The Quick Read: The upfront premium takes less out of an FHA cash-out than most borrowers assume, and it does not use up room under the county limit. The premium is figured on the base loan, and the base loan is what gets tested against the county limit and the 80% LTV cap. When you finance the premium, it sits on top of those caps and raises your final balance by 1.75% of the base loan. Your cash stays the same. When you pay it in cash, it cuts your cash at closing dollar for dollar. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Key Takeaways
- The upfront premium is 1.75% of the base loan, not of your cash and not of the county limit.
- Financing the premium raises the final balance. Paying it in cash lowers the cash you walk away with.
- Two caps apply to the base loan: 80% of the home’s value and the county loan limit. The lower one controls.
- The financed premium can push the final balance above the county limit. That is expected, not an error.
- If you already have an FHA loan, part of the old premium may come back as a credit toward the new one. It is not a check.
What Is the Upfront Premium, in Plain Words?
It is a one-time mortgage insurance charge on every standard FHA loan. It is 1.75% of the base loan. Most borrowers finance it into the loan, and that is the structure used across the wholesale programs Lendmire places FHA files with. The annual premium is a separate charge, billed monthly, and runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV.
The upfront charge does not change with your credit score or how much equity you hold. A borrower at the 580 decision-score floor and a borrower at 740 see the same 1.75%. Price differences between borrowers show up elsewhere in the file.
The FHA cash-out has its own rules. It reaches 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned. Lendmire’s FHA cash-out refinance program page covers the program basics. This article covers one piece: how the premium behaves when the loan is up against a cap. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
What Is the Premium Calculated On?
The premium is calculated on the base loan amount. The base loan is the amount built from your uses: the payoff of your current mortgage, closing costs and prepaids, and the cash you take out. The premium is not part of that stack.
Think of two numbers on every file:
- Base loan: payoff plus costs plus your cash. This number is tested against the caps.
- Final note: the base loan plus the financed premium. This is what you owe after closing.
Mixing these two up is where most of the confusion starts. Online examples often add the premium into the stack and then test the total against the cap. That is the wrong order.
Two Caps, One Winner
The base loan is held to the lesser of two limits. One is 80% of the appraised value. The other is the county loan limit for your unit count. County loan limits apply and change every year, so the number for your county comes from your loan officer, not from a general article.
| Situation | Which cap controls | What happens to extra equity |
|---|---|---|
| Home value is modest for the county | 80% of value | Limit never comes into play |
| Home value is high for the county | County limit | Equity above the cap is not reachable through FHA |
| A second lien stays in place | 80% combined LTV | New first mortgage shrinks by the second lien |
| 2-4 unit home | Limit for that unit count | Higher than a one-unit limit |
In the first row, the home is worth less than about 1.25 times the county limit, so the 80% cap hits first. In the second row, the county limit hits first and the 80% cap never gets used. That is the “at the county limit” case in the title. The base loan stops at the limit. The rest of the equity stays in the house, and no premium trick changes that.
HUD sets FHA county limits with a floor and a ceiling. The floor applies in lower-cost counties, and the ceiling is tied by statute to the conforming limit, per HUD’s loan limit announcement. Because the FHA floor sits below the conforming baseline, an FHA cash-out in a floor county can reach less than a conventional one on the same house.
Does the Financed Premium Count Against the Limit?
No. The premium does not count when the limit or the LTV is tested. HUD stated this in a Federal Register notice. The total FHA-insured first mortgage must fit within 100% of appraised value, and the premium must fit inside that outer cap. Provided it does, the premium is left out of the statutory loan limit test and the LTV test.
In practice, that means a financed premium can leave your final balance above the county limit by about the amount of the premium. It also means your final balance can sit slightly above 80% of value. The base loan stays at or under both caps.
One practitioner note. That notice is from 2013, and lenders test against the current FHA policy handbook, not an old notice. The mechanics have held on files across the wholesale programs, but your lender confirms the treatment on your file.
A Worked Example at the Cap
These are modeled inputs, not market data. Everything is in percentages of the home’s value, so no dollar figures are needed.
Assume the 80% cap controls. Assume your current loan payoff is 60% of value and closing costs and prepaids are 3% of value.
1. Base loan: 80% of value (the cap).
2. Cash to you before the premium: 80% minus 60% minus 3%, which is 17% of value.
3. Premium: 1.75% of the 80% base loan, which is 1.4% of value.
4. If financed: you still receive 17% of value. The final note is 81.4% of value.
5. If paid in cash: the final note stays at 80% of value, and your cash drops to 15.6% of value.
Now assume the county limit controls instead and sits below 80% of value. The steps are the same, but the base loan stops at the limit. Your payoff and costs come out of that capped amount, and cash is whatever remains. The financed premium still sits on top of the cap and does not reduce the cash.
How Much of Your Cash Does the Premium Take?
It depends on how much cash you take out, because the premium is tied to the base loan and not to the cash. When the base loan is fixed at the cap, the premium is a fixed amount. The smaller your cash share, the bigger the premium looks next to it.
Using the same modeled example, the premium is 1.4% of value. Here is that against three levels of cash released at an 80% base loan:
| Cash released (% of value) | Premium as a share of that cash |
|---|---|
| 10% | 14% |
| 17% | About 8% |
| 25% | About 6% |
If you finance the premium, none of that comes out of your pocket at closing. It is added to the balance, and you pay interest on it over the life of the loan. If you pay it in cash, you feel it at closing. Neither choice is free.
Financed Versus Paid in Cash
The premium is all or nothing. You finance the whole amount or pay the whole amount in cash. There is no split.
| Factor | Financed | Paid in cash |
|---|---|---|
| Cash to you | Unchanged | Lower by the premium |
| Final balance | Base loan plus premium | Equals the base loan |
| Interest | Accrues on the premium too | None on the premium |
| Annual premium base | Set by the base loan | Set by the base loan |
The annual premium is figured on the balance, and its tier depends on term, loan size and LTV. Because a cash-out stays at or under 80% LTV, it falls in the eleven-year tier, where the annual premium ends after eleven years. Above 90% LTV on a thirty-year loan it would last the full term, but a cash-out does not reach that level. A cash-out near the high end of county limits usually lands in a higher annual tier, because larger base loans carry higher annual premium rates.
Where the General Rule Breaks
Several cases change the picture. Name them early, because they surprise borrowers.
You already hold an FHA loan. The premium is generally not refundable, with one exception: when you refinance into a new FHA-insured mortgage, part of the old premium can come back as a credit toward the new one. The credit shrinks each month and ends after 36 months. It reduces the new premium and is not paid as cash. A conventional loan refinanced into FHA gets no credit.
A second lien stays in place. Combined LTV is capped at 80% too. A retained second lien comes straight out of the room the new first mortgage has.
The home is owned less than 12 months. An FHA cash-out needs 12 months of ownership and occupancy before the case number. A shorter history points to a different loan type.
Older FHA streamlines and special programs. A tiny premium applies to certain streamline refinances of loans endorsed before mid-2009. That does not extend to cash-outs. Hawaiian Home Lands loans (Section 247) sit outside the 2019 LTV change and the standard premium structure. HUD’s mortgage insurance FAQ also lists reverse mortgages (HECM), Title I, and Section 248 Indian Lands loans as outside the standard structure.
Alaska, Hawaii, Guam and the Virgin Islands. These have higher ceilings. Ask your loan officer for the figure in your area.
How the Loan Gets Underwritten, Step by Step
This is the order a file moves in.
1. Eligibility screen. You own and live in the home as your principal residence, with 12 months of ownership and occupancy before the case number. The decision score has to reach the 580 floor on the wholesale programs Lendmire uses.
2. Appraisal sets the value. The 80% cap applies to the appraised value. HUD’s Mortgagee Letter 2019-11 lowered the cash-out cap from 85% to 80% of adjusted value. It excluded Hawaiian Home Lands loans.
3. The lesser cap is chosen. The lender compares 80% of value with the county limit for your unit count.
4. The base loan is built. It stacks the payoff, closing costs and prepaids, and your cash.
5. The premium is added. It is 1.75% of the base loan, financed on top or paid in cash.
6. Ratios are tested. The base pair is 31/43 for housing and total debt. Documented compensating factors can reach 40/50 at the top tier. The automated finding governs most files.
7. Documents are reviewed. Expect a loan application, income and asset verification, the appraisal, a payoff statement, and the Loan Estimate and Closing Disclosure.
Where Files Slip
Here is what trips cash-out files on this exact topic.
- Sizing the cash off the final note. Someone adds the premium into the stack, then tests the total against the cap. The cash comes out too low, or the file looks over the cap when it is not.
- Forgetting the second lien. A retained second reduces the first mortgage. The borrower expects more cash than the combined LTV allows.
- Counting on a refund. A borrower moving from a conventional loan expects a credit. There is none.
- Assuming the limit equals the conforming limit. In a floor county, FHA reaches less.
- Skipping the closing cost line. Costs include origination, appraisal, credit report and title fees. CFPB research on cash-out borrowers notes these can be substantial. Ask for the Loan Estimate and read the premium line next to it.
The point is simple. The premium is one line among several, and it behaves the same way every time. The caps are what change from file to file.
Key Terms Defined
Upfront premium: A one-time FHA mortgage insurance charge of 1.75% of the base loan, usually financed.
Base loan: The loan amount built from payoff, costs and cash, before the premium is added.
Final note: The base loan plus any financed premium, which is the balance you owe after closing.
County loan limit: The maximum base loan FHA allows in your county for your unit count, reset every year.
Combined LTV: All liens on the home added together, measured against value. A cash-out is capped at 80%.
Annual premium: The monthly mortgage insurance charge, set by term, loan amount and LTV.
Is Another Loan Type Better?
It depends on how much equity you want and where the home sits. If your county limit blocks the equity you need, a conventional or jumbo cash-out may reach more. If you want to keep your current loan and tap equity another way, a second lien is the usual comparison. Each choice changes the balance, the monthly insurance, and the closing costs, so compare them on the Loan Estimate.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Does the upfront premium count against my county loan limit?
No. The premium is left out of the limit test and the LTV test, so it can push your final balance above the county limit. The base loan is what stays at or under the cap. Your lender confirms the treatment on your file.
Does a financed premium reduce the cash I receive?
No. A financed premium is added to the balance on top of the base loan, so your cash is unchanged. If you pay the premium in cash, your cash at closing falls by the same amount.
Can I finance only part of the upfront premium?
No. It is financed in full or paid in full. Most borrowers finance it, which raises the final balance by 1.75% of the base loan.
Do I get the old premium back if I already have an FHA loan?
Part of it may come back as a credit, and only when you refinance into a new FHA loan. It reduces the new premium and is not paid to you in cash. A conventional loan moving into FHA gets no credit.
Why is my cash-out smaller than 80% of my value minus my payoff?
Closing costs, prepaids and any retained second lien come out of the 80% first. The premium reduces your cash only if you pay it in cash. If the county limit controls, the base loan stops at the limit and the rest of your equity stays in the home.
What To Do Next
Before you apply, gather your current payoff statement, a rough read on your home’s value, and a list of any second liens. Ask for the county limit for your unit count, and compare the base loan against 80% of value. Then ask to see the premium on the Loan Estimate, financed and paid in cash.
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.
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.
For the program’s current guidelines, see FHA loan programs.
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References
1. HUD news release on loan limits
2. Federal Register notice, 78 FR 8552 (via GovInfo)
3. HUD FHA Resource Center, MIP structure
4. HUD Mortgagee Letter 2019-11
5. CFPB research 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: How Much an FHA Cash-Out Costs a Homeowner Already in an FHA Loan · How Much More Payment an FHA Cash-Out Allows on Thin Credit · How Much Cash a VA Cash-Out Adds Over Your FHA or Conventional Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.