What types of conventional refinances are there?
Fannie Mae has two main kinds of conventional refinance. A limited cash-out refinance, often called rate-and-term, pays off your current first mortgage and the costs of the new loan, with only a small amount of cash back. A cash-out refinance lets you take equity out as cash, with stricter rules. Conventional loans do not have a streamline refinance like FHA or VA.
Educational answer from Mortgage Expert. Mortgage Expert's licensed loan originator is Shahram Sondi, Florida mortgage broker, Certified Mortgage Advisor™, NMLS 186790. Sources checked .
How it works
Limited cash-out (rate-and-term)
This refinance pays off your current first mortgage. You can also finance the closing costs, points and prepaid items of the new loan. It can pay off a second mortgage only if that second was used to buy the home.
Fannie Mae caps any cash back to you at the greater of 1% of the new loan or $2,000. Fannie Mae sets no waiting period on your current first mortgage for this type, though a lender can add its own.
Cash-out refinance
A cash-out refinance can give you cash for any purpose. At least one borrower must have been on title for six months before the new loan funds. The first mortgage being paid off must be at least 12 months old. Inherited homes and some recent cash purchases have exceptions.
Fannie Mae sets the maximum loan-to-value ratio (LTV) for each type in its Eligibility Matrix. LTV is the loan amount divided by the home's value. For a one-unit home you live in, the matrix allows up to 97% LTV on a fixed-rate limited cash-out refinance and up to 80% on a cash-out refinance. Above 95%, Fannie Mae must already own your current loan.
Rolling in closing costs and skipping the appraisal
You can add closing costs to the new loan as long as the total stays within the maximum LTV. Any costs that do not fit must be paid in cash. If the new loan is above 80% LTV, you will pay mortgage insurance.
Fannie Mae's automated system (DU) may offer value acceptance on some loans. That means no appraisal is needed. It is not offered on two- to four-unit homes, manufactured homes, manually underwritten loans, or homes valued at $1,000,000 or more. The lender can still order an appraisal, so do not count on a waiver until the findings show it.
No conventional streamline
FHA and VA have streamline options with lighter paperwork. Conventional refinances do not. The lender reviews your credit, income and the home's value, much like a new purchase loan.
Rate-and-term vs cash-out on a $400,000 home
Illustrative example. This is not a real borrower, offer or quote. Values and dates are assumptions unless a program rule is identified.
Assume a home is worth $400,000 and the total new rate-and-term loan would be $256,000. The lender must verify every payoff and cost included in that balance. Compare that with a $296,000 cash-out loan, which adds $40,000 in proceeds for the homeowner.
| Item | Rate-and-term | Cash-out |
|---|---|---|
| Total new balance | $256,000 | $296,000 |
| Additional cash requested | None | $40,000 |
| LTV | 64% | 74% |
The math, step by step
- Rate-and-term LTV: $256,000 ÷ $400,000 = 64%.
- Cash-back cap on rate-and-term: 1% of $256,000 = $2,560, which is more than $2,000, so the cap is $2,560.
- Cash-out loan: $256,000 + $40,000 = $296,000.
- Cash-out LTV: $296,000 ÷ $400,000 = 74%.
Takeaway: Both loans stay at or under 80% LTV, so neither needs mortgage insurance, and the cash-out loan is within Fannie Mae's 80% cash-out limit. The cash-out loan is larger, so compare the full cost before you choose it.
Easy things to get wrong
- Paying off a home equity line or second mortgage you did not use to buy the home makes the loan a cash-out refinance.
- The cash-out clock has two parts: six months on title and a first mortgage at least 12 months old. Both must be met.
- Rolling in costs raises your loan amount and your LTV. A few thousand dollars can push you over 80% and add mortgage insurance.
- An appraisal waiver is offered by the system, not chosen by you. Budget for an appraisal until the findings show otherwise.
What to do next
Before you apply, estimate how long it takes for the monthly savings to cover the closing costs.
Not sure which refinance fits? Shahram Sondi can look at your balance, value and goal and show which type applies.
Check the sources
- Fannie Mae Selling Guide B2-1.3-02: limited cash-out refinance transactions
- Fannie Mae Selling Guide B2-1.3-03: cash-out refinance transactions
- Fannie Mae Selling Guide B4-1.4-10: value acceptance (appraisal waiver)
- Fannie Mae Selling Guide B7-1-01: mortgage insurance above 80% LTV
- Fannie Mae Eligibility Matrix (August 5, 2026): maximum LTV by transaction
Sources checked . Program guidance and lender requirements can change.
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Educational only. Conventional loan guidelines, lender overlays, rates, fees, PMI, LLPAs, and underwriting requirements can change. Final eligibility depends on full underwriting review. Mortgage Expert, Inc. is not affiliated with Fannie Mae, Freddie Mac, FHFA, or any government agency.
