The Quick Read: FHA does not waive income checks on a cash-out refinance. It only skips the tax return when your income type doesn’t need one, such as base-pay W-2 wages. Self-employed owners generally do need returns. Either way, a lender can usually pull your filing history straight from the IRS, so “no returns” rarely means “no paper trail.”
Key Takeaways
- FHA cash-out is a documented-income program. No version skips income verification.
- A salaried or hourly borrower usually shows pay stubs and W-2s instead of a 1040.
- Business owners with a 25% or larger stake generally need personal and business returns on a cash-out.
- The loan tops out at 80% of the home’s value, so you must keep at least 20% equity.
- A borrower who never filed should expect a delay or a denial, not a workaround.
What “No Tax Returns” Can Actually Mean
Four different situations hide behind the same phrase, and each gets a different answer. Sort yourself first.
| Your situation | What the lender looks at | Main risk |
|---|---|---|
| W-2 employee, filed on time | Pay stubs, W-2s, employer check | Low |
| W-2 employee, never filed | Same documents, plus IRS transcripts | Transcript comes back empty |
| Self-employed (25%+ owner) | Personal and business returns | Returns are core to the file |
| Hoping for a “no-doc” loan | Nothing; FHA has no such version | Wrong program |
Across the wholesale programs Lendmire places FHA files with, the pattern holds. The loan is underwritten to your documented capacity to repay the new balance. Returns are just one way to prove it.
What an FHA Cash-Out Refinance Is
A cash-out refinance replaces your current mortgage with a larger one and hands you the difference. You use the cash however you like. On the FHA version, the home must be your principal residence.
Lendmire’s FHA cash-out refinance program reaches 80% loan-to-value. That means the new loan can be up to 80% of the home’s appraised value. The home must have been owned and occupied by you for 12 months before the case number is assigned. A case number is FHA’s tracking ID for your file.
Two borrower-side numbers shape the outcome:
- Credit. The wholesale programs Lendmire works with start at a 580 decision score. Some lenders set a higher floor, subject to lender guidelines.
- Debt ratios. The base pair is 31/43. That means housing costs up to 31% of income and total debts up to 43%. Documented compensating factors can stretch that to 40/50 at the top tier. The automated underwriting finding governs most files.
How the Loan Is Underwritten, Step by Step
1. Eligibility screen. The lender confirms owner-occupancy, the 12-month ownership window, and a clean enough mortgage payment history.
2. Income path. The lender picks the documents based on how you earn money. This is where traditional personal-income documentation does or doesn’t enter.
3. IRS authorization. You sign a transcript request form (IRS Form 4506-C or 8821). It lets the lender pull your filing record directly.
4. Automated underwriting. Credit, income and the new payment run through FHA’s scoring system. A weak result can push the file to manual underwriting.
5. Appraisal. The appraised value drives how much cash is available. It sets the 80% ceiling.
6. Mortgage insurance. FHA charges an upfront premium of 1.75% of the base loan, usually financed into the balance. An annual premium also applies, between 0.15% and 0.75% of the balance depending on term, loan amount and LTV. These are program mechanics, not an advertised price.
7. Closing and disbursement. You receive a Loan Estimate and, later, a Closing Disclosure. Compare them line by line.
The 80% cap alone doesn’t guarantee approval or a particular cash amount. Credit, income and the new payment still decide the outcome.
If You Earn W-2 Wages
This is the borrower who most often doesn’t hand over a 1040. HUD’s Mortgagee Letter 2019-01 allows an alternative way to document current employment. It means your most recent pay stub showing year-to-date earnings, your W-2s for the previous two years, and employment verification. Re-verification can be verbal or electronic.
Only base pay is counted under that shortcut. Overtime, bonus or commission income generally needs a longer paper trail, and the lender decides what to ask for.
Here’s the catch. The lender may still get IRS transcripts through your signed authorization. If you were required to file and never did, that transcript can come back empty. Whether a W-2 borrower with unfiled returns can still close is lender-dependent. Confirm it before paying for an appraisal.
If You Own a Business
Self-employment income means income from a business where you hold at least 25% ownership. For these borrowers, HUD’s Mortgagee Letter 2022-09 requires complete individual federal returns, with all schedules, for the most recent two years.
Business returns for two years are also required. A narrow exemption exists, but it needs three things at once: rising self-employment income, closing funds that don’t come from business accounts, and a loan that is not a cash-out refinance. A cash-out fails that last test by definition. So a business owner taking cash out should plan on business returns.
Shorter self-employment histories get tougher scrutiny. A sharp income decline can also push a file to manual underwriting. Lenders handle both differently, so ask early.
Worked Example: A Salaried Homeowner
Picture a nurse employed by the same hospital for years. She owns her home, lives in it, and has built substantial equity. She has not filed returns in some time because a refund wasn’t owed and life got busy.
Here is how the file would unfold:
- Occupancy. Her utility bills and employment records show she has lived there well past 12 months.
- Income. Her pay stub and two years of W-2s document base pay. No 1040 is requested.
- Transcripts. The lender asks her to sign the IRS authorization. The transcript shows no filing on record.
- Decision point. The underwriter now has to decide whether the missing filings matter for her file. Many will want the returns filed first.
The leverage math is simple. Her existing loan sits well below the 80% ceiling, so the new loan has room to grow. That room has to cover the financed 1.75% premium, and whatever remains is the cash she receives. Her best move is likely to file the missing returns, then apply.
Where the General Rule Breaks
- Inherited homes. No minimum occupancy period applies, as long as you haven’t treated the property as a rental since inheriting it. Rent it out afterward, and the 12-month occupancy rule applies.
- Manufactured homes. The home generally must have been permanently installed on its site for more than 12 months before the case number is assigned.
- Second homes and rentals. The standard FHA cash-out is for a principal residence only. Occupancy decides the leverage, so a rental or second home falls outside this program.
- Hawaiian Homelands loans. These were excluded when FHA cut cash-out leverage, per HUD Mortgagee Letter 2019-11.
- Back taxes and liens. An unpaid tax balance or lien raises its own questions. Expect the lender to ask for proof of a payment plan or payoff, and to review how it affects your ratios.
Why a Lender Can’t Just Take Your Word
Separate from FHA’s rules, federal ability-to-repay rules require lenders to verify the income they rely on with reliable third-party records. The CFPB’s ability-to-repay compliance guide says a lender generally can’t rely on what the borrower says about income. Acceptable records include W-2s, payroll statements, traditional personal-income documentation and bank statements, per the CFPB small-entity guide. Only the income actually used to qualify must be verified.
That’s why a no-return path exists only when other third-party records support the income.
Common Myths
- “FHA cash-out goes to 85% or 95%.” Older caps still circulate online. Today the cap is 80%, as described in HUD’s letter above.
- “Salaried means no IRS data.” Returns aren’t required for base-pay wages, but transcripts can still be pulled.
- “A cash-out lets self-employed owners skip returns.” It doesn’t. The business-return exemption excludes cash-outs.
- “The 2023 premium cut lowered the upfront fee.” It trimmed only the annual premium. The upfront premium stayed at 1.75%, per the HUD FHA Resource Center.
What Cash-Out Does to Your Budget
A cash-out raises your loan balance. It adds an annual mortgage insurance charge collected monthly. It also typically resets your loan term. On a thirty-year FHA loan at or below 90% LTV, the annual premium ends after eleven years. Above 90% LTV, it lasts the full term. Since cash-out stops at 80%, the shorter schedule is the usual case, subject to lender guidelines.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
When FHA Isn’t the Right Tool
FHA fits if you live in the home, have 20% equity to spare, and can document income. It fits poorly if you have unfiled returns you can’t or won’t file, or if you want a loan with no income check. FHA has no such version, and loans marketed that way sit outside HUD’s insured program with different terms.
If you own a business and can’t produce returns, the straightforward fix is to file first. Lendmire’s piece FHA Cash-Out Refinance for Homeowners Whose Tax Returns Understate Income covers that wrinkle.
Document Checklist
- Recent pay stubs showing year-to-date earnings
- W-2s for the previous two years
- Filed personal and business returns, if you own 25% or more of a business
- Utility bills or employment records that prove occupancy
- Mortgage statements showing payment history
- Proof of any tax payment plan or lien payoff
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off the old one and gives you the difference.
LTV (loan-to-value): The loan balance as a percentage of the home’s appraised value.
Case number: The ID FHA assigns to track your file. The 12-month ownership clock runs back from it.
Transcript: An IRS summary of your filings, which the lender can request with your signed permission.
Upfront mortgage insurance premium: FHA’s one-time premium, 1.75% of the base loan and usually financed.
Annual mortgage insurance premium: FHA’s ongoing premium, charged monthly and based on term, loan amount and LTV.
What to Do 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. A broker arranges the loan through wholesale lenders. Program terms are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Can I get an FHA cash-out refinance if I never filed a tax return?
It depends on your income type and the lender. A W-2 borrower may not need returns for base pay, but the lender can pull IRS transcripts, and an empty transcript can stall the file. Filing first is the more reliable route.
Do I need two years of returns if I’m salaried?
Generally not for base pay. The usual substitute is a recent pay stub plus W-2s for the previous two years, with employment verification. Variable income may need more documentation.
Can a business owner take cash out without business returns?
Generally no. The exemption from business returns excludes cash-out refinances. Expect to provide two years of personal and business returns, or transcripts in their place.
How much equity do I need for an FHA cash-out?
At least 20% must remain after the loan, because the cap is 80% LTV on a principal residence you’ve owned and lived in for 12 months. The appraisal sets the value, so the cash you can take depends on it. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Are cash-out proceeds taxable?
Cash-out proceeds from a refinance are generally treated as loan proceeds rather than income, but how the funds are used and how the interest is treated can carry tax consequences that vary by borrower. Lendmire is a mortgage broker, not a tax advisor, so confirm your situation with a qualified tax professional. 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
1. HUD Mortgagee Letter 2019-01
2. HUD Mortgagee Letter 2022-09
3. HUD Mortgagee Letter 2019-11
4. CFPB ability-to-repay compliance guide
5. CFPB ATR/QM Small Entity Compliance Guide (2015)
6. HUD FHA Resource Center, MIP structure
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: Can a Homeowner Consolidate Debt With an FHA Cash-Out Refinance? · Can You Refinance Out of FHA With a Conventional Cash-Out Refinance? · Conventional Cash-Out vs FHA Cash-Out for a Current FHA Homeowner
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
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.