The Quick Read: Usually yes. FHA does not restrict what a borrower does with cash-out proceeds, so the money can go into a business. The catch is that the loan is underwritten on you and your house, not on the business plan. Across the wholesale programs this lane works with, the FHA cash-out reaches 80% of the home’s value, and the business risk ends up secured by your home.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.40% as of October 15, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
How Does an FHA Cash-Out Work?
An FHA cash-out refinance replaces your current mortgage with a new, larger one. You get the difference as cash, after the old loan is paid off and costs are rolled in. The new loan must fit under 80% of the home’s appraised value.
The home must be owned and occupied as your principal residence for 12 months before the case number is assigned. Investment properties and second homes do not qualify for FHA cash-out. Occupancy decides the leverage.
HUD used to allow more. HUD announced the cut from 85% to 80%, effective September 1, 2019, to reduce risk and line FHA up with Fannie Mae and Freddie Mac. Older articles that quote 85% are out of date.
Lendmire arranges these loans through wholesale lenders as a mortgage broker. Its FHA cash-out refinance program page lays out the mechanics. Every figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
Can the Cash Actually Go Into a Business?
Yes. HUD’s definition of a cash-out refinance does not limit what the proceeds are used for. That is different from an FHA 203(k) rehab loan, which ties the money to approved repairs.
Here is the part borrowers miss. No HUD text names business use as allowed or as prohibited. So the accurate statement is “no purpose restriction,” not “FHA endorses business funding.” Individual lenders can also add their own overlays.
What the lender evaluates:
- Your credit and payment history on the current mortgage
- Your documentable income
- The new, larger housing payment, including mortgage insurance
- Your debt-to-income ratio
- The appraised value and the equity left under the cap
What the lender does not evaluate: the startup’s projections, the pitch, or whether the business will succeed. A strong business plan does not move the file. Revenue that has not yet shown up on traditional personal-income documentation generally cannot be counted.
Starting vs. Expanding: What Changes in Underwriting
The loan works differently depending on whether the business already earns money.
| Factor | Starting a business | Expanding a business |
|---|---|---|
| Business income counted | Generally none | Yes, if documented |
| Qualify on | W-2 or spouse income | Personal and business returns |
| Paperwork load | Light | Heavy |
| Home-at-risk level | Higher | Moderate |
Starting. With under a year of business history, the lender generally cannot use that income. You qualify on other income, such as a paycheck or a spouse’s earnings. The cash-out then works as a plain personal loan against the house.
Expanding. Self-employed borrowers face more paperwork. Under HUD Mortgagee Letter 2022-09, self-employment income comes from a business in which you hold at least a 25% ownership interest. Two years of self-employment is the standard test. With one to two years, the income counts only if you worked in the same or a related line of work for at least two years before.
Income that is stable or rising is acceptable. A drop of more than 20% triggers closer scrutiny and manual underwriting.
The document list is longer on a cash-out. The lender needs two years of complete personal federal returns with all schedules. Business returns for two years are also required on a cash-out refinance. Many files stall here, on a missing schedule or a return that is not signed or complete.
What the Lender Looks At: Ratios, Credit and Insurance
The base debt-to-income pair on FHA is 31/43 (housing over total debts) with no compensating factors. Documented compensating factors can push it to 40/50 at the top tier. In practice, the automated finding governs most files.
On credit, the wholesale programs this lane places FHA loans with start at a 580 decision score. HUD itself has a lower tier, but the network does not reach below 580. Some lenders set a higher floor, so a score near the line can get a different answer from lenders.
Mortgage insurance is the cost that surprises business borrowers. FHA charges an upfront premium of 1.75% of the base loan, usually financed. It also charges an annual premium that depends on term, loan amount and LTV. The annual premium applies to the entire new balance, not just the cash portion. On a thirty-year loan above 90% LTV, it lasts for the life of the loan. At or below 90%, it ends after eleven years. HUD Mortgagee Letter 2023-05 covers the upfront premium and the annual-premium revisions.
Add the appraisal, title and lender costs. These are typically financed, but they come out of the 80% cap. The cash you can deploy is smaller than the equity you have. Borrowers should plan around the net cash on the Loan Estimate, not the gross equity.
Which Files Get Stuck
A few patterns derail business-use cash-outs.
Seasoning. Twelve months of ownership and occupancy as a principal residence is the gate, with limited exceptions such as inheritance. A recent purchase does not qualify yet.
Payment history. The mortgage must be current. A delinquency in the past 12 months is a problem, and the review covers the full ownership period if that is shorter.
Liens that stay. An existing second mortgage or HELOC counts toward the combined 80% cap. It shrinks the room for cash. A second lien does not get you past the cap.
Business debt on your credit report. Debt in your name that the business pays may be treated as a business obligation with documentation. The lender needs evidence of who pays it. Do not assume it drops out of the ratio.
Existing FHA loan. An FHA Streamline is a no-cash-out product. It cannot fund a business.
Home-based business. Mixed use is possible, but the nonresidential use must stay subordinate to the residential use. HUD’s archived reference guide sets the principle. Ask the lender how it applies the current handbook language to your home.
County loan limits apply to every FHA loan. The new loan cannot exceed the limit for your county and unit count.
The Risk: The House Is the Collateral
This is the section that matters most. A cash-out replaces your whole mortgage with a bigger one. The payment generally rises, and the home secures every dollar. If the business fails, the debt does not go away.
The CFPB’s own research writing treats this as the central risk: the home is the collateral, and failing to pay can mean foreclosure. A related CFPB paper makes a point that carries over to business use. Turning other debt into mortgage debt puts the home at risk, while defaulting on non-mortgage debt is unlikely to cost you the home.
You also keep only about 20% equity after closing. That is a thin cushion if home values dip.
Picture a homeowner who draws the maximum, spends it on equipment and inventory, and then has three slow months. The larger mortgage payment keeps coming, and so does the mortgage insurance. A fair test before you commit: can your household cover the new payment with zero business revenue for several months? If not, take a smaller draw or a different path.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Other Ways to Fund a Business
A business loan keeps the risk off the house. The SBA describes its microloan program as offering loans up to $50,000 for startups and expansion through nonprofit intermediaries, and calls the 7(a) program its primary business loan program.
| Option | Secured by your home? | Underwriting focus | Best fit |
|---|---|---|---|
| FHA cash-out | Yes, the first mortgage | Personal credit and income | Larger one-time need, solid household income |
| Conventional cash-out | Yes, the first mortgage | Personal credit and income | Stronger credit, more equity |
| SBA-type business loan | Not necessarily | Business plan and finances | Business with a real plan |
| Home equity contract | Varies | Varies | Approach with caution |
Self-employed owners with strong deposits but messy traditional personal-income documentation can read about using a bank statement cash-out to expand, a different program with its own rules.
Home equity contracts deserve caution. Mayer Brown’s summary of the CFPB’s stance notes that these products are not mortgages in the usual sense and may lack standard disclosures. Be wary of anyone asking for large upfront fees or promising unrealistic results on a loan against your equity.
A Quick Decision Checklist
Before moving forward, answer these:
1. Is this your principal residence, owned and lived in for 12 months?
2. Is your mortgage current, with no recent late payments?
3. Can your personal income carry the larger payment on its own?
4. Will 80% of value, minus your payoff and costs, leave enough cash for the plan?
5. Do you have two years of complete personal and business returns, if self-employed?
6. Could you survive several months of zero business income without missing a payment?
7. Have you compared a business loan first?
A “no” on items 3 or 6 is a red flag. That is the moment to shrink the draw or look elsewhere.
Key Terms Defined
Cash-out refinance: A new mortgage larger than your current one, where you receive the difference as cash.
Seasoning: The required time you have owned and lived in the home before the loan.
Combined LTV (CLTV): The total of all liens on the home divided by its appraised value.
Mortgage insurance premium (MIP): FHA’s upfront and annual charge that protects the lender, paid by the borrower.
Debt-to-income ratio (DTI): Your monthly debts divided by your monthly gross income.
Compensating factors: Documented strengths, such as savings or stable income, that can support a higher ratio.
Frequently Asked Questions
Will the lender ask what I plan to do with the cash?
Some lenders may ask or add their own conditions. HUD’s cash-out definition itself sets no purpose restriction. The file is judged on credit, income, the home and the equity, not on the business plan.
Can I use projected business income to qualify?
Generally no. Self-employment income needs a documented history, usually two years, with a limited exception for one to two years when you have a prior related work history. A brand-new startup typically is reviewed on other household income.
Can I use a second mortgage or HELOC to get above the 80% cap?
No. Subordinate liens that stay on the home count toward the combined limit. They reduce how much cash the new loan can deliver.
Does an FHA cash-out have mortgage insurance?
Yes. There is an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium that depends on term, loan amount and LTV. Both apply to the whole new balance.
Can I do this on a rental or second home?
No. FHA cash-out is for owner-occupied principal residences only, so occupancy decides the leverage.
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
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 Archives press release on the cash-out LTV change
2. HUD Mortgagee Letter 2022-09 (self-employment)
3. HUD Mortgagee Letter 2023-05 (mortgage insurance premiums)
4. HUD’s archived reference guide
5. CFPB Office of Research blog on cash-out refinances
6. CFPB paper
7. SBA small business resource hubs
8. Mayer Brown — CFPB on home equity contracts
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 Do an FHA Cash-Out on a Texas Second Home · Conventional Cash-Out vs FHA Cash-Out on a Condo · Can an FHA Streamline Refinance Give You Cash Out?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.