Actually, the amount allowed on a conventional rate/term refinance is the LESSER of 2% of the loan size or $2000. On a $100,000 loan, the max cash back at closing would be $1000. Different standards apply to FHA and VA streamlines, and HARP refinances.
A loan is considered ‘cash out’ if you walk away with $2000 or more. If under $2K, it is just considered a rate and term refinance. Your closing costs and pre-paids (escrows for taxes, ins. and per diem int.) can be included in the new loan and are not part of the cash out formula, however if including them you do need to keep aware of your loan to value based on the current appraised value.