The Quick Read: The upfront mortgage insurance premium (MIP) on the new loan is 1.75% of the new base loan, and an older FHA loan can shrink that bill through a declining credit. The credit comes from the premium you paid on the old loan. It is not a check. It only lowers the new upfront premium, either the amount you finance or the cash you bring to closing, and it fades to nothing once the old loan passes three years.
Key Takeaways
- The new upfront premium is 1.75% of the new base loan, and it is usually financed into the loan.
- The credit applies only when an FHA loan is paid off by a new FHA loan, and only within three years of the old closing.
- The credit shrinks every month. Closing sooner keeps more of it.
- A cash-out needs 12 months of ownership and occupancy first, so the biggest early credits are off the table.
- The credit never touches the annual premium.
What Is an FHA Cash-Out on an Existing FHA Loan?
It is a new FHA loan that pays off your current FHA loan and hands you part of your equity as cash. The new loan replaces the old one. You do not keep the old mortgage and add a second one on top.
On the programs Lendmire places files with, the FHA cash-out reaches 80% loan-to-value (LTV) on a home you have owned and lived in for 12 months before the case number is assigned. LTV is the loan balance as a share of the home’s appraised value. If your home appraises for 100, the base loan tops out at 80 of it.
Lendmire is a mortgage broker, not a lender. It arranges these loans through wholesale lenders. Details on the program are on the FHA cash-out refinance program page.
You do not need an existing FHA loan to do an FHA cash-out. Plenty of borrowers pay off a conventional loan this way. But if your current loan is FHA-insured, you get a perk the others do not: that old premium can offset part of the new one. That perk is what this article measures.
How Does the Upfront Premium Work on the New Loan?
The upfront premium is a one-time charge equal to 1.75% of the base loan. The base loan is the amount you borrow before the premium itself is added. The premium is normally financed, meaning it rides along inside the new balance instead of coming out of your pocket at closing.
Two details matter here.
First, the premium is all-or-nothing. You either finance all of it or pay all of it in cash. You cannot split it.
Second, it rides on top of the base loan. The 80% ceiling limits the base loan, and the financed premium is added after that. Ask your lender how the premium counts on your specific file, because that affects the final balance.
The annual premium is a separate monthly cost. On the programs we place, it runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV, it lasts for the whole term. At or below 90%, it ends after eleven years. A cash-out at 80% LTV lands in the shorter-duration group. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The Credit From Your Old Loan’s Premium
Here is where the cut comes from. When one FHA-insured loan is refinanced into another within three years, HUD gives a refund credit that reduces the new upfront premium. HUD’s own knowledge base says the upfront premium is otherwise not refundable. The credit is the one exception.
Think of the old premium as prepaid insurance. FHA earns a slice of it each month you hold the loan. The slice not yet earned is what gets credited against the new premium.
Some plain rules follow from that:
- It is a credit, not cash. You never receive it as a payment.
- It is a share of the old premium. The credit is a declining percentage of the old loan’s original upfront premium, never the whole amount.
- It falls month by month. Published schedules show a high starting share that drops by about two points every month until it runs out at 36 months. HUD’s schedule sits in Handbook 4000.1, which is the controlling source. Your lender gets the exact figure from HUD’s system, so use that number rather than a chart.
- Your lender handles it. You do not apply for it. The lender enters the old FHA case number when ordering the new one, and HUD’s FHA Connection returns the earned premium, the unearned premium, the unpaid balance and an authorization number.
The formula is simple: the old loan’s original upfront premium times the refund percentage for your month equals your credit.
Here is how the credit looks as the old loan ages.
| Age of old FHA loan | Credit applies? | Size of credit |
|---|---|---|
| Under 12 months | Cash-out not yet allowed | Largest, but out of reach |
| 12 to 24 months | Yes | Meaningful, shrinking monthly |
| 24 to 36 months | Yes | Small and shrinking |
| Past 36 months | No | None; full 1.75% applies |
Where the Credit and the Cash-Out Waiting Period Collide
This is the part most explainers skip. The credit is biggest in the first months of the old loan. But a standard cash-out requires that at least one borrower owned and lived in the home for the 12 months before the case number is assigned. The lender documents that with things like employment records or utility bills.
So the credit window for a cash-out runs roughly from month 12 to month 36. You start with a decent share of the old premium and lose some every month. By year three, you have a sliver.
That has a practical consequence. If you are on the fence about timing, the credit rewards moving earlier inside that window, not waiting.
One more point on timing. HUD’s system calculates the credit from your projected closing date. Pushing the closing a month later lowers it a bit. A date that slips across a month line is a small cost, not a disaster, but it is a real one.
A Worked Example With No Dollar Signs
Say your home appraises at 100 units of value. Use percentages and the lender does the dollars.
1. Set the ceiling. The base loan is capped at 80% of the appraised value, so up to 80 units.
2. Pay off the old loan. The new base loan first retires your existing FHA balance and costs. Whatever room is left under the 80% cap is the most cash you can take.
3. Add the new premium. The new upfront premium is 1.75% of the base loan.
4. Subtract the credit. The old loan’s unearned premium offsets part of that 1.75% charge.
5. Decide how to pay what remains. Finance it, or pay it in cash.
Now compare two borrowers with the same home and the same base loan. One refinances at month 14 of the old loan. The other waits until month 34. Both pay the same 1.75% on the new base loan. The first borrower’s credit is far larger, so the premium financed into the loan is noticeably smaller. The second borrower’s credit is tiny, so almost the entire new premium stays on the balance.
The base loan is the same. The cash-out amount depends on the appraisal and what you owe. The credit changes only the premium, and so it changes the financed balance or the cash due at closing. It does not raise your cash-out ceiling.
How much the credit moves your result depends on three things:
- Months since the old loan closed.
- The old loan’s original upfront premium.
- The size of the new base loan.
Scenarios Side by Side
| Starting point | Credit on the new premium? | New premium |
|---|---|---|
| FHA loan, about 1 to 2 years old | Yes, a meaningful share | 1.75% of base, less credit |
| FHA loan, near 3 years old | Yes, but small | Close to the full 1.75% |
| FHA loan, over 3 years old | No | Full 1.75% of base |
| Conventional or VA payoff | No | Full 1.75% of base |
| Premium paid in cash | Credit still applies | Cash due is lower |
The last row surprises people. Paying the premium in cash does not forfeit the credit. The credit reduces whichever amount you are paying, financed or cash.
Where the Rule Breaks
A few situations change the answer.
A non-FHA loan is being paid off. There is no credit. HUD’s Refinance Authorization help says the authorization cannot be used for a conventional refinance. Refinancing into a conventional loan does not return your old FHA premium either. HUD ties the refund to a new FHA-insured loan.
Selling or paying off the loan. If you sell, or pay off with your own cash, there is no new FHA loan to credit. Nothing comes back.
The old loan is past 36 months. The credit is gone. The full 1.75% applies to the new base loan.
FHA has earned the whole premium. FHA Connection gives a “no refund” warning when that has happened.
There was a partial claim on the old loan. FHA Connection flags whether a partial claim exists on the prior case. A partial claim is a separate lien used to bring a delinquent loan current, and it complicates the payoff. Ask your lender what it means for your file.
The old loan had a repair escrow. On an FHA-to-FHA refinance, FHA will not issue a new case number if the escrow closeout certification is not complete. That can stall the file.
The home is not your primary residence. A standard cash-out is for the home you live in. On the programs we place, occupancy drives the leverage.
Special land programs. Hawaiian Home Lands (Section 247) and Indian Lands (Section 248) carry their own premium treatment under HUD’s appendix. That special premium treatment does not cover cash-out. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review.
Streamline instead of cash-out. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit requirement. It has its own base-loan formula. A cash-out does not use it, and it does not give you cash.
Conflicting online answers. Some sites claim cash-outs get no refund. HUD’s FHA-to-FHA language covers any refinance type, and cash-out is not carved out. When sources disagree, HUD’s text controls. Ask your lender to run the Refinance Credit Query and show you the result.
Common Misreadings
- “I get a refund check.” No. It is a credit against the new premium.
- “Cash-outs get nothing.” Not by HUD’s rule. The query settles it.
- “The credit lowers my monthly insurance.” It does not. The annual premium on the new loan is its own calculation.
- “The credit equals my old premium.” It is a declining share, never all of it.
- “I must apply for it.” Your lender runs it.
- “The 80% cap is old news.” HUD cut the cash-out maximum from 85% to 80% for cases assigned on or after the effective date of its mortgagee letter, and it still stands.
- “FHA mortgage insurance is PMI.” FHA has MIP. PMI is the private conventional version.
Is the Credit Worth Planning Around?
Treat it as a tiebreaker, not a reason to refinance. A decision frame:
1. Start with the goal. Do you need the cash, and is it worth swapping your whole loan to get it? A cash-out replaces the first mortgage. A home equity loan or line of credit leaves the first lien in place. The CFPB notes that in both cases the home is collateral, and missed payments can lead to foreclosure.
2. Check your equity. At 80% LTV, the cash you can take is limited. If your balance is already near the cap, there may be little to take.
3. Look at the whole cost. The credit trims one line. Appraisal, title and other closing costs remain, and they appear on your Loan Estimate and Closing Disclosure. Compare those documents line by line.
4. Weigh the swap. Moving to a new loan resets your term and your annual premium schedule. The credit does not offset that.
5. Mind the risk. CFPB research warns that turning unsecured debt into mortgage debt puts the home at risk if payments become unsustainable.
A rule of thumb from the broker’s chair: if the credit is the main reason the numbers work, the numbers are thin. If the cash-out already makes sense, a bigger credit is a nice bonus and a reason not to drag your feet.
On qualifying, FHA ratios run from 31/43 (housing to total debt) with no compensating factors up to 40/50 with documented ones, and the automated finding governs most files. County loan limits apply. All of this is subject to lender guidelines and full file review. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Upfront MIP (UFMIP): A one-time FHA insurance premium equal to 1.75% of the base loan, usually financed.
Base loan: The loan amount before the upfront premium is added.
Refund credit: The unearned part of the old loan’s upfront premium, applied against the new one when an FHA loan is replaced by another FHA loan within three years.
Annual MIP: The ongoing monthly FHA insurance charge, between 0.15% and 0.75% of the balance on the programs we place.
Loan-to-value (LTV): The loan balance as a share of the appraised value. FHA cash-out reaches 80%.
Seasoning: The time you must own and occupy the home before a cash-out, 12 months here.
Case number: The FHA identifier assigned to each loan file. The old and new numbers are linked to calculate the credit.
Frequently Asked Questions
Do I get cash back from my old premium?
No. The old premium shows up only as a credit against the new upfront premium. It reduces the amount you finance or the cash due at closing. Nothing is paid out to you.
Do I need an FHA loan to do this?
No. Borrowers refinance conventional and other loans into FHA cash-outs. But the credit exists only when the loan being paid off is FHA-insured, so a non-FHA borrower pays the full 1.75% on the new base loan.
Is the credit automatic?
Your lender requests it. The lender enters the old FHA case number when ordering the new one, and HUD’s system returns the figure. You do not file anything. Ask to see the result, since sources online disagree about cash-outs.
Does the credit lower my monthly premium?
No. The annual premium is a separate calculation on the new loan, based on term, amount and LTV. The credit touches only the upfront charge.
Does the premium count toward the 80% limit?
The base loan is capped at 80% of appraised value, and the financed premium is added on top of it. How that plays out depends on the file, so ask your lender to show the final balance.
Next Step
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Your old loan’s age is the one number you cannot change, which is why the sooner a cash-out clears the 12-month mark, the more of that old premium is still there to be credited.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD FHA Connection: Refinance Authorization field descriptions
2. HUD FHA Connection: Refinance Credit Query field descriptions
3. Refinance Authorization help
4. HUD Handbook 4000.1 Appendix 1.0 (ML 2015-01 attachment)
5. HUD Mortgagee Letter 2019-11
6. CFPB Office of Research blog on cash-out refinances
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 With an Existing FHA Loan Get an FHA Cash-Out? · How Much Cash a VA Cash-Out Adds Over Your FHA or Conventional Loan · FHA Cash-Out Annual MIP Rules With an Existing FHA Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.