The Quick Read: The most debt an FHA cash-out can pay off is 80% of your home’s appraised value, minus your current mortgage payoff, minus closing costs and the financed insurance premium. Whatever is left is your room for credit cards, auto loans and other balances. Then your income has to support the new, larger mortgage payment. The cap is a ceiling, not a promise, and the appraisal, your payoff balance and your ratios set the real number.
What an FHA Cash-Out Actually Does
An FHA cash-out refinance replaces your current mortgage with a new, larger FHA loan. The new loan pays off the old one first. Anything left over goes to you, to other creditors, or both.
FHA does not limit what the leftover money is used for. Paying off credit cards, auto loans and similar debts is a normal use. Those payoffs are listed on your closing paperwork and sent straight to the creditor by the title or settlement agent. You never touch the money.
Lendmire’s FHA cash-out refinance program page covers how Lendmire arranges these loans. Here is the part that matters for this question. Leverage tops out 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. A case number is the file ID FHA assigns when a lender orders your appraisal.
One more point on scope. This loan is for the home you live in as your primary residence. A second home or a rental follows a different set of rules. Occupancy decides the leverage.
Key Terms Defined
Loan-to-value (LTV): the new loan balance divided by the home’s appraised value, shown as a percentage.
Combined loan-to-value (CLTV): the same test, counting any second loan that stays on the home.
Adjusted value: the appraised value FHA uses for its limit. It is not the listing price or your Zestimate.
Payoff: the exact amount needed to close out a debt on the closing date, including interest owed to that date.
Upfront mortgage insurance premium: a one-time charge of 1.75% of the base loan, usually added to the loan balance instead of paid in cash.
Annual mortgage insurance premium: a yearly charge, divided into monthly pieces, that runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV.
Debt-to-income ratio (DTI): your monthly debt payments divided by your gross monthly income.
The Formula: How the Ceiling Becomes Debt Payoff
Start with the appraisal. A full FHA appraisal sets the adjusted value. Everything else hangs on that number.
1. Multiply the adjusted value by 80%. That is your ceiling.
2. Subtract the payoff on your current mortgage.
3. Subtract closing costs and prepaid items (taxes and insurance collected at closing).
4. Subtract the financed upfront premium.
5. What remains is the most you can use to clear other debt or take as cash.
The premium step deserves a note. The 1.75% is added on top of the base loan. How it sits against the 80% test is something to see on the lender’s worksheet before you plan around a round number. Treat it as a cost that reduces your room, and you will not be surprised.
A worked example in percentages
Say the home appraises at 100 units. The ceiling is 80 units. Your current mortgage payoff is 55 units. That leaves 25 units before costs.
Closing costs, prepaids and the financed premium take a slice of those 25. What survives is your payoff room. Those figures are illustrative. Your file will have its own numbers.
What Does Payoff Room Look Like Across Mid-Value Homes?
Payoff room depends on how much of your home you already owe. The home’s dollar value matters less, because the math scales with it. The table shows room as a share of appraised value, before costs and the financed premium.
| Existing mortgage (% of value) | Ceiling (% of value) | Room before costs | Read |
|---|---|---|---|
| 40% | 80% | 40% | Plenty of room |
| 55% | 80% | 25% | Workable for most debt loads |
| 65% | 80% | 15% | Costs take a big bite |
| 75% | 80% | 5% | Costs may use it all |
| 80% or more | 80% | — | No room for debt payoff |
The home’s value does matter at the edges. On a lower-value home, fixed costs take a bigger share of the room. On a higher-value home, the county loan limit can bind before the 80% cap does. County loan limits apply, and the lower of the two limits governs. Many mid-value homes sit comfortably under both.
The reverse calculation
Often you start with a debt total and want to know if the home can carry it. Flip the formula. Your existing mortgage, plus the debts you want to clear, plus costs and the premium, must stay at or under 80% of appraised value. If that sum lands at 78%, you have a thin file. If it lands at 85%, the debt list has to shrink.
What Gets Paid First at Closing?
The order is fixed, and it explains why the cash shrinks faster than people expect.
1. Your existing first mortgage is paid off.
2. Any liens that must be cleared come next.
3. Closing costs and prepaids are covered.
4. Debts you chose to roll in are paid directly to those creditors.
5. Any remainder is paid to you.
Each creditor payoff appears on the closing statement. The lender usually needs a current payoff statement for each one, and the new loan must cover the full amount. Pay a card down by hand a week before closing and the payoff changes. Ask for updated figures instead of guessing.
On a refinance of your primary home, a federal right-to-cancel period applies after signing. Funds are not released until it passes. Creditors get paid after that point, so keep making payments on the debts you plan to clear until you see them paid.
Which Debts Are Worth Rolling In?
Not every debt belongs in the loan. A rule of thumb: roll in debts that cost more to carry than the new mortgage costs, and leave the rest.
| Debt type | Worth including? | Why |
|---|---|---|
| High-interest credit cards | Often yes | Costs more than mortgage debt |
| Personal loans | Often yes | Fixed payment is removed from your monthly obligations |
| Auto loans with a long balance | Sometimes | Removes a monthly obligation, but you stretch a car loan over a mortgage term |
| Auto loans nearly paid off | Usually no | Short remaining debt stretched over a long term |
| Student loans | Rarely | You may lose repayment protections tied to those loans |
| Low-cost existing debt | Usually no | Adds cost without much gain |
The CFPB’s research on cash-out refinances draws the same line. It says paying off non-mortgage debt this way can make sense when the cost of getting the cash is below the cost of the debt being paid.
How Paying Off Debt Changes Your Monthly Picture
Here is the lever that decides whether the file works. The lender underwrites the new mortgage payment against your income. That payment covers principal, interest, taxes, insurance and mortgage insurance. It will be larger than your current payment because the loan is larger.
But each debt paid at closing drops out of your monthly obligations. If you clear three card payments and a personal loan, your total DTI can fall even though the mortgage payment rose. Sometimes the file passes only because of those payoffs. Sometimes the bigger mortgage payment outweighs what you cleared, and the file fails.
The ratios work like this in the programs Lendmire places files with. The base pair is 31/43, meaning housing costs up to 31% of income and total debts up to 43%. Documented compensating factors, such as strong reserves or a low payment increase, can reach 40/50 at the top tier. An automated underwriting finding governs most files. Everything is subject to lender guidelines and full file review.
Lenders also look at your credit report. Past-due collections can trigger extra steps. FHA uses a tiered approach: above a dollar threshold on non-medical collections, the lender may need proof of payoff, a payment plan figure, or a percentage of the balance counted in your DTI. Ask which of those applies to your file. It can change the math.
The Edge Cases Where the Rule Bends or Breaks
Owned the home less than 12 months. The 12-month ownership and occupancy test is the main gate. If you are short, the cash-out option generally is not open yet. Some lenders look at other loan types in the meantime. A common mix-up is the 210-day test, which belongs to FHA streamline refinances, not cash-out.
The home is free and clear. FHA allows cash-out on a home with no mortgage. With no payoff to subtract, the room is the full ceiling less costs and the premium.
Three- and four-unit homes. FHA covers one to four units, but larger properties can bring added requirements such as reserves. Confirm them with a loan officer.
Non-occupant co-borrower. On a purchase, FHA allows one. On a refinance, adding a co-borrower who does not live there to meet credit guidelines generally does not work.
Forbearance history. If your mortgage went through forbearance, expect a completed plan and a run of on-time payments before cash-out is considered. The exact count varies, so ask.
Hawaiian Home Lands. Section 247 loans were excluded from the 80% change, per HUD Mortgagee Letter 2019-11. That is a narrow case, but it shows the cap is not universal.
Credit events. HUD waiting periods apply after major events: two years from a chapter 7 discharge and three years from a foreclosure. Those are HUD rules, not a promise from any one lender.
Why 80%, and Why a Higher Credit Score Doesn’t Raise It
The cap was once higher. A 2019 HUD mortgagee letter lowered it to 80% for case numbers assigned on or after a set date in 2019, down from 85%. HUD said the change would strengthen equity in cash-out loans and reduce losses when borrowers default. A HUD press release said it also lined FHA up with the maximum cash-out LTV that the government-sponsored enterprises allow. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
So FHA gains no leverage over a conventional cash-out. If a friend or an old webpage says FHA goes to 85%, that is outdated. A stronger credit score also does not unlock a higher cap. It can help you qualify and can affect insurance and approval, but the ceiling stays at 80%.
On credit scores, the FHA purchase tier starts at a 580 decision score in the wholesale programs Lendmire places with. Cash-out guidelines can run stricter than purchase, and some lenders set a higher floor. Treat any single score as a starting point, not a verdict.
The Insurance Piece: What Stays With You After Closing
Mortgage insurance is part of every FHA loan. The upfront premium is 1.75% of the base loan, usually financed. The annual premium is spread into monthly payments and ranges from 0.15% to 0.75% of the balance, depending on term, loan amount and LTV.
How long the annual premium lasts matters for cash-out. On a thirty-year loan above 90% LTV, it lasts the whole term. At or below 90%, it ends after eleven years. A cash-out capped at 80% falls in the second group on a thirty-year term, subject to the lender’s final schedule. You can refinance later to shed it, but that is a new loan with its own costs. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
The Risks: When Not to Do This
Rolling debt into your mortgage changes the nature of that debt. Credit card balances are unsecured. Mortgage debt is secured by your house. Miss payments on a card and you face collections. Miss payments on the mortgage and you risk foreclosure. The CFPB research above says converting non-mortgage debts into home-secured debt can put the home at risk.
A cash-out also lowers your equity and starts a new loan term. The CFPB’s guide to using home equity notes that it may extend the time to pay off your mortgage and may raise your monthly payment because the new loan is larger.
The behavior pattern matters too. A CFPB report on cash-out borrowers found an initial sharp improvement in credit scores, then a gradual decline, though scores stayed above their pre-refinance levels. It also found credit card balances trended back toward pre-refinance levels in the year after. Plenty of borrowers cleared their cards and then ran them back up. More than half of responding cash-out borrowers each year from 2014 to 2019 cited paying off other bills or debts as a reason. Many did it. Many drifted back.
If you clear cards, consider what changes. Lower the limits, close accounts you do not need, or set a budget that holds. A cleared balance without a changed habit is a short-term fix. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
A Quick Eligibility Checklist
- You own the home and live in it as your primary residence.
- You have owned and occupied it for 12 months before the case number.
- A full FHA appraisal supports the adjusted value.
- Your new loan and any staying liens fit under 80%.
- Your mortgage payments are current, and you can show a payoff statement.
- Your ratios work after the debt payoffs, within the 31/43 to 40/50 range.
- Your credit meets the lender’s floor, and collections are handled.
- The loan sits under your county’s FHA limit.
This is a framework, not an approval. Every program figure is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
What If the Math Doesn’t Work?
You have options. Consider each one against the numbers.
- A home equity loan or HELOC. These sit behind your existing first mortgage and leave it in place. A cash-out refinance replaces the first mortgage. If your current loan is one you want to keep, the second-lien route may fit better.
- An FHA rate-and-term refinance. If you do not need cash, this reaches 97.75% on a principal residence occupied for the previous twelve months. It lowers or reshapes the loan without pulling equity.
- An FHA Streamline. If your current loan is already FHA, a Streamline has no appraisal, a limited credit review and a net tangible benefit test. It does not provide cash.
- A conventional cash-out. It also tops out at 80%, so it does not add leverage, though qualifying rules and insurance differ.
- A smaller payoff list. Clear only the highest-cost debts and keep the rest.
- A bigger home. If your value is well above FHA limits, a jumbo option may fit. Lendmire’s piece How Much Business and Card Debt a Super Jumbo Cash-Out Can Clear covers that end of the market.
Frequently Asked Questions
Can I take less than the maximum?
Yes. The ceiling is the most you can borrow, not the amount you have to take. A smaller loan means a smaller payment and less equity spent. Ask for the figure that clears the debts you chose and nothing extra.
Does FHA care what I use the cash for?
No. FHA does not restrict how cash-out proceeds are used. A lender may ask the purpose for its own records, but paying off cards, auto loans or other debts is a permitted use.
Can I do this on a home I own free and clear?
Yes. A home with no mortgage can be refinanced as a cash-out. With no payoff to subtract, your room is the ceiling less costs and the financed premium. You still need to meet the occupancy and ownership tests.
Will my credit score go up if I pay off cards this way?
It often rises at first, because your card utilization drops. The CFPB report cited above found scores improved sharply, then slipped gradually, though they stayed above their starting point. If card balances climb back, much of that gain fades.
How is this different from an FHA Streamline?
A Streamline refinances an existing FHA loan with no appraisal and a limited credit review, and it requires a net tangible benefit. It does not pay out cash or clear other debts. A cash-out requires an appraisal and a full file review, and it can pay creditors at closing.
Next Steps
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. Gather your latest mortgage statement, a list of the debts you want to clear, and your income documents. Then run the 80% formula against your own appraisal estimate. The answer to how much a cash-out can clear is usually already sitting in those three numbers.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB: Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
2. HUD Mortgagee Letter 2019-11
3. HUD press release on cash-out limits
4. CFPB guide to using home equity
5. 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: How Much Equity an FHA Borrower Needs for a Conventional Cash-Out · Can You Get an FHA Cash-Out Refinance Within a Year of Buying? · Can a Homeowner Consolidate Debt With an FHA Cash-Out Refinance?
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.