How Much Cash Can You Take Out of a Twin Cities Home?

Most conversations about a cash-out refinance start with the same question, and it is a fair one. How much money would actually come out of this?

The answer is arithmetic, not mystery. A lender looks at what your home is worth, subtracts what you still owe, and applies a limit to how much of the home's value your new loan may represent. On a conventional cash-out refinance that limit is usually 80 percent.

The arithmetic, worked through

Say a home in the south metro appraises at $450,000 and the current mortgage balance is $260,000.

Step one, find the ceiling

Eighty percent of $450,000 is $360,000. That is the largest new loan a conventional cash-out refinance would typically allow on that home.

Step two, subtract what you owe

$360,000 minus the $260,000 balance leaves $100,000.

Step three, subtract closing costs

Closing costs come out of that figure rather than arriving as a separate bill. What lands in your account is what remains after them.

So the honest version of the answer is: roughly a hundred thousand dollars, minus costs, on those numbers. Change the appraisal or the balance and the answer changes with it.

Why 80 percent

The limit exists because the lender is replacing your entire mortgage with a larger one. Keeping 20 percent of the home's value untouched is the cushion that makes that acceptable.

You will still find articles online saying FHA allows 85 percent. That has not been true since September 2019, when HUD reduced the FHA cash-out limit from 85 percent to 80 percent in Mortgagee Letter 2019-11. HUD Handbook 4000.1 now states it plainly: the maximum is 80 percent of the adjusted value. So for both conventional and FHA cash-out refinancing, 80 percent is the number.

VA cash-out refinancing follows different rules and can work differently for eligible veterans. If you served, that is worth asking about specifically rather than assuming the conventional limit applies to you.

What else the lender is checking

The percentage is only the ceiling. Three other things decide whether you reach it.

Credit

Conventional cash-out refinancing generally starts at a 620 credit score. FHA is typically more forgiving, in the 580 range, though individual lenders often set their own higher floor.

How long you have owned it

Lenders want time on the clock before they will let you take cash out, and this one surprises people who bought recently and assumed rising value alone was enough.

On a conventional cash-out refinance you generally need to have owned the home for at least six months. There is a second rule that catches people out: the mortgage you are paying off usually has to be at least twelve months old itself.

FHA works differently. You must have owned the home and lived in it as your principal residence for the twelve months before the file is started, with a clean payment record over that period.

Income and debts

The new payment has to fit alongside everything else you owe. This is the piece no online calculator can settle, because it depends on documents rather than estimates.

What people actually use the money for

In the Twin Cities the reasons are consistent, and none of them are exotic:

Paying off credit cards and other high-rate balances.

Buying out a spouse's share of the house after a divorce, often on a deadline set by the decree.

College costs, particularly when the alternative is a Parent PLUS loan.

A repair that will not wait, like a furnace in November.

Medical bills.

Each of those has its own considerations, and each gets its own article in this series over the next few months.

The honest part

A cash-out refinance replaces your whole mortgage, not just the piece you are borrowing. If you are holding a rate from 2020 or 2021, that matters a great deal, and it is the first thing worth talking through.

If you bought or refinanced more recently, at a rate closer to today's, you are giving up much less, and the arithmetic above may be straightforward.

Either way it is a fifteen minute conversation, not a form. If you want to know your actual number rather than an estimate, call.

Frequently asked questions

How much equity do I need to do a cash-out refinance?

Enough that after borrowing, your new loan is still within the lender's limit. On a conventional cash-out that generally means keeping at least 20 percent of the home's value untouched, so you need meaningfully more than 20 percent equity going in to have anything left to take out.

How soon after buying can I take cash out?

Conventional cash-out refinancing generally requires six months of ownership, and the loan being paid off usually has to be at least twelve months old. FHA requires that you have owned and lived in the home for the previous twelve months. The clock runs from your closing date, not from when the value went up.

Does FHA let me take out more than conventional?

No. That was true before September 2019, and a lot of articles still say 85 percent. HUD reduced the FHA cash-out maximum to 80 percent of the adjusted value in Mortgagee Letter 2019-11, so conventional and FHA sit at the same ceiling today.

What credit score do I need?

Conventional cash-out generally starts around 620 and FHA around 580, though individual lenders often set higher floors of their own.

Do closing costs come out of the cash?

Usually, yes. They are deducted from the proceeds rather than billed separately, which is why the amount that reaches your account is smaller than the headline figure.

Is a cash-out refinance a good idea right now?

It depends entirely on the rate you hold today and what you would do with the money. For someone holding a very low rate from 2020 or 2021 it is often the wrong tool. For someone who bought more recently it can be straightforward. That is a conversation, not an article.

Talk it through

Chad Krueger, Mortgage Originator, MinnTrust Mortgage, NMLS #400930. Twenty-eight years of mortgage experience, serving Lakeville and the South Metro Twin Cities.

Call 612-382-8792 or email Chad@MinnTrust.com.

This article is general education, not an offer of credit or a commitment to lend, and not legal or tax advice. Every file is different. All loans subject to approval. Equal Housing Lender.