A cash out refinance allows you to get cash from your home’s equity by replacing your old mortgage for a new mortgage for a higher amount. Many homeowners use cash out refinances to pay for home improvements and college educations or to consolidate debts like credit cards or personal loans.
What is a maximum loan-to-value ratio (LTV)?
The maximum loan-to-value ratio (LTV) of a cash out refinance is important because it affects whether you qualify for refinancing as well as how much money you may be able to borrow from your home’s equity. LTV is a percentage calculated as follows:
Your current mortgage loan ÷ appraised value of the home = your loan-to-value ratio
For example, if your current mortgage balance is $150,000 and your home is worth $300,000, then your loan-to-value ratio is 50%. (That is $150,000 ÷ $300,000 = 0.50 or 50%.)
Different loan types have different maximum LTV values for their cash out refinances. At Freedom Mortgage, we offer cash out refinancing with conventional, VA, and FHA loans.
What is the maximum LTV on a conventional cash out refinance?
At Freedom Mortgage, the maximum loan-to-value ratio for a conventional cash out refinance is often 80%. This means your LTV can be no higher than 80% if you want to qualify for cash out refinancing with a conventional loan. Take a look at this sample calculation:
| Home Value | $275,000 |
| Current mortgage balance | $125,000 |
| Sample maximum LTV | 0.80 or "80%" |
| Maximum new mortgage balance | $220,000 ($275,000 x 0.8) |
| Maximum cash available | $95,000 ($220,000 - $125,00) |
The homeowner in this example may qualify for a cash out refinance for up to $95,000 in cash. Keep in mind you’ll need to meet other credit, income, and financial requirements to get your loan approved.
What is the maximum LTV on an FHA cash out refinance?
At Freedom Mortgage, the maximum loan-to-value ratio for an FHA cash out refinance is also often 80%. Like with conventional loans, you’ll also need to meet credit, income, and financial requirements to get your FHA cash out refinance application approved.
What is the maximum LTV on a VA cash out refinance?
At Freedom Mortgage, veterans, active-duty military personnel, and surviving spouses with VA loans may qualify for VA cash out refinancing with a 90% max loan-to-value ratio. Let’s look at the same sample homeowner as above with a 90% maximum LTV:
| Home Value | $275,000 |
| Current mortgage balance | $125,000 |
| Sample maximum LTV | 0.90 or "90%" |
| Maximum new mortgage balance | $247,500 ($275,000 x 0.9) |
| Maximum cash available | $122,500 ($247,500 - $125,000) |
The VA homeowner in this example might be eligible to receive up to $122,500 in cash after refinancing – more than they could get with a conventional or FHA cash out. Most VA homeowners will still need to pay a VA funding fee in addition to their closing costs when refinancing. And they will need to meet credit, income, and financial requirements to get their loan approved.
Speak to one of our Loan Advisors about cash out refinancing
Borrowing money against the value of your home can come in handy if you have major home renovations to make, are looking to consolidate debts, or are pursuing additional education to further your career.
Get Started online or talk to one of our Loan Advisors at 877-220-5533 about applying for a new mortgage today!