all limited cash-out refinance transactions.

What that means practically is this. On loans of $200,000 or less, the cap is $2,000 either way. But on a loan of $300,000, you can now get $3,000 back. On a loan of $500,000, it’s $5,000. The benefit scales with loan size, which helps borrowers in higher-cost markets where conforming loan balances tend to be bigger.

And speaking of conforming limits, the Federal Housing Finance Agency set the baseline conforming loan limit for one-unit properties at $832,750 for 2026, up from $806,500. In high-cost areas, the ceiling reaches $1,249,125. So there’s a lot of room for this updated cash-back formula to work in borrowers’ favor.

AmeriSave offers conventional refinancing options, including limited cash-out refinances under these updated guidelines. If you’re not sure which type of refinance fits your situation, it’s worth having a conversation with a loan officer who can walk through the specifics.

Limited Cash-Out Refinance vs. Other Refinance Types

Refinancing isn’t one-size-fits-all. There are several flavors, and the right one depends on what you need from the transaction. Let’s look at how a limited cash-out refi stacks up.

No Cash-Out (Rate-and-Term) Refinance

Freddie Mac uses the term “no cash-out refinance” for what is essentially its version of Fannie Mae’s limited cash-out refinance. According to Freddie Mac’s guidelines, borrowers can receive cash back up to the greater of 1% of the new loan or $2,000. You can also roll closing costs, financing costs, and prepaid items into the new loan balance. The goal is usually to get a better interest rate or switch from a 30-year term to a 15-year term, or vice versa.

A rate-and-term refinance with zero cash back is the simplest version. You’re just swapping your old loan for a new one with better terms. If you don’t need even a small amount of cash, this keeps your new loan balance as low as possible. It’s the most common type of conventional refinance, and it’s what many homeowners picture when they first think about refinancing.

Cash-Out Refinance

A full cash-out refinance is a different animal. You’re borrowing more than you owe and taking the difference as cash. Most lenders allow you to borrow up to 80% of your home’s current value with a conventional cash-out refi.

Here’s a quick example. Your home is worth $400,000 and you owe $200,000. At 80% loan-to-value (LTV), you could refinance up to $320,000, giving you $120,000 in cash (minus closing costs). That money could go toward renovations, debt consolidation, or other expenses. But your monthly payment would jump because the loan balance just grew by $120,000. AmeriSave can help you compare what a cash-out refi would look like side by side with a limited cash-out option to find the best fit.

One important note from Fannie Mae’s cash-out refinance guidelines: the existing first mortgage must be at least 12 months old for a cash-out refinance. That seasoning requirement doesn’t apply to limited cash-out transactions.

FHA and VA Refinance Options

Government-backed loans have their own refinance tracks. FHA offers a Streamline Refinance for current FHA borrowers that comes with reduced paperwork and often doesn’t require a new appraisal. The VA Interest Rate Reduction Refinance Loan (IRRRL) works similarly for eligible veterans and service members. Both are designed to lower your rate or payment with minimal hassle.

FHA also offers a cash-out refinance option, which lets qualified borrowers tap equity while converting to an FHA-insured loan. VA cash-out refinances are among the most generous, allowing borrowers to access up to 100% of their home’s value. These programs have their own eligibility rules separate from Fannie Mae’s conventional guidelines.

Requirements for a Limited Cash-Out Refinance

Qualifying for a limited cash-out refi means meeting several benchmarks your lender will check. Here’s what to expect.

Loan-to-Value Ratio (LTV)

According to Fannie Mae’s Selling Guide, the maximum combined LTV for a limited cash-out refinance is 97% on a one-unit primary residence. That means you only need 3% equity. On a $300,000 home, that’s $9,000 in equity. If your home has appreciated since you bought it, you might already be there even if you haven’t made many payments yet.

For second homes, the max LTV drops to 90%. Investment properties allow up to 75% LTV. Multi-unit properties have lower limits too, so check with your lender if your situation is anything other than a standard single-family primary residence.

Credit Score

Most lenders look for a minimum credit score of 620 for a conventional refinance. That said, your score affects the interest rate you’ll qualify for. Scores of 740 and above generally get you the most competitive rates, while scores in the 620 to 680 range may come with pricing adjustments that make the loan more expensive over time. Fannie Mae publishes loan-level price adjustments (LLPAs) that lenders use to determine these pricing differences based on credit score and LTV combinations.

If your score has improved since you got your original mortgage, refinancing could be a smart move. A colleague of mine in the underwriting department mentioned recently that they’re seeing a lot of borrowers come through whose scores have jumped 40 or 50 points since their purchase loan. That improvement can translate to real savings.

Debt-to-Income Ratio (DTI)

Your DTI measures how much of your gross monthly income goes toward recurring debts. To calculate it, add up your monthly obligations, including the proposed new mortgage payment, minimum credit card payments, auto loans, student loans, and any alimony or child support. Divide that total by your gross monthly income.

Most lenders prefer a DTI of 36% or lower for the best terms. Some will go up to 45% or even 50% with compensating factors like a strong credit score or substantial cash reserves. At AmeriSave, loan officers review the full picture rather than just looking at one number in isolation.

Documentation You’ll Need

Plan on gathering your two most recent pay stubs, two months of bank statements, two years of W-2 forms, and two years of federal tax returns. Self-employed borrowers usually need profit and loss statements and possibly business tax returns as well. Your lender may also request a copy of the settlement statement from your original purchase.

An appraisal is typically required to confirm your home’s current value, though some borrowers may qualify for an appraisal waiver through Desktop Underwriter or Loan Product Advisor based on the loan’s risk profile.

Subordinate Financing Rules

If you have a second mortgage like a home equity loan or a home equity line of credit (HELOC), it has to remain subordinate to your new first mortgage after closing. That means the holder of your primary mortgage gets paid first in the event of a default. Your second-lien lender needs to agree to this subordination, and that process can sometimes add a few days to your closing timeline.

You can’t use a limited cash-out refinance to pay off a home equity loan or HELOC that wasn’t used to purchase the home. If you want to consolidate a non-purchase second lien, you’d need a full cash-out refinance instead.

Costs and Fees You Should Expect

Refinancing isn’t free. Closing costs on a refinance typically run between 2% and 6% of the loan amount. According to the Consumer Financial Protection Bureau, median closing costs for refinance transactions have been rising, reaching roughly $4,979 as of the most recent reporting period. That figure includes origination fees, title fees, appraisal charges, and other settlement costs.

Let’s put real numbers on it. If you’re refinancing a $250,000 loan, expect closing costs somewhere between $5,000 and $15,000. At the lower end, that’s about 2%. At the higher end, you’re looking at 6%, which is less common for straightforward refinances but possible depending on your market.

The good news with a limited cash-out refi is that you can roll those costs into the new loan balance. That keeps more cash in your pocket today, though it does mean you’re paying interest on those costs over the life of the loan. One thing I keep seeing is people who focus so much on the rate that they forget about the total cost of the refinance. Both matter.

The CFPB’s research on discount points found that over half of non-cash-out refinance borrowers paid discount points in recent periods. If you’re offered a lower rate in exchange for paying points, run the break-even calculation. Divide the cost of the points by your monthly savings to see how long it takes to recoup that upfront expense. If you plan to stay in the home longer than the break-even period, points might make sense.

Here’s a quick worked example on break-even. Say your closing costs total $6,000 and refinancing saves you $200 per month. Divide $6,000 by $200, and your break-even is 30 months. If you plan to stay in the home for at least three years after closing, the refinance pays for itself. Anything beyond that is pure savings. If you might move in 18 months? The math doesn’t work.

Tip: Don’t forget to factor in property taxes and homeowners insurance when comparing monthly payments before and after refinancing. Your escrow amount may change if your home has been reassessed or your insurance premiums have gone up. The mortgage payment itself might drop, but the total monthly outlay could stay closer to what you’re paying now.

When a Limited Cash-Out Refinance Makes Sense

This kind of refinance isn't right for every homeowner, but it works well in some common situations.

The best time to use this is when rates have gone down and you want to lower your monthly payment without taking a lot of equity out of the house. You may have locked in at 7.25% a few years ago, but rates are now closer to 6.5%. If you drop your interest rate from 7.25% to 6.5% on a $300,000 loan, you will save about $150 a month. That's $1,800 back in your budget over the course of a year.

It's also helpful if you want to change the length of your loan. Switching from a 30-year mortgage to a 15-year mortgage will build equity faster and lower your total interest cost, but your monthly payment will go up. If your budget is tight, moving from a 15-year to a 30-year loan will free up some cash flow each month.

A third situation is that you have a small bill to pay. You might need $2,000 for a small repair, like fixing a roof or replacing a water heater. You can put it in a mortgage at 6% or 7% instead of putting it on a credit card with 20% or more interest. There is math that works in your favor there.

AmeriSave's loan officers can help you compare a limited cash-out refinance to other refinancing options side by side. When you see the numbers, the right answer is sometimes clear. And sometimes it catches you off guard.

Divorce or separation is the fourth scenario that happens more often than you might think. A limited cash-out refinance can help when one spouse needs to take the other off the mortgage. Fannie Mae sees a deal in which one owner buys out another's interest as a limited cash-out refinance, as long as the property was jointly owned for at least 12 months before closing. It's a better option than some of the others.

And then there's the homeowner who got an adjustable-rate mortgage (ARM) and wants to lock in a fixed rate before the adjustment period starts. A limited cash-out refinance lets you switch from an ARM to a fixed-rate loan without the hassle of a full cash-out transaction. This means you can count on your payments.

Pros and Cons Worth Weighing

The good thing about this kind of refinance is that it keeps your options open without making you borrow too much. You can add closing costs to the loan, you can get up to $2,000 (or more with bigger loans under the new formula), and the LTV requirements aren't too strict, so you don't need a lot of equity.

Low equity isn't a dealbreaker in this case. Even people who bought their homes recently or put down a small amount of money can qualify because Fannie Mae allows LTVs up to 97%. And the existing mortgage doesn't have to be seasoned, like it does with a cash-out refi.

The bad news is that your loan balance goes up when you add closing costs and get cash back. That means you'll have to pay more interest over time. And $2,000 in cash (or a little more for bigger loans) won't be enough to pay off a lot of debt or do a big renovation. A full cash-out refinance or a home equity product is probably the best option if you need more than a few thousand dollars.

If your house is for sale, you also can't do a limited cash-out refi. You also can't use it to pay off a home equity loan or HELOC that you didn't use to buy the house in the first place. Those limits make the use case smaller, so before you apply, make sure this type of transaction fits what you want to do.

Another thing that people forget. Refinancing starts the seasoning clock on your loan over again. If you refinance your 30-year mortgage after five years, you will have to pay it off five years later. You might still want to do it if you can save money on interest, but be aware of what you're getting into. If you want to keep the same payment schedule, think about refinancing into a 20- or 25-year term.

The Bottom Line

You can get better terms on your mortgage and some extra cash with a limited cash-out refinance. This is a good option if you don't want to make the bigger commitment of a full cash-out refinance. Because of Fannie Mae's new cash-back formula and low equity requirements, a lot of different types of borrowers can use it. Check your current rate against what's available now and see if the savings are worth the closing costs. AmeriSave can help you figure out the best way to refinance your home based on your situation.

Frequently Asked Questions

Starting in late 2025, Fannie Mae's new rules say that borrowers can get either 1% of the unpaid principal balance on the new loan or $2,000, whichever is more. That means you could get back up to $3,000 in cash on a $300,000 refinance. The limit stays at $2,000 for loans of less than $200,000. You get this money right away at closing, and you can use it for anything. You can talk to AmeriSave about your refinancing options to see how the new limits affect your loan amount and whether a limited cash-out refi is the best option for you.

For a conventional limited cash-out refinance, most lenders want you to have a credit score of at least 620. If your score is 740 or higher, you usually qualify for the best interest rates and the smallest price changes. You can still qualify if your score is between 620 and 739, but you might have to pay a little more. If your credit score is on the lower end, check AmeriSave's current mortgage rates to see how it might affect your refinance rate. If that's the case, think about ways to raise your score before you apply.

Only if the home equity loan or HELOC was used to buy the house. Fannie Mae's rules say that you can't use a limited cash-out refinance to pay off subordinate loans that were taken out for things other than buying the home. You would need a full cash-out refinance to combine your second lien with your first mortgage if it was for home improvements, debt consolidation, or other non-purchase purposes.

For a limited cash-out refinance, Fannie Mae lets you have a combined loan-to-value ratio of up to 97% on a one-unit primary residence. That means you only need 3% of the value of the property. The maximum loan-to-value (LTV) ratio for second homes is 90%, and for investment properties, it is 75%. These limits are lower than the 80% LTV cap that most full cash-out refinances have. Find out more about how refinancing works and what equity requirements mean for you.

From the time you apply to the time you close, it usually takes 30 to 45 days. Having your paperwork ready, being eligible for an appraisal waiver, and working with a lender who uses automated underwriting are all things that can help speed things up. When appraisals come in lower than expected or when second-lien holders need subordination agreements, things can get delayed. You can get a head start on understanding where you stand before you fill out the full application by going through AmeriSave's prequalification process.

No. A limited cash-out refinance doesn't have a seasoning requirement, unlike a full cash-out refinance, which Fannie Mae says must have been in place for at least 12 months. You can refinance soon after you buy something, but you need to make sure the numbers work because of the closing costs. Go to AmeriSave's refinance page to compare your options and see if refinancing early makes sense for you.

Fannie Mae calls it a "limited cash-out refinance." Freddie Mac calls the same thing a "no cash-out refinance." Both let you get cash back up to 1% of the new loan amount or $2,000, whichever is higher. Also, both let you add closing costs to the balance. There are differences in the paperwork and underwriting, but not in the product itself. Your lender decides if Fannie Mae or Freddie Mac buys your loan. The loan team at AmeriSave can help you figure out which way to go with your loan.

Yes, but the requirements are stricter. For a limited cash-out refinance, Fannie Mae limits the LTV to 75% for investment properties, but to 97% for a primary residence. You will also need more money and better credit. Interest rates on refinancing investment properties are usually higher than rates on primary residences because the lender is taking on more risk. Check AmeriSave's current rates and get in touch with a loan officer to talk about refinancing an investment property.

Yes, most of the time. An appraisal tells you how much your home is worth on the market right now, which is what your LTV ratio is based on. Some borrowers, on the other hand, can get an appraisal waiver through Fannie Mae's Desktop Underwriter or Freddie Mac's Loan Product Advisor. Waivers depend on things like the loan's risk profile, the availability of property data, and the LTV. If you qualify, it can save you $400 to $700 on appraisal fees and speed up the closing process. To start looking at your options, use AmeriSave's prequalification tool.

Closing costs for a limited cash-out refinance are about the same as those for other types of conventional refinancing. They usually range from 2% to 6% of the loan amount. The CFPB said that the average closing costs for refinancing were about $4,979 in the most recent data. The difference isn't in how much it costs, but in how much cash you can get after paying those costs. Adding costs to the loan raises your balance but gets rid of the need to pay them all at once. Find out more about the costs of refinancing and what to expect before you apply.

Key Takeaways
What Is a Limited Cash-Out Refinance?
How a Limited Cash-Out Refinance Works
Updated Cash-Back Limits You Should Know About
Limited Cash-Out Refinance vs. Other Refinance Types
Requirements for a Limited Cash-Out Refinance
Costs and Fees You Should Expect
When a Limited Cash-Out Refinance Makes Sense
Pros and Cons Worth Weighing
The Bottom Line
FAQs

What Is a Limited Cash-Out Refinance? A limited cash-out refinance is a type of conventional mortgage refinance governed by Fannie Mae guidelines. It allows you to pay off your existing first mortgage and replace it with a new loan, all while receiving a small amount of cash back at closing. The cash-back amount is capped, and that cap recently changed in a way that benefits borrowers. Before October 2025, the cap was the lesser of 2% of the new loan balance or $2,000. Now, under Fannie Mae’s updated Selling Guide, the limit has been raised to the greater of 1% of the unpaid principal balance (UPB) of the new loan or $2,000. That’s a meaningful shift for borrowers with larger loan balances. Why does this matter to you? If you’re carrying a mortgage and interest rates have dropped since you locked in your original loan, a limited cash-out refi could help you grab a lower rate, adjust your loan term, and pocket a little extra cash. You can also wrap your closing costs into the new loan so you don’t have to bring money to the table. It sits in a sweet spot between a simple rate-and-term refinance (where you just change the rate or length of your loan) and a full cash-out refinance (where you tap your equity for a large lump sum). For many homeowners, it’s the right-size refinance when you don’t need big money out of your home but want a little financial flexibility. How a Limited Cash-Out Refinance Works The mechanics are easy to understand. You apply with a lender, and they look at your credit, income, and home equity to decide if you can get a new mortgage that pays off your old one. You get cash for whatever is left over after paying off the current balance and closing costs. But the leftover amount can't be more than the cash-back limit. Let's go over the numbers. Let's say you owe $245,000 on your current loan. The value of your home is $320,000. You choose to refinance for $252,000, which pays off the $245,000 loan and $5,000 in closing costs. You get $2,000 back in cash. The new Fannie Mae rule says that your cash-back limit is the higher of 1% of $252,000 ($2,520) or $2,000. So, the cap includes $2,000. This is where the old rule would have been stricter. The old formula said that the cap was either $2,000 or 2% of $252,000, which is $5,040. The $2,000 limit was the same because $2,000 was less than $5,040. The new formula is more generous, though, for bigger loans. The new rule lets you borrow up to $3,500 (1% of $350,000) on a $350,000 refinance. The old rule would have kept you at $2,000. At closing, your lender pays off your current loan. You sign new loan papers, pay off the old mortgage, and the new payment amount starts the next month. It usually takes 30 to 45 days from when you apply to when the deal is done. It's important to think about what happens to your loan's amortization schedule. Your new loan's clock starts over when you refinance. If you refinance your 30-year mortgage after five years, you'll have to make payments for 30 more years instead of 25. That's a total of 35 years of paying off a mortgage. Refinancing into a shorter term will help you avoid this, but your monthly payment will go up. Do the math both ways so you know exactly what you're getting into. As I've worked on our refinance tools, I've noticed that some borrowers don't know they can negotiate their closing costs or look for title insurance and appraisal services at different places. The CFPB says that you should shop around for settlement services. Getting quotes from several lenders can save you a few hundred dollars, which is important when you're trying to keep your new loan balance as low as possible. Updated Cash-Back Limits You Should Know About This is a big deal that a lot of borrowers aren’t aware of yet. Fannie Mae’s Announcement SEL-2025-08, effective for Desktop Underwriter version 12.0 submissions on or after September 27, 2025, changed the cash-back formula from “lesser of 2% or $2,000” to “greater of 1% or $2,000.” The change applies to all limited cash-out refinance transactions. What that means practically is this. On loans of $200,000 or less, the cap is $2,000 either way. But on a loan of $300,000, you can now get $3,000 back. On a loan of $500,000, it’s $5,000. The benefit scales with loan size, which helps borrowers in higher-cost markets where conforming loan balances tend to be bigger. And speaking of conforming limits, the Federal Housing Finance Agency set the baseline conforming loan limit for one-unit properties at $832,750 for 2026, up from $806,500. In high-cost areas, the ceiling reaches $1,249,125. So there’s a lot of room for this updated cash-back formula to work in borrowers’ favor. AmeriSave offers conventional refinancing options, including limited cash-out refinances under these updated guidelines. If you’re not sure which type of refinance fits your situation, it’s worth having a conversation with a loan officer who can walk through the specifics. Limited Cash-Out Refinance vs. Other Refinance Types Refinancing isn’t one-size-fits-all. There are several flavors, and the right one depends on what you need from the transaction. Let’s look at how a limited cash-out refi stacks up. No Cash-Out (Rate-and-Term) Refinance Freddie Mac uses the term “no cash-out refinance” for what is essentially its version of Fannie Mae’s limited cash-out refinance. According to Freddie Mac’s guidelines, borrowers can receive cash back up to the greater of 1% of the new loan or $2,000. You can also roll closing costs, financing costs, and prepaid items into the new loan balance. The goal is usually to get a better interest rate or switch from a 30-year term to a 15-year term, or vice versa. A rate-and-term refinance with zero cash back is the simplest version. You’re just swapping your old loan for a new one with better terms. If you don’t need even a small amount of cash, this keeps your new loan balance as low as possible. It’s the most common type of conventional refinance, and it’s what many homeowners picture when they first think about refinancing. Cash-Out Refinance A full cash-out refinance is a different animal. You’re borrowing more than you owe and taking the difference as cash. Most lenders allow you to borrow up to 80% of your home’s current value with a conventional cash-out refi. Here’s a quick example. Your home is worth $400,000 and you owe $200,000. At 80% loan-to-value (LTV), you could refinance up to $320,000, giving you $120,000 in cash (minus closing costs). That money could go toward renovations, debt consolidation, or other expenses. But your monthly payment would jump because the loan balance just grew by $120,000. AmeriSave can help you compare what a cash-out refi would look like side by side with a limited cash-out option to find the best fit. One important note from Fannie Mae’s cash-out refinance guidelines: the existing first mortgage must be at least 12 months old for a cash-out refinance. That seasoning requirement doesn’t apply to limited cash-out transactions. FHA and VA Refinance Options Government-backed loans have their own refinance tracks. FHA offers a Streamline Refinance for current FHA borrowers that comes with reduced paperwork and often doesn’t require a new appraisal. The VA Interest Rate Reduction Refinance Loan (IRRRL) works similarly for eligible veterans and service members. Both are designed to lower your rate or payment with minimal hassle. FHA also offers a cash-out refinance option, which lets qualified borrowers tap equity while converting to an FHA-insured loan. VA cash-out refinances are among the most generous, allowing borrowers to access up to 100% of their home’s value. These programs have their own eligibility rules separate from Fannie Mae’s conventional guidelines. Requirements for a Limited Cash-Out Refinance Qualifying for a limited cash-out refi means meeting several benchmarks your lender will check. Here’s what to expect. Loan-to-Value Ratio (LTV) According to Fannie Mae’s Selling Guide, the maximum combined LTV for a limited cash-out refinance is 97% on a one-unit primary residence. That means you only need 3% equity. On a $300,000 home, that’s $9,000 in equity. If your home has appreciated since you bought it, you might already be there even if you haven’t made many payments yet. For second homes, the max LTV drops to 90%. Investment properties allow up to 75% LTV. Multi-unit properties have lower limits too, so check with your lender if your situation is anything other than a standard single-family primary residence. Credit Score Most lenders look for a minimum credit score of 620 for a conventional refinance. That said, your score affects the interest rate you’ll qualify for. Scores of 740 and above generally get you the most competitive rates, while scores in the 620 to 680 range may come with pricing adjustments that make the loan more expensive over time. Fannie Mae publishes loan-level price adjustments (LLPAs) that lenders use to determine these pricing differences based on credit score and LTV combinations. If your score has improved since you got your original mortgage, refinancing could be a smart move. A colleague of mine in the underwriting department mentioned recently that they’re seeing a lot of borrowers come through whose scores have jumped 40 or 50 points since their purchase loan. That improvement can translate to real savings. Debt-to-Income Ratio (DTI) Your DTI measures how much of your gross monthly income goes toward recurring debts. To calculate it, add up your monthly obligations, including the proposed new mortgage payment, minimum credit card payments, auto loans, student loans, and any alimony or child support. Divide that total by your gross monthly income. Most lenders prefer a DTI of 36% or lower for the best terms. Some will go up to 45% or even 50% with compensating factors like a strong credit score or substantial cash reserves. At AmeriSave, loan officers review the full picture rather than just looking at one number in isolation. Documentation You’ll Need Plan on gathering your two most recent pay stubs, two months of bank statements, two years of W-2 forms, and two years of federal tax returns. Self-employed borrowers usually need profit and loss statements and possibly business tax returns as well. Your lender may also request a copy of the settlement statement from your original purchase. An appraisal is typically required to confirm your home’s current value, though some borrowers may qualify for an appraisal waiver through Desktop Underwriter or Loan Product Advisor based on the loan’s risk profile. Subordinate Financing Rules If you have a second mortgage like a home equity loan or a home equity line of credit (HELOC), it has to remain subordinate to your new first mortgage after closing. That means the holder of your primary mortgage gets paid first in the event of a default. Your second-lien lender needs to agree to this subordination, and that process can sometimes add a few days to your closing timeline. You can’t use a limited cash-out refinance to pay off a home equity loan or HELOC that wasn’t used to purchase the home. If you want to consolidate a non-purchase second lien, you’d need a full cash-out refinance instead. Costs and Fees You Should Expect Refinancing isn’t free. Closing costs on a refinance typically run between 2% and 6% of the loan amount. According to the Consumer Financial Protection Bureau, median closing costs for refinance transactions have been rising, reaching roughly $4,979 as of the most recent reporting period. That figure includes origination fees, title fees, appraisal charges, and other settlement costs. Let’s put real numbers on it. If you’re refinancing a $250,000 loan, expect closing costs somewhere between $5,000 and $15,000. At the lower end, that’s about 2%. At the higher end, you’re looking at 6%, which is less common for straightforward refinances but possible depending on your market. The good news with a limited cash-out refi is that you can roll those costs into the new loan balance. That keeps more cash in your pocket today, though it does mean you’re paying interest on those costs over the life of the loan. One thing I keep seeing is people who focus so much on the rate that they forget about the total cost of the refinance. Both matter. The CFPB’s research on discount points found that over half of non-cash-out refinance borrowers paid discount points in recent periods. If you’re offered a lower rate in exchange for paying points, run the break-even calculation. Divide the cost of the points by your monthly savings to see how long it takes to recoup that upfront expense. If you plan to stay in the home longer than the break-even period, points might make sense. Here’s a quick worked example on break-even. Say your closing costs total $6,000 and refinancing saves you $200 per month. Divide $6,000 by $200, and your break-even is 30 months. If you plan to stay in the home for at least three years after closing, the refinance pays for itself. Anything beyond that is pure savings. If you might move in 18 months? The math doesn’t work. Tip: Don’t forget to factor in property taxes and homeowners insurance when comparing monthly payments before and after refinancing. Your escrow amount may change if your home has been reassessed or your insurance premiums have gone up. The mortgage payment itself might drop, but the total monthly outlay could stay closer to what you’re paying now. When a Limited Cash-Out Refinance Makes Sense This kind of refinance isn't right for every homeowner, but it works well in some common situations. The best time to use this is when rates have gone down and you want to lower your monthly payment without taking a lot of equity out of the house. You may have locked in at 7.25% a few years ago, but rates are now closer to 6.5%. If you drop your interest rate from 7.25% to 6.5% on a $300,000 loan, you will save about $150 a month. That's $1,800 back in your budget over the course of a year. It's also helpful if you want to change the length of your loan. Switching from a 30-year mortgage to a 15-year mortgage will build equity faster and lower your total interest cost, but your monthly payment will go up. If your budget is tight, moving from a 15-year to a 30-year loan will free up some cash flow each month. A third situation is that you have a small bill to pay. You might need $2,000 for a small repair, like fixing a roof or replacing a water heater. You can put it in a mortgage at 6% or 7% instead of putting it on a credit card with 20% or more interest. There is math that works in your favor there. AmeriSave's loan officers can help you compare a limited cash-out refinance to other refinancing options side by side. When you see the numbers, the right answer is sometimes clear. And sometimes it catches you off guard. Divorce or separation is the fourth scenario that happens more often than you might think. A limited cash-out refinance can help when one spouse needs to take the other off the mortgage. Fannie Mae sees a deal in which one owner buys out another's interest as a limited cash-out refinance, as long as the property was jointly owned for at least 12 months before closing. It's a better option than some of the others. And then there's the homeowner who got an adjustable-rate mortgage (ARM) and wants to lock in a fixed rate before the adjustment period starts. A limited cash-out refinance lets you switch from an ARM to a fixed-rate loan without the hassle of a full cash-out transaction. This means you can count on your payments. Pros and Cons Worth Weighing The good thing about this kind of refinance is that it keeps your options open without making you borrow too much. You can add closing costs to the loan, you can get up to $2,000 (or more with bigger loans under the new formula), and the LTV requirements aren't too strict, so you don't need a lot of equity. Low equity isn't a dealbreaker in this case. Even people who bought their homes recently or put down a small amount of money can qualify because Fannie Mae allows LTVs up to 97%. And the existing mortgage doesn't have to be seasoned, like it does with a cash-out refi. The bad news is that your loan balance goes up when you add closing costs and get cash back. That means you'll have to pay more interest over time. And $2,000 in cash (or a little more for bigger loans) won't be enough to pay off a lot of debt or do a big renovation. A full cash-out refinance or a home equity product is probably the best option if you need more than a few thousand dollars. If your house is for sale, you also can't do a limited cash-out refi. You also can't use it to pay off a home equity loan or HELOC that you didn't use to buy the house in the first place. Those limits make the use case smaller, so before you apply, make sure this type of transaction fits what you want to do. Another thing that people forget. Refinancing starts the seasoning clock on your loan over again. If you refinance your 30-year mortgage after five years, you will have to pay it off five years later. You might still want to do it if you can save money on interest, but be aware of what you're getting into. If you want to keep the same payment schedule, think about refinancing into a 20- or 25-year term. The Bottom Line You can get better terms on your mortgage and some extra cash with a limited cash-out refinance. This is a good option if you don't want to make the bigger commitment of a full cash-out refinance. Because of Fannie Mae's new cash-back formula and low equity requirements, a lot of different types of borrowers can use it. Check your current rate against what's available now and see if the savings are worth the closing costs. AmeriSave can help you figure out the best way to refinance your home based on your situation.