- Limited cash-out refinances come with lower rates than cash-out refinances.
- The cash you receive at closing, if any, is unintentional.
- A limited cash-out refinance is not a good product for those seeking cash from their home equity.
A limited cash-out refinance is one where cash isn’t the intention, only an incidental byproduct of paying off one loan with another.
It’s nearly impossible to “guess” the exact loan amount you’ll need to cover the balance of your existing loan at the time of closing on a refinance, plus things like closing costs.
That’s why most lending agencies allow you to receive a limited amount of cash back on your refinance — typically up to $2,000 — even though the refinance’s purpose isn’t cash.
What Is a Limited Cash-Out Refinance?
A limited cash-out refinance is a loan where the main point is to lower your rate or change some other term of the loan, not get cash.
That’s why a limited cash-out and no-cash-out refinance is known in the mortgage business as a “rate-and-term” refinance.
Sometimes, a small amount of money is freed up at closing. It could come from rounding, escrow refunds, prepaid interest adjustments, or similar accounting differences. With a rate-and-term refinance, any sum over the allowed amount — typically $2,000 — must be used to reduce the balance of the new mortgage. Additional funds cannot typically be paid to the borrower, per Freddie Mac.
Cash Back Limits
Fannie Mae caps the amount you can receive at the lesser of 2% of the new refinance loan amount or $2,000. Freddie Mac’s rule is slightly different: up to the greater of 1% of the new refinance mortgage or $2,000. In Freddie-speak, this is called a no-cash-out refinance — but it’s functionally the same as Fannie’s limited cash-out refinance.
In addition, you can pay off any second mortgages used to purchase the home, and you may roll the limited cash-out refinance’s closing costs into your new mortgage balance. Keep in mind that doing so means paying interest on those costs for the life of the loan.
You don’t need to retain a lot of equity with a limited cash-out refinance.
Government-backed loans (FHA, VA, USDA) have streamline refinancing options, which are only available for rate-and-term refinances. These can be quicker and less costly than standard refinances, and may have reduced documentation requirements. However, lenders may still apply their own minimum credit score requirements — for example, Refi.com requires a minimum score of 620 for FHA refinances.
Limited Cash-Out vs. Cash-Out Refinance
A standard cash-out refinance lets you tap the equity you’ve built up in your home — the amount by which your home’s market value exceeds your current mortgage balance.
Homeowners in the United States held about $35 trillion in home equity as of early 2024, meaning many can access significant sums. However, lenders impose caps on how much individuals can borrow, and most require the borrower to retain 20% of the home’s value in equity after a cash-out refinance — think of it as a 20% down payment in reverse.
Cash-out refinances often come with higher rates and stricter eligibility requirements than other refinance types. You may need to meet higher standards regarding:
- Your credit score
- The reliability of your income
- Your existing debt burden — your debt-to-income ratio (how much you pay on cards and other loans each month as a proportion of your income)
- Your equity position — typically, lenders require you to retain at least 20% equity (a maximum 80% loan-to-value ratio) after a cash-out refinance
It’s when applicants fall short on one or more of those criteria that a lender might suggest a limited cash-out refinance instead.
Comparing Refinance Options
Here’s a table that lays out the main characteristics of the different sorts of refinances:
| Rate-and-term / Limited Cash / No Cash | Cash-out | |
| Cash out | Incidental amounts only, typically $500–$2,000 maximum | Up to 80% of the home’s value, including the existing mortgage |
| Qualifying | Easier | Harder |
| Closing costs | Low with streamline. Typically 2%–5% of the loan value otherwise | Typically 2%–5% of the loan value. You can roll these into the new loan |
| Debt-to-income ratio | 45%–50%, depending on loan type. No max on streamline | 43% |
| Loan-to-value ratio | Around 97%. No max on streamline or VA | 80% |
| Credit score | Varies by loan type and lender — program minimums may be lower, but lender overlays apply | Lender minimums apply — Refi.com requires 660 or higher |
Keep in mind that lenders often set their own minimum requirements on top of program guidelines. At Refi.com, for example, we require a minimum credit score of 620 for FHA rate-and-term refinances and 620 for conventional rate-and-term refinances — which may be higher than the program minimums set by Fannie Mae, Freddie Mac, or the relevant agency.
Why Would You Get a Limited Cash-Out Refinance?
What might trigger your being offered a limited cash-out refinance, or your applying for one? Various scenarios could apply, including:
- You refinanced to lower your rate or change the term — and your final loan structure just happens to leave a small amount to refund.
- You rolled closing costs or prepaid taxes into your new mortgage.
- Your loan was sold to Fannie Mae or Freddie Mac, and they classify your scenario as “limited cash-out” even though you didn’t ask for cash.
You don’t have to take the money provided for in a limited cash-out refinance. If you have no urgent need for it, you can ask your lender to apply it as a principal curtailment — or simply send the extra money as a one-time principal reduction at first payment. Note that lenders often must re-underwrite the loan and send it back through the process for any loan amount changes, even reductions.
Final Thoughts
If you ended up with a limited cash-out refinance, you’re not alone — and there’s usually no cause for concern. This type of refinance is often just a technical label for a standard rate-and-term refinance that happens to result in a small amount of cash back at closing.
Whether that extra money comes from rounding, escrow adjustments, or other closing-related calculations, it’s typically incidental and well within program guidelines. You can use the funds, apply them to your loan balance, or simply hold onto them — it’s up to you.
Ready to lower your rate or adjust your loan terms? Start your refinance application with Refi.com today — it only takes a few minutes to get started.
