The Quick Read: An FHA cash-out on a duplex, triplex or fourplex you live in is tested on two sets of ratios: loan-to-value (LTV) and debt-to-income (DTI). LTV tops out at 80% of the appraised value on a cash-out. DTI has no single cap, because the base standard is 31/43 and documented compensating factors can stretch it to 40/50, while the automated underwriting finding governs most files. Both ratios are tested on the new, larger loan, not the old one.
Most borrowers ask about DTI. The file usually gets stuck somewhere else: rent documentation, or the extra test on three- and four-unit homes. This article walks through the whole sequence the way a wholesale file works.
Key Terms Defined
Loan-to-value (LTV): The new loan balance divided by the appraised value of the home.
Housing ratio (front-end): The full monthly housing payment, including mortgage insurance, taxes and insurance, divided by gross monthly income.
Total ratio (back-end): The housing payment plus all other monthly debts, divided by gross monthly income. The CFPB defines DTI this way and notes that limits differ by loan product and lender.
Compensating factor: A documented strength in the file, such as reserves or a strong payment history, that supports a higher ratio.
Self-sufficiency test: On three- and four-unit homes, the rent from all units must cover the full housing payment.
What Are the Ratios on an FHA Cash-Out for a 2-4 Unit Home?
There are two families. LTV measures how much of the home’s value you are borrowing. DTI measures how much of your income the payment consumes.
For LTV, the FHA cash-out reaches 80% of the appraised value on a home you have owned and occupied for 12 months before the case number is assigned. HUD Mortgagee Letter 2019-11 cut the cash-out limit from 85% to 80%, and the Handbook 4000.1 Update 7 transmittal shows the 80% written into the handbook for one-to-four unit homes. Two units, three units, four units: same cap. At 80%, at least 20% equity stays in the home.
For DTI, the base pair is 31/43. That means the housing payment is 31% of gross income and total debts are 43%. With documented compensating factors, ratios can reach 40/50 at the top tier. Across the wholesale programs Lendmire places FHA files with, the automated finding decides most files, and it does not publish one fixed ceiling.
Be skeptical of any page that quotes a single “FHA maximum DTI.” There isn’t one.
How Does Underwriting Work, Step by Step?
Here is the sequence on a typical file.
1. Eligibility screen. The home must be your principal residence, 1 to 4 units, owned and occupied for 12 months before the case number. If you were in a forbearance plan, expect questions about completing it and the payment history afterward.
2. Appraisal and value. The appraiser sets the value. The new first mortgage is capped at 80% of it. On a 2-4 unit, the appraisal also includes a rent schedule, which is a separate form from the standard single-family report.
3. Loan limit check. County loan limits apply and vary by unit count. They change every year, so the loan officer checks the current county figure for your number of units.
4. Income and rent documentation. Covered in the next section.
5. Automated underwriting. The file runs through FHA’s automated scorecard first. An approve finding is not held to the manual caps. A “refer” finding sends the file to manual underwriting, where the 31/43 to 40/50 tiers apply.
6. Payoffs and closing. The lender collects payoff statements for every mortgage being paid off. Cash-out proceeds are generally not treated as reserves on manual files. Ask your loan officer how your lender handles this.
How Does Rental Income Count on a 2-4 Unit Cash-Out?
Rent from the other units can help the ratio, but only after documentation and a vacancy reduction. Not every dollar of rent counts.
HUD Mortgagee Letter 2023-17 lays out the documents. With limited or no rental history on the property, the lender uses the rent schedule from the appraisal form, plus leases if they exist. With a rental history, the lender looks at the prior two years of traditional personal-income documentation, including Schedule E. It averages the Schedule E amount and may add back items like depreciation, mortgage interest, taxes, insurance and HOA dues. Income from commercial space does not count.
The vacancy reduction is a percentage taken off the gross rent. The exact percentage is something to confirm with your loan officer against the lender’s current guidelines rather than assume.
Two common mix-ups. First, the rental exclusion for accessory dwelling units applies to one-unit homes with an ADU, not to duplexes through fourplexes. Second, rent from your own unit does not exist as income. For the three- and four-unit test, though, the rent from every unit is part of the math, as shown below.
What Is the Self-Sufficiency Test on Three- and Four-Unit Homes?
It is an extra pass-or-fail check. On a 3-4 unit refinance, the net rent from all units, including the one you occupy, has to cover the full housing payment. A duplex does not face this test.
This is the part many borrowers miss. A fourplex can clear a 43% total ratio and still stall here, because the two tests measure different things. DTI looks at your income. Self-sufficiency looks at the property.
Reserves also come into play on larger buildings. HUD’s older reference material points to a reserve requirement for 3-4 unit refinances, and the number may have changed. Treat reserves as a confirm-with-the-lender item, and document funds that sit outside the cash-out itself. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
How Do the Requirements Differ by Unit Count?
| Factor | 2 units | 3 units | 4 units |
|---|---|---|---|
| Max cash-out LTV | 80% | 80% | 80% |
| Occupancy | Primary residence | Primary residence | Primary residence |
| Self-sufficiency test | No | Yes | Yes |
| Rent documentation | Appraisal rent schedule, leases, or Schedule E | Same | Same |
| Reserves | Confirm with lender | Expect a larger ask | Expect a larger ask |
Every cell is subject to lender guidelines and full file review.
How Does the New Payment Flow Into the Ratios?
The ratio tests the new loan, not the old one. A cash-out raises the balance, so the payment rises. FHA mortgage insurance is part of that payment: an upfront premium of 1.75% of the base loan, which is financed, plus an annual premium that runs between 0.15% and 0.75% of the balance depending on term, amount and LTV. On a thirty-year loan above 90% LTV, the annual premium lasts the loan term. At or below 90%, it ends after eleven years. A cash-out at 80% LTV falls in the second bucket. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Here is a way to run it without dollar figures. Picture a borrower living in one unit of a triplex, with a modest existing car loan and a student loan. The cash-out raises the housing payment. Both the 31% housing ratio and the 43% total ratio get recalculated on the larger payment, with documented net rent added to income as the lender allows.
Now change one variable at a time:
- Add documented rent. Income rises, so both ratios fall.
- Pay off the car loan at closing. The total ratio falls, and the housing ratio stays put.
- Take less cash out. The balance and payment fall, so both ratios improve, and LTV drops further below the 80% cap.
A borrower can pass LTV and fail DTI, or the reverse. Test both on the same scenario before applying.
Where Does the General Rule Break?
Four edge cases come up.
A score below the top tier. At lower credit scores, the manual ceiling stays near the base 31/43. The higher tiers need stronger scores and documented factors. The wholesale programs Lendmire works with start at a 580 decision score.
Automated approvals. Some files pass the automated finding at ratios above the manual tiers. Don’t assume yours will. Ask for the finding before you plan around it.
One-unit with an ADU. The rent exclusion on a cash-out applies there, not to a true 2-4 unit home. If your property is a house with a converted basement apartment, the unit count on the appraisal decides which rules apply.
Rehab loans. FHA’s 203(k) renovation program is a separate product, not a cash-out, with its own rules.
Also check current HUD policy before you apply. HUD’s Handbook 4000.1 page lists recent updates, and HUD issues policy changes regularly. Our FHA file experience is that program details move at the edges even when the core limits hold.
What If the Ratios Don’t Fit?
You have levers, and they are mechanical.
- Reduce the cash-out amount.
- Pay off installment debts at closing.
- Document rent with leases and a complete rent schedule.
- Add reserves outside the cash-out proceeds.
- Add a non-occupant co-borrower on a purchase (not on a cash-out, where the borrower income must come from occupants).
If an FHA cash-out is still tight, a different structure may fit better. Lendmire’s piece DSCR Cash-Out LTV on a 2–4 Unit Qualifying on Cash Flow covers how rental-property financing handles that same building type, for owners who no longer live there. For your primary home, stay in the FHA lane and work the levers above.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Is FHA the Right Cash-Out Tool for You?
Compare it with conventional cash-out on three points: how much equity stays in the home, how much documentation the rent requires, and how the mortgage insurance adds to the payment. FHA tends to reward borrowers with moderate credit and documented rent. A borrower with high credit and a lot of equity may prefer a different program.
The FHA cash-out refinance program page covers the loan from the borrower’s side. Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders and compares options for your file. Nothing here is a commitment to lend.
Frequently Asked Questions
Is there one maximum DTI for an FHA cash-out?
No. The manual standard starts at 31/43 and can reach 40/50 with documented compensating factors. Automated approvals follow the scorecard finding instead of a published cap. Any single number you see quoted is a lender’s habit, not an FHA rule.
Does a duplex have to pass the self-sufficiency test?
No. The test applies to three- and four-unit homes, where net rent from all units must cover the full housing payment. A duplex is judged on the ratios and the rent documentation.
Can I use rent from the other units to qualify?
Yes, with documentation and a vacancy reduction. The lender uses the appraisal rent schedule and leases, or two years of Schedule E returns if there is rental history. Commercial-space income does not count.
How long must I have lived there before a cash-out?
Twelve months of ownership and occupancy before the case number. This is the rule across the programs Lendmire places, subject to lender guidelines.
Is the 80% cap the same for a fourplex as for a duplex?
Yes. The cash-out limit is 80% of the adjusted value for one-to-four unit homes alike. County loan limits and the appraisal can still cap the loan lower.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see FHA loan programs.
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References
1. CFPB: What is a debt-to-income ratio?
2. HUD Mortgagee Letter 2019-11
3. HUD Handbook 4000.1 Update 7 transmittal
4. HUD Mortgagee Letter 2023-17
5. HUD Handbook 4000.1 information page
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 to Get an FHA Cash-Out on an Inherited Home After Probate · FHA Cash-Out Occupancy Requirements for an Heir Living in the Home · FHA Cash-Out vs Conventional Cash-Out for a Declined Homeowner
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.