The Quick Read: The new loan can clear every debt you choose to roll in, but the total is capped at 80% of your home’s appraised value. Payoffs and closing costs come out of that room first. Whatever is left becomes your cash. If you carry a first mortgage, a second lien, and a few consumer debts, the cap covers all of them together.
What Does an FHA Cash-Out Actually Pay Off?
It pays off whatever you tell it to, up to the cap. The new FHA loan replaces your current first mortgage. It can also clear a second mortgage, a HELOC, or consumer debts such as cards and auto loans. Anything left after payoffs and costs goes to you.
Here is the order of operations at closing:
1. The new loan is sized against the appraised value, topping out at 80%.
2. Your current first mortgage is paid off. This is the one payoff you cannot skip.
3. Any second lien or HELOC you choose to retire is paid off.
4. Consumer debts you chose to include are paid directly to those creditors.
5. Closing costs and prepaid items are paid.
6. The remainder goes to you.
So “how much it pays off” and “how much cash you get” are two different questions. They draw from the same pot. Every dollar of payoff is a dollar that is not cash in your hand.
The loan is also underwritten like any FHA loan. Across the wholesale programs Lendmire places FHA files with, the starting point is a decision score of 580. Ratios begin at 31/43 (housing to total income) and can stretch to 40/50 with documented compensating factors, subject to lender guidelines and full file review. The FHA cash-out refinance program page lays out the basics.
Key Terms Defined
Appraised value: The value the appraiser assigns your home. It sets the ceiling for the whole loan, not the price you paid or an online estimate.
LTV (loan-to-value): Your first mortgage balance divided by the home’s value.
CLTV (combined loan-to-value): All liens on the home added together, divided by the value. A second mortgage or HELOC counts here.
Subordination: A signed, recorded agreement in which a second lender agrees to stay behind your new first mortgage.
UFMIP (upfront mortgage insurance premium): A one-time FHA charge of 1.75% of the base loan, usually financed into the balance.
Payoff statement: A written figure from each lender showing exactly what it takes to clear that debt on the closing date.
How Does the 80% Cap Work When You Have Several Loans?
The cap applies to everything secured by the home, combined. A second mortgage does not give you extra borrowing room. It uses some of the room you already have.
This is where old information trips people up. Years ago, HUD’s Mortgagee Letter 2009-08 let existing subordinate liens stay in place behind a new FHA first mortgage with a more generous combined limit. That flexibility came before today’s rules. Mortgagee Letter 2019-11 cut both the LTV and the combined limit on cash-out from 85% to 80% of value. It also says the first mortgage plus any subordinate liens cannot exceed the Nationwide Mortgage Limit. County loan limits apply too, so your local figure matters.
HUD’s handbook for the program is Handbook 4000.1. Your loan officer works from the current version. If an older article tells you a second lien sits outside the cap, it is describing a rulebook that has been replaced.
A Worked Example With Several Loans
Say you own a home with a first mortgage, a HELOC, and some card and auto balances. These are modeled shares of appraised value, not real figures:
| Line item | Share of appraised value |
|---|---|
| Maximum new loan (cash-out cap) | 80% |
| First mortgage payoff | 45% |
| HELOC or second lien payoff | 10% |
| Card and auto payoffs | 5% |
| Room left before costs | 20% |
The room left is not your cash yet. Closing costs and prepaid items come out of it. The 1.75% upfront premium is financed, so it raises the balance you will owe. Your Loan Estimate shows exactly how those pieces fit.
Run it the other way. If your payoffs total 85% of value, the loan cannot cover them. Nothing is left over, and you are 5% short before costs.
Pay Off the Second Lien or Keep It?
Keeping a second lien does not buy you more cash. It only keeps that debt’s terms. The second lien counts against the 80% whether you retire it or not.
Using the same modeled home, here is the comparison:
| Item | Pay it off | Keep it in place |
|---|---|---|
| Second lien share of value | 10% | 10% |
| Largest new first mortgage | 80% | 70% |
| Cash room before costs | 20% | 20% |
| Extra requirement | None | Subordination agreement |
Same cash room. The difference is paperwork and terms. Paying the second lien off simplifies the file. Keeping it means the second lender must sign a recorded subordination agreement. If that lender refuses, the only path is paying it off.
If your HELOC is open, the lender will likely count the full credit limit, not just the drawn balance. Many lenders also expect you to close or freeze it. Ask early, because this is the item that surprises people late in the file.
One honest tradeoff: a HELOC you keep may carry terms you like. Counting it against the cap is the price of keeping it.
What If Your Debts Add Up to More Than the Cap?
You have four moves, and none requires giving up.
- Choose which debts to include. Prioritize the first mortgage, then the highest-cost debts. Leave the rest.
- Pay down a balance first. Cutting a lien before you apply shrinks the payoff column.
- Wait for the value or balance to move. Principal paydown and appreciation both widen the room.
- Compare another program. A VA loan, if you are eligible, may reach a different leverage level than FHA.
Homestead rules can also limit how much equity you can pull in some states.
Do Several Payment Histories Make Approval Harder?
Yes, they add work. Each lien means another payoff statement and another payment history to review. A late payment on any one of them can derail the file.
Underwriters look at:
- Occupancy and ownership. The home must be your primary residence, owned and occupied for 12 months before the case number.
- Payment history. Every mortgage on the property gets reviewed, not only the first.
- Credit. The starting point is a decision score of 580 across the wholesale programs Lendmire works with, subject to lender guidelines.
- Ratios. The base pair is 31/43. Documented compensating factors can reach 40/50, and the automated finding governs most files.
- The property. The appraisal sets the ceiling for everything above.
Past forbearance adds seasoning conditions. If that is your history, tell your loan officer at the start.
Rolling debts in can help your ratios. A payoff can remove those monthly obligations from the count. The lender decides which ones drop out, so don’t assume.
A cash-out is also not a guarantee of 80%. The cap is the ceiling, not an approval.
Is Rolling Debt Into the Mortgage a Good Idea?
Sometimes it is, and sometimes it only feels like relief. Several payments become one, which is simpler. But the debt you roll in is now secured by your home.
The CFPB’s research on cash-out refinancing flags the tradeoff. Turning non-mortgage debt into mortgage debt can put the home at risk if payments become hard to sustain. It also draws down equity you could use later. The same research found cash-out borrowers were more likely to hold HELOCs than other borrowers.
Three questions help:
- Is the debt unsecured? Card debt moved into a mortgage is no longer unsecured.
- Does the term reset? A longer repayment horizon can lower the monthly total while raising what you pay over time.
- Will the balances stay at zero? Cleared cards that fill up again leave you with both debts.
Then add mortgage insurance. The upfront premium is 1.75% of the base loan, financed. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV. At or below 90% LTV, it ends after eleven years. Cash-out tops out at 80%, so that is the track most of these loans follow. Those are program facts, not a quote. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Can You Change Your Mind After Signing?
Briefly, yes. In certain refinance situations, you may have a limited window to cancel after signing. The CFPB explains that waiving this right is allowed only for a “bona fide personal financial emergency,” and it takes your own signed, dated, written statement. It is not a routine checkbox.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Where to Go From Here
Start with a list of every lien and debt you would want cleared, with balances. Gather your payoff statements. Then compare the cash-out against keeping the loans you have. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Frequently Asked Questions
Does the 80% limit apply to the debts I pay off, or only the cash I take?
It applies to the whole new loan. Payoffs, costs, and cash all share the same room. A larger payoff leaves less cash.
Can I keep my HELOC or second mortgage and still do an FHA cash-out?
Often yes, but the second lender must agree to stay behind the new first mortgage in writing. The lien still counts toward the combined 80%. Many lenders also count a HELOC’s full credit limit, not just the balance.
Do I need an existing FHA loan to do this?
No. A conventional or other first mortgage can be replaced by an FHA cash-out, and the FHA rules apply to the new loan. An FHA Streamline is a different product that refinances an existing FHA loan and does not return cash.
Who gets paid first at closing?
Your first mortgage is paid off first because the new loan takes its place. Other liens and chosen creditors follow, then closing costs. Your cash is whatever remains.
Can I pay off a vehicle loan or credit cards with it?
Yes. Proceeds are not limited to specific purposes. Include only what fits the cap, and weigh whether turning those balances into mortgage debt is right for you.
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. You can request a scenario review.
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.
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References
1. HUD Mortgagee Letter 2009-08
2. HUD Mortgagee Letter 2019-11
4. CFPB: Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
5. CFPB: Can I ever waive my right to rescind on my mortgage loan?
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 an FHA Cash-Out Costs If You Plan an MIP Exit · How Much an FHA Cash-Out Releases Replacing a Conventional Loan · How Much MIP You Pay on an FHA Cash-Out Before Leaving FHA
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.