Routing # 256078446
MORTGAGE KNOWLEDGE CENTER
PenFed Mortgage with Confidence
MORTGAGE
What Loan-to-Value Ratio Do You Need for a Cash-Out Refinance?
What you'll learn: What you need to know about loan-to-value ratio and cash-out refinancing.
EXPECTED READ TIME: 3 MINUTES
September 26, 2024
When it comes to your mortgage and refinancing, the loan-to-value ratio (LTV) is the formula used by lenders that assesses the risk of lending to a borrower. It also plays a significant role in determining your interest rate, monthly payments, and how much equity you are able to tap into using a cash-out refinance.
What is an LTV ratio for mortgages?
The purpose of your LTV ratio is to measure the amount of money you need to buy a home or refinance against the value of the property. A high LTV indicates to lenders that there is a higher risk of financing your mortgage, since in the event that you default on the loan, it is unlikely they can recover the remaining amount by selling the property. On the flip side, a lower LTV ratio can open up more opportunities and unlock additional benefits for you (depending on your chosen lender), including:
-
Lower interest rate
-
Decreased monthly mortgage payments
-
More equity that you can turn into cash
When it comes to refinancing, the amount you have already paid on your monthly payments (plus, your initial down payment), will be factored into the LTV calculation. Since a cash-out refinance replaces your current mortgage with a new one at a higher amount, your LTV ratio will play a deciding role in whether or not you qualify.
How to calculate loan-to-value ratio?
Fortunately, the equation that calculates your LTV ratio is pretty straightforward. All you will need is the total amount required to borrow against the home and the total appraised value of the property.
LTV = Loan÷Property Value
Then, you multiply that total by 100 to convert it to a percentage.
So, if your home is appraised for $400,000, and your remaining loan balance is $300,000, then your LTV is 75%.
What LTV ratio do you need for a cash-out refinance?
It is important to note that along with different lender requirements, different types of refinances may have varying LTV ratio qualifications. Most lenders will require that you have a maximum LTV ratio of 80% or less in order to qualify for a refinance. However, if you have a Department of Veterans Affairs (VA) loan, you may qualify for a VA cash-out refinance with an LTV of up to 90%.
Here is a quick breakdown of LTV maximums based on differing cash-out refinance options:
| Refinance Type | Maximum LTV Ratio Required |
| Conventional Cash-Out | 80% |
| Federal Housing Administration (FHA) Cash-Out | 80% |
| VA Cash-Out | 90% |
On top of your LTV ratio, your creditworthiness will also play a part in determining not only if you qualify, but the loan amount you qualify for. If you find that your LTV ratio exceeds your lender’s maximum limit, then you may have to take some time paying down your current mortgage and building more equity before applying for a cash-out refinance.
It is important to remember that a cash-out refinance replaces your current mortgage with a new, larger one based on your home’s equity. That is how you are able to receive a cash surplus. While the process of getting the new loan is similar to other refinance options, your LTV ratio will likely be higher due to the increased loan amount.
Other cash-out refinance requirements
Along with your LTV ratio, there are a few other factors that your lender will use to determine your eligibility, including:
-
Credit score—most lenders will require a minimum of 620
-
Debt-to-income ratio of 50% or less (some lenders may require a lower ratio while others may allow for a higher ratio)
-
At least 20% home equity
-
Seasoning requirements (most conventional cash-out refinances will require that you have lived on the property for at least six months)
Is a cash-out refinance right for you?
While the benefits of a cash surplus may be tempting, it is important to take stock of your current finances and double-check that a cash-out refinance is the right option for you. Do you have an intended use for the funds in mind already? Can you afford the new mortgage payments?
These are questions you must ask (and answer) yourself before jumping into the process. It is best to consult with a trusted mortgage lender who can provide you with detailed explanations on how a cash-out refinance will affect you and if the pros outweigh any cons in your unique situation.
SIMILAR ARTICLES
When is a Cash-Out Refi a Good Idea?
There are many benefits of cash-out refinances, from debt consolidation to paying off student loans and getting home improvements done. Read on for more.
HELOC vs. Cash Out Refi – Which Is Right For You?
Home Equity Line of Credit (HELOC) lets you withdraw funds as needed. Cash-out refi gives you funds all at once. Find out which is better for your situation.
Home Improvement and Remodeling Ideas and Financing Options
The weather is perfect for home improvements, from interior renovations to home additions and exterior upgrades. Discover our top picks in all price ranges.
Advantages of Cash-Out Refinances for Home Improvements
For many homeowners, a cash-out refinance is the best way to pay for home improvements. Discover how to finance your renovations and home improvements.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
©2026 Pentagon Federal Credit Union