Loan Officer Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

The maximum amount of cash a borrower can extract through refinancing for renovations is determined based on the current property value. This approach ensures that the amount borrowed aligns with the equity available in the home, which is calculated from the appraised value of the property at the time of refinancing. By assessing the current property value, lenders can offer a loan amount that reflects both the homeowner's existing mortgage and their equity position, allowing the borrower to tap into cash for renovations while still maintaining a manageable loan-to-value ratio.

In considering the other options, the inclusion of closing costs in the cash amount would not typically specify the maximum that can be extracted for renovations. The second option is too restrictive, as it only takes into account the first mortgage amount without permitting access to equity for cash-out purposes. The last option suggests a fixed percentage of 85% of the property value, which may not apply in all situations since lenders may have varying policies regarding cash-out refinances, potentially allowing for less than this percentage based on individual circumstances.