The Quick Read: Credit on an FHA cash-out refinance is decided in layers: a program floor, an automated finding, a possible manual review, and then each lender’s own add-on rules. A file goes manual when the automated system asks for human review or when a specific rule forces it. Recent mortgage late payments are the most common trigger on a cash-out. A manual file is not a denial. It means a person reads the whole story instead of a score.
Key Takeaways
- The wholesale programs Lendmire places FHA files with start at a 580 decision score. Some lenders set a higher floor.
- A cash-out reaches 80% loan-to-value on a home you owned and lived in for 12 months before the case number.
- Ratios start at 31/43 with no extra strengths. Documented compensating factors can stretch them to 40/50 at the top tier.
- Recent mortgage lates, certain public records and thin credit are what push a file to manual review.
- A “Refer” result is a path to a human underwriter. It is not a no.
What Is an FHA Cash-Out Refinance?
An FHA cash-out refinance replaces your current mortgage with a new FHA-insured loan that is larger than what you owe. You take the difference as cash, and you can use it for any purpose. That is what separates it from a no-cash-out refinance, which only pays off the old loan and the costs.
It is for the home you live in. The cash-out version reaches 80% of the home’s value, and the home must have been owned and occupied for 12 months before the case number is assigned. Details on the loan itself are on Lendmire’s FHA cash-out refinance program page. This article stays on the credit side.
You do not need an existing FHA loan to do this. The loan you are paying off can be a different type.
How Is Credit Decided, Step by Step?
Several layers stack on top of each other. Each one can stop a file or send it to a different path.
1. The program floor. Across the wholesale programs Lendmire places FHA loans with, the minimum decision score is 580. FHA’s own rules have a tier below that, but the network does not reach under 580. With several borrowers, the decision score is the lowest of the middle scores.
2. The automated finding. The file runs through FHA’s automated scorecard. It returns one of two answers: “Accept” or “Refer.”
3. The manual path. On a Refer, a human underwriter must review the file. On an Accept, the file can still be pulled to manual if a required downgrade rule applies.
4. The lender overlay. The program sets a minimum. Each lender can set a stricter one. That is why two lenders can quote different credit minimums for the same FHA product.
Layer four explains most of the confusion online. Many numbers you see are one lender’s add-on, not FHA’s rule.
Key Terms Defined
Decision score: The credit score a lender uses to place the file, taken from the lowest middle score among all borrowers.
Accept / Refer: The two results of FHA’s automated scorecard. Accept means the loan can be insured without a manual read. Refer means a human underwriter must review it.
Manual downgrade: A rule that moves a file to human underwriting even after an Accept.
Compensating factors: Documented strengths, such as cash reserves or a low payment increase, that let a file exceed the base ratios.
Overlay: A lender’s own rule that is stricter than the program minimum.
Adjusted value: The appraised value figure that the 80% cash-out ceiling is applied to.
What Sends a Cash-Out File to Manual?
A cash-out file goes manual when the automated finding is Refer or when a downgrade rule applies. Mortgage payment history is the biggest one, because cash-out is held to a tighter standard than a purchase.
| Trigger | Why it matters on cash-out | What can help |
|---|---|---|
| Recent mortgage lates | Stricter than on purchase loans; a HELOC counts | Let clean months build up before applying |
| Short time since a forbearance plan | A full run of on-time payments is expected | Wait until the run is complete |
| Large disputed collections | Open disputes can force a closer read | Resolve or document them first |
| Recent bankruptcy or foreclosure | HUD sets waiting periods: two years from a Chapter 7 discharge, three from a foreclosure | Wait out the period and rebuild credit |
| No score or thin credit | Handled manually and held to 31/43 | Build documented non-traditional history |
Exact look-back windows and dollar thresholds sit in FHA’s underwriting rules and vary by transaction. Ask for the current text on your file rather than trusting a blog’s number.
One practical point: HUD says its automated scorecard returns only Accept or Refer, and that a lender cannot approve or deny on that result alone. Every loan still gets underwritten under FHA’s rules. A Refer is a review path, not a rejection.
What Does Manual Underwriting Actually Look Like?
Manual underwriting means a person reads the file instead of leaning on the score. The underwriter looks at credit history, income, assets and the reasons behind any blemish.
The ratios matter most here. The base pair is 31/43: housing payment to income, and total debt to income. With documented compensating factors, a file can reach 40/50 at the top tier. Without them, the base ratios hold.
Compensating factors are specific and provable:
- Cash reserves after closing.
- A small payment change compared with what you pay now.
- Low use of credit, meaning little discretionary debt.
- Steady, documented income with a long job or industry record.
Manual underwriting means more paper. Expect requests for explanation letters, extra statements and proof of any disputed account’s resolution. That is the cost of a manual file: more documents and a closer look at reserves and ratios. It is not a loophole, and it is not an automatic no.
Federal rules set this framework. A Federal Register notice on manual underwriting lowered the score cutoff below which compensating factors cannot be cited to 580 and laid out the factor system. Later guidance, Mortgagee Letter 14-02, kept borrowers with scores under 580, or with non-traditional or thin credit, at 31/43 even with compensating factors.
Where the Rules Bend
The general rule has real edges.
- Occupancy exception. A narrow exception to the 12-month rule exists for inherited homes. Ask the lender how it documents this.
- Free-and-clear homes. A home with no mortgage can still be refinanced as cash-out. The cash is the withdrawal of equity.
- Non-occupant co-borrowers. On a purchase, a non-occupant co-borrower is allowed. On a cash-out, adding one just to meet credit guidelines is not. Any added borrower must live in the home.
- HELOC payoff. A home equity line paid at closing may count as cash-out depending on recent draws.
- Hawaiian Homelands. Section 247 loans are exempt from the 80% ceiling.
- Streamline refinances. These skip the automated scorecard. They apply to existing FHA loans and are a different path from cash-out.
- Rental or second home. Occupancy decides the leverage, and this program is for a principal residence.
Why Is the Ceiling 80%?
HUD Mortgagee Letter 2019-11 cut the cash-out ceiling to 80% of value. HUD’s stated reason was protecting the FHA insurance fund from growing balances on cash-out loans. Some websites still show the older, higher number. Treat those as out of date.
For you, it means at least 20% equity stays in the home after the refinance. A higher credit score does not lift that cap.
Three Illustrative Files
These are plain-language profiles, not promises. Every outcome is subject to lender guidelines and full file review.
Clean history, mid-range score. Twelve straight months of on-time mortgage payments, a score comfortably above 580, ratios inside the base pair. This file is the likeliest to get an Accept and stay automated.
One recent mortgage late. The score looks fine, but a late payment shows within the past year. On a cash-out, that can force a downgrade to manual. A strong reserve cushion and a written explanation help. Waiting for more clean months helps more.
Thin credit, high ratios. A borrower with little credit history and a total debt ratio above the base 43. This one is manual, held to 31/43 if there is no usable score, and will need compensating factors to go further.
Before You Apply: A Short Checklist
- Pull your mortgage history and look for any late payment in the past year, including on a HELOC.
- Confirm you have owned and lived in the home for 12 months before the case number.
- Check that at least 20% equity will remain after the new loan.
- Gather proof for any disputed or unusual account on your credit report.
- Total your reserves. They are the most common compensating factor.
- Ask the lender whether it manually underwrites cash-outs and whether it adds its own score floor.
If you get a Refer, ask three things. Does this lender underwrite manually? What was the reason for the downgrade? Can the issue be cured, or would another lender’s overlay fit better? The program floor is the same everywhere, but the add-on rules are not.
Frequently Asked Questions
Is a Refer result the same as being denied?
No. A Refer means a human underwriter must review the file. The loan can still be insured if the manual review supports it. Denial comes from that review, not from the automated finding alone.
What credit score do I need for an FHA cash-out refinance?
The wholesale programs Lendmire works with start at a 580 decision score. FHA has a lower tier in its own rules, but those programs do not reach under 580. Individual lenders may add a higher minimum, so the number you hear depends on who is quoting.
Can a cash-out refinance be manually underwritten?
Yes. A file that returns Refer, or one that triggers a downgrade rule, is underwritten manually. Expect more documentation and a close look at reserves and ratios. Manual files can still reach the 80% ceiling if the file supports it.
Do co-borrowers’ credit scores combine?
No. The decision score is the lowest of the borrowers’ middle scores, so a stronger co-borrower does not average it up. On a cash-out, a co-borrower added only to meet credit guidelines is not allowed, so any added person must occupy the home.
Does FHA charge mortgage insurance on a cash-out?
Yes. There is an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium that depends on term, amount and loan-to-value. On a thirty-year loan at or below 90% LTV, the annual premium ends after eleven years. The new payment, insurance included, goes into your debt ratios.
Where to Compare Next
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. Every figure here is subject to lender guidelines and a full file review, and none of it is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
2. Federal Register: FHA Risk Management Initiatives, New Manual Underwriting Requirements
4. HUD Mortgagee Letter 2019-11
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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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.