The Quick Read: Every FHA cash-out refinance carries an upfront mortgage insurance premium of 1.75% of the base loan, and it is normally financed into the new balance. A cash-out has no special upfront rate. You pay the same 1.75% as on any other FHA loan. A partial credit for the old loan’s upfront premium exists only when the loan you are paying off is also FHA and is still inside its first three years. It is a credit toward the new premium, never a check.
Key Takeaways
- The upfront premium is 1.75% of the base loan, and the base loan excludes the premium itself.
- It is usually rolled into the loan, so the final balance ends up a little above the base loan.
- The credit from the old loan shrinks every month and ends after the third year of insurance.
- A conventional-to-FHA cash-out gets no credit. The full 1.75% applies.
- The monthly (annual) premium is a separate charge, and it is not refundable.
What Is the Upfront Premium on an FHA Cash-Out Refinance?
The upfront premium is a one-time insurance charge on an FHA loan. It protects the lender if the loan goes bad, and you pay it for the right to borrow with FHA backing. On a cash-out refinance it is 1.75% of the base loan, the same percentage a buyer pays on a purchase.
Many borrowers assume a cash-out costs more because it is the riskier loan. The risk shows up elsewhere: leverage is capped at 80% of the home’s value, and the home must be one you have owned and lived in for 12 months before the case number is assigned. The premium rate does not change.
HUD’s FHA Resource Center lists the premium structure and says the upfront charge applies to purchases and refinances alike. A HUD Mortgagee Letter sets the same 1.75% of the base loan for all mortgages. Only a few narrow cases are exempt, such as certain streamline refinances of older FHA loans and special programs for Hawaiian Home Lands and Indian Lands. A standard cash-out on a newer loan is not one of them.
That is the whole rule. The rest of this page is about how the number is built, what shrinks it, and where it surprises people.
How Is the Premium Calculated on a Cash-Out?
The premium is calculated on the base loan amount. The base loan is your current payoff, plus the closing costs you roll in, plus the cash you take out. It all has to fit under the 80% cap on the appraised value.
Here is the step-by-step version, the way a file moves through it:
1. The appraisal sets the home’s value.
2. Eighty percent of that value is the ceiling for the base loan.
3. The base loan is your payoff, plus rolled-in costs, plus your cash out, up to that ceiling.
4. The 1.75% premium is figured on that base loan.
5. Most borrowers finance the premium, so it is added on top of the base loan to form the final note.
Step 5 is the part people miss. HUD’s Handbook measures the loan-to-value ratio on the balance excluding the upfront premium. HUD’s inspector general notes that the premium may be financed into the mortgage. So the financed premium sits above the 80% line, not inside it.
A worked example, in percentages
Say your home appraises at a given value and you take the full 80% base loan. The numbers look like this:
- Base loan: 80% of the appraised value.
- Upfront premium: 1.75% of that base loan, which is 1.4% of the appraised value.
- Final note amount: about 81.4% of the appraised value.
Because the premium is financed on top, it does not shrink your cash out. It does raise the balance you owe, and it raises the annual premium, because that charge is based on the balance. You also pay interest on the financed premium for as long as you keep the loan. That is a real cost, even though nothing leaves your pocket at closing.
You can pay the premium in cash instead. Few borrowers do, since the point of a cash-out is usually to pull money out, not put it in.
Is the Upfront Premium Refundable on a Cash-Out Refinance?
Partly, and only as a credit. If the loan you are paying off is an FHA loan under three years old and the new loan is also FHA-insured, part of the old upfront premium is credited toward the new one. Otherwise, nothing comes back.
HUD’s FHA Homeowners Fact Sheet states the rule for current loans. No refund is due unless the homeowner refinances into a new FHA-insured loan, and none is due after the third year of insurance. When that happens, the refund from the old premium may be applied toward the upfront premium on the new loan.
Look at what the test actually checks. It asks whether the new loan is FHA-insured. It does not ask whether the refinance is a streamline, a rate-and-term, or a cash-out. Some pages online say cash-outs are excluded, and others say they qualify. HUD’s wording points to the new loan being FHA-insured as the trigger. Your lender confirms how the credit applies to your specific file, and the amount is figured by the servicing and endorsement system, not by you.
There is one practical wrinkle. A cash-out requires that you have owned and lived in the home for 12 months. So if your current loan is FHA, you are already past month 12 when you apply. The credit window for a cash-out runs from about month 12 to the end of year three. The credit is already smaller than it was in the first months, and it keeps shrinking.
How Does the Refund Credit Work?
The credit is a share of the old loan’s upfront premium. It falls each month after the loan closes. It reaches zero after the third year. It reduces the new premium. It is not paid to you.
Three details matter:
- It is a credit, not cash. It lowers the new upfront premium, which means a smaller financed amount or less cash due at closing.
- You file nothing. The refund moves through FHA to the lender. The lender applies it. Your job is to ask where it appears.
- It only works inside FHA. Refinance into a conventional loan, sell the home, or pay the loan off, and the unused upfront premium is not returned.
This article does not include a month-by-month percentage table, and that is deliberate. The published charts available come from lender sites, not from HUD, and HUD sets the exact schedule and can change it. HUD’s own homebuyer notice says refund eligibility depends on the financial status of the FHA insurance fund and is subject to change. Ask your lender to pull the number for your loan’s actual endorsement month.
How to check that you were credited
- Ask the loan officer, before you lock in a plan, whether your current loan is FHA and which month the refinance would land in.
- On your Loan Estimate and Closing Disclosure, look at the line for the upfront mortgage insurance premium. The credit shows up as a reduced premium, not as a separate payment to you.
- If the credit is missing from your closing paperwork, ask your lender to explain the reduction or the lack of one before you sign.
Which Existing Loans Earn a Credit?
Only an FHA loan inside its first three years earns one. Here is how the common starting points compare:
| Your current loan | Credit toward new premium? | New upfront premium |
|---|---|---|
| FHA, under 3 years old | Yes, a shrinking credit | 1.75%, reduced by credit |
| FHA, past 3 years | No | Full 1.75% |
| Conventional loan | No old premium to credit | Full 1.75% |
| VA or USDA loan | No FHA premium to credit | Full 1.75% |
| No mortgage (home owned free and clear) | Nothing to credit | Full 1.75% |
Two older-loan cases are worth knowing. First, an FHA loan from before mid-2009 can get a reduced premium on a streamline refinance. A cash-out is not a streamline, so it gets the standard pricing. Second, the special programs for Hawaiian Home Lands and Indian Lands carry no upfront premium at all.
Where the General Rule Breaks
The rule of thumb is “1.75%, financed, with a credit only from FHA to FHA.” A few situations bend it.
An inherited home. The handbook treats an heir differently on the occupancy period: an inheritor need not meet the usual minimum before a cash-out, unless the property was treated as an investment property. If the heir rents it out, the 12-month principal-residence stretch applies. Occupancy decides the leverage, and FHA cash-out is for a home you live in.
A past forbearance. If you went through a forbearance plan, you generally must have finished it and made a run of on-time payments afterward before a cash-out is possible. The premium rule itself does not change.
A recent mortgage late payment. Across the wholesale programs Lendmire places FHA files with, a clean payment history on the existing loan matters for a cash-out. Credit is reviewed alongside the premium, not instead of it. Some lenders set a stricter floor than HUD does, and the full file review decides.
A higher loan balance. County loan limits apply, and they change every year. A larger base loan raises the dollar amount of the 1.75%, since the percentage is fixed. It can also change which annual premium tier you fall into.
What Happens to the Monthly Premium?
The monthly charge is a different premium. It is called the annual premium, and you pay one-twelfth of it each month with your payment. It is never refunded.
On the programs Lendmire places FHA loans through, the annual premium runs between 0.15% and 0.75% of the balance. Where you land depends on the loan term, the loan amount and the loan-to-value ratio. A cash-out is capped at 80%, so it falls in the lower leverage tier for its size.
Duration matters more than most borrowers expect. On a thirty-year loan above 90% loan-to-value, the annual premium lasts for the full term. At or below 90%, it ends after eleven years. A cash-out at 80% falls in the shorter group, but it starts a new eleven-year clock. Your old loan’s seasoning does not carry over.
Two misconceptions are worth clearing up:
- “Reaching 20% equity removes the premium.” It does not. HUD says cancellation follows the original amortization schedule, and it will not use a new appraised value to decide whether the cancellation point has been reached.
- “The big premium cut lowered the upfront charge.” HUD’s announcement reduced only the annual premium. The upfront premium stayed at 1.75%.
Is It Worth Waiting for a Bigger Credit?
Waiting does the opposite of what people hope. The credit is largest early and shrinks every month, so a delay inside the window costs you money. For a cash-out, you cannot start before month 12 anyway. The practical question is whether to refinance at all, not whether to wait for a better credit.
Here is how the decision usually breaks down:
- Your loan is FHA and under three years old. The credit is real but small and falling. Do not let it drive the decision. Weigh it against what the cash-out is for.
- Your loan is FHA and past three years. There is no credit. The full 1.75% is the cost of entry.
- Your loan is conventional. You pay the full 1.75% and take on a new monthly premium for the FHA term.
- You only need a small amount of cash. A no-cash-out FHA refinance plus a separate second loan sometimes compares well. The combined loan-to-value limit caps how far that route can go.
This is a genuine toss-up for many borrowers. The cash-out is simple, with one loan and one payment. The split approach can cost less in premium but adds a second loan. Run both versions with your lender before choosing.
How Does Cash-Out Compare to Other FHA Refinances?
| Feature | Cash-out | Rate-and-term | Streamline |
|---|---|---|---|
| Maximum leverage | 80% LTV | Up to 97.75% | No appraisal |
| Cash to you | Yes | No | No |
| Existing loan | Any mortgage | Any mortgage | Must be FHA |
| Premium credit | If old loan is FHA | If old loan is FHA | Premium continues |
| Occupancy | Lived in 12 months | Lived in 12 months | Existing FHA terms |
The streamline refinances an existing FHA loan with a limited credit review and a net tangible benefit test. The rate-and-term needs an appraisal and reaches 97.75% on a home you have occupied for the previous twelve months. Only the cash-out lets you take equity out, and it has the lowest leverage of the three. If you want a walk-through of how these requirements fit together, Lendmire’s piece FHA Cash-Out Refinance Rules: Occupancy, Loan-to-Value, and Credit covers them.
Key Terms Defined
Upfront mortgage insurance premium (UFMIP): A one-time FHA insurance charge, 1.75% of the base loan, usually financed into the new balance.
Annual mortgage insurance premium (MIP): The ongoing FHA insurance charge, billed monthly, set by loan term, amount and loan-to-value ratio.
Base loan amount: The loan before the financed upfront premium is added. It is the figure the 1.75% is applied to.
Loan-to-value (LTV): The loan balance divided by the home’s appraised value, shown as a percentage.
Refund credit: The portion of an old FHA loan’s upfront premium applied toward the new FHA loan’s premium. It is not paid out as cash.
Endorsement: The date FHA formally insures a loan. The credit window counts from here.
Cash-out refinance: A new, larger loan that pays off your old one and gives you the difference in cash.
Where to Go From Here
The premium is generally 1.75% on an FHA loan, though a few loans, such as those on Hawaiian Home Lands or Indian Lands and some older streamlines, carry no upfront premium or a reduced one. For most borrowers, the practical question is whether the equity you can reach is worth the new balance and the new monthly premium. Lendmire’s article Do You Pay Mortgage Insurance on a Cash-Out Refinance? compares the FHA and conventional paths. The details of the FHA cash-out refinance program sit on its own page. 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 full file review, and none of it is a commitment to lend.
Frequently Asked Questions
Can I get the upfront premium back as cash?
No. The only return is a credit applied against the new loan’s upfront premium, and only when the new loan is also FHA-insured. It lowers what you finance or what you owe at closing. Nothing is mailed to you.
Does a cash-out refinance qualify for the credit?
It can, if your current loan is FHA and inside its first three years. HUD’s rule turns on whether the new loan is FHA-insured, not on the refinance type. Because a cash-out requires 12 months of ownership, the credit you would see is already partly used up. Your lender confirms the amount for your file.
Is the upfront premium financed or paid at closing?
Most borrowers finance it. It is added on top of the base loan, so it is not counted against the 80% cap. That also raises your balance, your monthly premium and the interest you pay over time. Paying it in cash is allowed but uncommon on a cash-out.
What if I refinance from a conventional loan to FHA?
You pay the full 1.75%. There is no old FHA premium to credit. You also take on the FHA annual premium, which a conventional loan may not have carried, so compare the total monthly cost before switching.
Can I remove the annual premium later?
Not by reaching 20% equity. On a thirty-year loan at or below 90% loan-to-value, it ends after eleven years. Above 90%, it lasts the full term. Refinancing into a new loan, such as a conventional one, is the usual way borrowers end it sooner.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD FHA Resource Center, MIP structure
2. HUD Mortgagee Letter 2023-05
4. HUD FHA Homeowners Fact Sheet
5. HUD notice to homebuyers (reginfo.gov)
6. HUD Handbook 4000.1 excerpt (Equity-Saver-Sale PDF)
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
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.