The Quick Read: The 80% cap applies to your whole new loan, not to the cash you receive. Your payoffs, closing costs and financed insurance premium all come out of that 80% first, and whatever is left is your cash. On a home with a modest balance, that can be a meaningful sum. On a home with a heavy balance, it can be close to nothing.
Key Takeaways
- The FHA cash-out refinance reaches 80% of the home’s appraised value, and that limit covers the entire new loan.
- Cash to you equals the maximum loan, minus every payoff, minus costs and the financed upfront premium.
- A lower appraisal shrinks the cash faster than most people expect.
- The home must be your primary residence, owned and occupied for 12 months before the case number.
- County loan limits can cap the loan below what 80% of value would allow.
- Reaching the cap does not guarantee approval or a specific cash amount. Credit, income and payment history still decide the file.
What Does “the LTV Cap” Actually Mean?
LTV stands for loan-to-value. It is the loan balance divided by the home’s value, shown as a percentage. The cap is the highest LTV the program allows.
For the FHA cash-out refinance program, that figure is 80%. The program lets you replace your current mortgage with a larger one and take the difference as cash. But the larger loan can’t pass 80% of the appraised value.
Many borrowers misread this. They hear “80%” and think they can pull out 80% of their equity. They can’t.
Take a home worth 100 units with a loan balance of 50 units. The cap lets the new loan reach 80 units. The first 50 units pay off the old mortgage. That leaves 30 units of room, and costs come out of those 30.
So the cap measures the total loan. Cash is only the leftover.
Lendmire’s FHA cash-out refinance program page covers how Lendmire brokers these loans through wholesale lenders. This article covers the arithmetic behind them.
The Cash Formula, Step by Step
Cash at the cap comes from one formula. It takes six steps.
1. Get the appraised value. A cash-out needs a new FHA appraisal. The value that counts is the appraised value as adjusted under FHA’s rules.
2. Multiply by 80%. That gives the maximum total loan.
3. Subtract your existing mortgage payoff. The lender gets a payoff statement from the current servicer. Payoffs include accrued interest, so the figure runs slightly above the balance on your last statement.
4. Subtract other liens. A second mortgage or HELOC counts against the same 80% limit. That is the combined loan-to-value rule. An open-end line is typically measured by its full credit limit, not what you’ve drawn.
5. Subtract costs and prepaids. Closing costs, prepaid taxes and insurance, and any required repairs all reduce the cash. So does the 1.75% upfront mortgage insurance premium. It is calculated on the base loan amount and is typically financed into the loan.
6. What remains is your net cash.
The formula in one line: cash = (value × 80%) − payoffs − other liens − costs − financed premium.
Step 5 holds a detail your loan officer should confirm. The financed upfront premium sits on top of the base loan. How that interacts with the 80% figure is a file-level question under current guidelines, so don’t assume it.
A Worked Example, Gross to Net
Here are two homes, shown only as shares of appraised value. These are illustrations, not quotes.
Home A: low balance.
- Appraised value: 100% of value.
- Maximum loan at the cap: 80%.
- Existing mortgage payoff: 40%.
- Room before costs: 40%.
- Costs and premium: subtract these from the 40%.
- Net cash: what is left. Your Loan Estimate gives the actual cost figures.
Home B: high balance.
- Appraised value: 100% of value.
- Maximum loan at the cap: 80%.
- Existing mortgage payoff: 75%.
- Room before costs: 5%.
- Net cash: that 5% minus costs and premium, which can leave very little.
Same cap, very different outcomes. Home B isn’t a bad candidate. But the cash is thin, and the borrower may be taking on a new loan with new insurance costs for a small payout.
Notice that the cap left the Home A owner with at least 20% equity after closing. That’s the program’s design. It keeps a cushion in the house.
How a Lower Appraisal Changes the Cash
The number you get depends heavily on the appraisal. Each shortfall in value reduces the cap, and the loan balance doesn’t move.
Picture a home you expect to appraise at 100% of your estimate, with a balance equal to 55% of that estimate. Here is how room before costs changes:
| Appraisal vs. your estimate | Cap as % of your estimate | Room before costs |
|---|---|---|
| 100% | 80% | 25% |
| 95% | 76% | 21% |
| 90% | 72% | 17% |
| 85% | 68% | 13% |
A 5% appraisal miss costs 4 points of room. A 15% miss costs 12 points, nearly half the cash. The cap magnifies the miss. (Appraisals are opinions with comps attached, which is why borrowers sweat them.)
If you’re planning around a specific cash amount, build in a cushion. Don’t plan on the best-case appraisal.
Working Backward From the Cash You Need
Maybe you know the cash you need, and want to know whether your home gets you there. Reverse the formula.
Add up your existing mortgage payoff, any other liens, the cash you want, and estimated costs. Divide that total by 0.80. The result is the appraised value you need.
If your expected value falls short, you have three options. You can take less cash, wait for more equity, or choose a different product. Cash-out isn’t the only route, and the right choice depends on what the money is for.
The Second Ceiling: County Loan Limits
The 80% cap isn’t the only limit. FHA also sets maximum loan amounts by county, and those limits change every year. The combined mortgage amount, first loan plus subordinate liens, can’t exceed the applicable limit.
The loan is held to the lower of the two numbers. In a higher-priced area, 80% of value can exceed the county limit. When that happens, the limit controls, and your cash is smaller than the 80% math suggests.
This article doesn’t quote county figures because they vary by county and move each year. HUD publishes a county-by-county lookup, and your loan officer can pull the number for your property.
A high appraisal can’t override a county limit. That surprises some borrowers.
What FHA’s Own Rules Say About the Cap
The 80% figure wasn’t always the rule. HUD Mortgagee Letter 2019-11 lowered the maximum LTV and combined LTV on cash-out refinances from 85% to 80% of adjusted value. The same letter notes that the cap had previously come down from 95% to 85%. HUD’s stated reason was to reduce risk to the FHA insurance fund as insured loan balances grew.
HUD’s own guidance confirms the 80% figure for case numbers assigned after the change. It also confirms that the combined first and subordinate liens must stay within the nationwide statutory mortgage limits.
You may still see 85% on older web pages. That’s the pre-change rule. Treat it as outdated.
The lender’s rulebook is HUD’s Handbook 4000.1. Lenders may add their own overlays on top of it, so two lenders can reach different answers on the same file.
Where the General Rule Breaks
The 80% rule is the baseline. These cases change it.
Under 12 months of ownership. The cash-out program applies to a home you’ve owned and occupied for 12 months before the case number is assigned. Before that, a different product may fit, and the value basis can shift. Archived HUD guidance in the HOC Reference Guide shows the calculation depending on how long you’ve owned the property. Treat that as background on the concept, since it has been superseded.
Not your primary residence. FHA cash-out is for the home you live in. Occupancy decides the leverage, and the program doesn’t extend to second homes or rentals.
Payment history. The loan you’re refinancing has to be in good standing, and the lender wants a current payoff statement on file. A recent pattern of late payments can end the file even when the equity is there.
Hawaiian Homelands. HUD’s 80% change doesn’t apply to Section 247 loans, according to the same Mortgagee Letter.
Manufactured homes. Older HUD guidance adds extra restrictions here. Ask your loan officer early.
Open-end second liens. A HELOC counts at its full credit limit when computing the combined LTV. A line you’ve barely touched can still use up room.
Credit and ratios. The standard debt ratios are 31/43 (housing to total) with no compensating factors. Documented compensating factors can stretch that as far as 40/50 at the top tier. Many files also run through an automated underwriting system, and its findings can drive the final decision. Wholesale programs vary on credit floors, so confirm with your loan officer.
Cash-Out, Streamline, or Rate-and-Term?
Not everyone who calls a refinance wants cash. Here is how the FHA options compare, as Lendmire places them.
| Option | Appraisal | Maximum leverage | Cash to you |
|---|---|---|---|
| Streamline | None | Existing FHA loan only | No cash-out |
| Rate-and-term | Yes | 97.75% on a primary residence occupied 12 months | Payoffs and costs only |
| Cash-out | Yes | 80% LTV, home owned and occupied 12 months | The leftover |
A streamline refinances an existing FHA loan with no appraisal and a limited credit review. It requires a net tangible benefit, and the mortgage insurance premium continues. It is a separate product, not a cash-out with a lighter file.
If you want cash, the cash-out is the one that delivers it. If you only want a different loan structure, one of the others may fit with less leverage cost.
What the Mortgage Insurance Does to the Math
FHA loans carry two kinds of mortgage insurance. The upfront premium is 1.75% of the base loan, and it is typically financed. The annual premium runs between 0.15% and 0.75% of the balance. The exact tier depends on term, loan amount and LTV.
How long the annual premium lasts depends on leverage. On a thirty-year loan above 90% LTV, it lasts the full term. At or below 90%, it ends after eleven years. A cash-out at the 80% cap lands in the second group, though the terms depend on the lender’s program.
This is mechanics, not a price. The point for your cash math is simple. Financing the premium adds to the loan and eats into your room under the cap.
Is It the Right Move? The Borrower’s Decision
Do the cash math first. Then weigh the cost of taking it.
The CFPB’s guide on using home equity says a cash-out may extend the time it takes to pay off your mortgage. It also notes that a new loan replaces your old one, with new terms. None of the equity options turns 100% of your equity into cash.
A CFPB report on cash-out borrowers found that paying other bills was the most common reason people took cash out, and home repairs ranked second. The agency cautions that paying non-mortgage debt with mortgage debt can raise the risk of foreclosure. It also found that credit card balances tended to drift back toward their earlier levels in the year after.
A few questions are worth asking yourself:
- What is the money for? Repairs that add value are different from clearing cards you might run up again.
- What is the leftover cash after costs? If it’s small, the refinance may not be worth the new loan.
- What do you give up? You’d replace your existing mortgage, and its terms, with a new one.
- Is a different product better? If your current loan is FHA and you only want a different structure, a streamline may fit.
Cash out of your home is new mortgage debt, not free money. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Common Math Mistakes
- Treating 80% as the cash. The cap covers the whole loan. Cash is what’s left.
- Forgetting the payoff stack. Every lien on the home counts against the cap, not just the first mortgage.
- Mixing gross and net. The room before costs isn’t the cash at closing.
- Skipping the appraisal risk. The value you hope for isn’t the value that sets the cap.
- Assuming 80% means approved. Credit, income and payment history are still reviewed. All figures here are subject to lender guidelines and full file review, and none is a commitment to lend.
Frequently Asked Questions
Do I have to take the maximum amount?
No. The cap is a ceiling. You can borrow less, and a smaller new loan means a smaller balance and lower costs tied to loan size. The financed upfront premium is calculated on the base loan, so it shrinks too.
Does a very high home value override the county loan limit?
No. The loan is held to the lower of the 80% amount and the county limit. In higher-priced areas, the limit can bind first. Your loan officer can look up the figure for your county.
How much equity stays in the house after closing?
At least 20% of the appraised value. That is the other side of an 80% cap.
Can I use FHA cash-out on a second home or rental?
No. The program is for a primary residence. Occupancy decides the leverage, and a different product would be needed for other property types.
Why might the lender approve less than the 80% math allows?
The cap is a maximum, not a promise. Credit, income, debt ratios, payment history, appraisal value and lender overlays can all lower the amount. A county limit can too.
Next Steps
Start with your numbers. Estimate your home’s value, add up every lien, and run the formula above. Then ask what the cash is for and whether a different loan would serve you better.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
3. CFPB guide on using home equity
4. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Refinancing An FHA 203(k) Loan After The Renovation Is Done · FHA Simple Refinance Vs FHA Streamline: The Appraisal Makes The Difference · FHA Cash-out Refinance Credit Requirements: The Floor And The Overlays Above It
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.