The Quick Read: Every charge on the new loan comes out of the same capped amount that also pays off your old FHA loan. The cap is 80% of the home’s value, and it is counted across every lien on the property. Payoff, fees, prepaid items and the upfront mortgage insurance premium all take their share first. What is left is your cash, and it is almost always smaller than the gap between your balance and 80% of value.
Key Takeaways
- A cash-out refinance is a brand-new FHA loan that pays off your existing one. It is not a loan added on top.
- The maximum is 80% of the appraised value on a home you have owned and occupied for 12 months before the case number.
- Your payoff, closing costs and prepaids all come out of that 80%.
- Paying costs from your own pocket keeps more of the cap for cash. Rolling them in raises the balance and shrinks your proceeds.
- If your current loan is FHA, part of the old upfront premium may come back as a credit. It is a credit, not a check.
What Happens When You Cash Out an FHA Loan You Already Have
A cash-out refinance replaces your current mortgage with a larger one. The new loan pays off the old FHA loan, pays the costs of making the new loan, and sends the remainder to you. Lenders call that remainder net proceeds.
The key point is the order of payment. The new loan has a ceiling. Everything it must pay sits underneath that ceiling. You get whatever space is left.
Across the wholesale programs Lendmire places FHA files with, the FHA cash-out reaches 80% loan-to-value (LTV). LTV is the loan balance divided by 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. Details are on Lendmire’s FHA cash-out refinance program page.
Many homeowners do the quick math wrong. They take 80% of value, subtract the mortgage balance, and expect that check. That number is the gross equity room. It is not the cash. The next sections show where the difference goes.
The Net-Cash Formula
Here is the formula in plain steps.
1. Start with the appraised value of your home.
2. Multiply by 80%. That is the largest total loan the program allows.
3. Subtract the payoff on your current FHA loan, including interest owed through the payoff date.
4. Subtract closing costs that the new loan will pay.
5. Subtract prepaid items and escrow deposits.
6. Subtract the upfront mortgage insurance premium, which is 1.75% of the base loan.
7. Add any upfront premium credit from your old FHA loan.
8. What remains is your net cash.
Two details trip people up. First, the cap is a combined limit. If you also have a second mortgage or a home equity line, those balances count against the same 80%, which leaves less room for the new first loan. Second, the appraisal is the starting point for everything. If it comes in lower than you expected, the cap drops with it, while most costs stay about the same. Cash shrinks by more than the value dropped.
One technical point. Whether the upfront premium counts inside the 80% test or sits on top of it depends on how the base loan is measured under the handbook. Your loan officer should confirm that line for your file. Either way, the premium is a real use of your equity.
A Worked Example in Percentages
The example below uses made-up inputs to show the mechanics. These are modeled assumptions, not market data, and your own costs will differ.
Say the home appraises at 100 points, where each point is 1% of value. The cap is 80 points. Your payoff, including accrued interest, is 62 points.
- Gross equity room: 80 minus 62, or 18 points of value.
- Closing costs and prepaids, rolled into the loan: assume a portion of the equity room.
- Upfront premium: a small share of the loan amount, which is also deducted from the equity room.
- Net cash: 18 minus the closing costs and the upfront premium, or about 12.6 points.
The “18 points” in your head turned into about 12.6 points. That is nearly a third of your apparent cash gone before you see it. Costs of a few percent of the loan are common on a cash-out, but the exact amount depends on the lender, title charges, the appraisal and your county. The Loan Estimate you receive will show your real figures.
Now take the more common situation. You do not want the maximum. You want a specific amount of cash, and that amount is below the cap.
| Item | Costs rolled in | Costs paid out of pocket |
|---|---|---|
| Payoff | 62 points | 62 points |
| Costs and prepaids | Financed into the loan | Paid at closing |
| Upfront premium | About 1.4 points | About 1.4 points |
| Cash you want | 10 points | 10 points |
| Loan balance | About 77.4 points | About 73.4 points |
Paying in cash gives you a smaller loan for the same 10 points of cash. A smaller loan means a smaller base for the premium and a smaller monthly premium. The trade-off is that you must bring that money to closing. If you are cashing out because cash is tight, that may defeat the purpose.
What Counts as Closing Costs on a Cash-Out?
Closing costs are the upfront charges to get the loan and transfer the paperwork. On a refinance, they usually fall into four groups. The table below shows how each group affects your cash.
| Group | Examples | Reduces cash? | Room to shop? |
|---|---|---|---|
| Lender charges | Origination, underwriting | Yes | Some, by comparing offers |
| Third-party charges | Appraisal, title, recording | Yes | Title services often |
| Prepaids and escrows | Prepaid interest, first-year insurance | Yes, but it funds your own bills | Limited |
| Mortgage insurance | Upfront premium | Yes | None, set by program |
Prepaids deserve a second look. They are not a fee in the usual sense. They fund your own homeowner’s insurance and your escrow account. You pay them in cash or from proceeds, but the money covers costs you would have owed anyway.
The paperwork can confuse you here. On the Closing Disclosure, total closing costs and “cash to close” are two different lines. The federal consumer bureau notes that if your loan amount or cash to close went up, one reason may be that costs were rolled into the loan. On a cash-out, the cash-to-close line is usually net of your proceeds, so it may show money coming to you rather than money owed. Compare the final figures with your latest Loan Estimate before you sign.
For a line-by-line look at each charge, see Lendmire’s piece FHA Cash-Out Closing Costs Line by Line Under the Cap.
Upfront Premium and the Credit From Your Old FHA Loan
The upfront mortgage insurance premium on FHA is 1.75% of the base loan, and it is usually financed. A bigger loan means a bigger premium. It is a percentage of the whole loan, not just the cash you take out. Many borrowers assume it applies only to the cash portion. It does not.
The annual premium is billed monthly. It depends on the loan term, the loan amount and the LTV, and it ranges from 0.15% to 0.75% of the balance. On a thirty-year loan above 90% LTV, it lasts the full term. At or below 90% LTV it ends after eleven years. A cash-out at the 80% cap falls into that second group. The annual premium is also figured on the balance, so financing costs raises it slightly. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Here is the piece that helps an existing FHA borrower. When you refinance one FHA loan into another, part of the upfront premium you already paid may return as a credit against the new premium. HUD’s Office of Inspector General describes it in its review of FHA premium refunds. It is the unearned portion of the old premium. Refund windows run three, five or seven years, depending on when the old loan was endorsed. The lender submits the termination request.
Three limits matter:
- It applies only when the loan being paid off is FHA-insured. Refinancing a conventional loan into FHA earns no credit.
- It is a credit toward the new premium. It does not produce cash back.
- It shrinks as the old loan ages, so a loan you took out recently carries more credit than an older one.
So the credit trims your costs but does not add to your proceeds beyond that. Ask your loan officer to show it on your estimate as a separate line.
Rolled In Versus Paid in Cash
Rolling costs into the loan feels easier. You write no check. But the cap does not stretch to cover them. Financed costs use room that would otherwise be your cash.
Say you are already near the 80% ceiling. Every point of cost you finance is a point of cash you cannot take. Financing also raises your balance, your monthly premium and your total interest over the life of the loan. If you want the full picture of what the cap can and cannot absorb, Lendmire’s piece Can You Finance All FHA Cash-Out Closing Costs? walks through it.
Here is how the two choices compare in practice.
| Factor | Costs rolled in | Costs paid in cash |
|---|---|---|
| Cash needed at closing | Little or none | You bring the costs |
| Loan balance | Higher | Lower |
| Room left under the cap | Less | More |
| Annual premium base | Larger | Smaller |
| Best when | You need maximum cash | You have savings and want a smaller loan |
“No-closing-cost” offers deserve the same scrutiny. The costs are not gone. They are built into the balance or the pricing of the loan. Ask where they went.
Does a Small Cash Need Survive the Costs?
Sometimes it does not. Costs on a cash-out are largely fixed in size. A small cash need leaves little room to absorb them.
Think of two homeowners with the same payoff and the same costs.
- Homeowner A wants a modest amount of cash. After costs and premium, the new loan barely differs from the old balance. The borrower pays a full set of closing costs, resets the loan and starts a new premium schedule for a thin amount of cash.
- Homeowner B wants a large amount of cash. The same costs are spread across a bigger loan and a bigger purpose, such as a major repair or consolidating debts.
Here is a simple decision rule. Add up your estimated costs and premium, then compare that total with the cash you need. If costs eat a large share of the cash, look at alternatives. A home equity loan or line may carry its own costs, but it leaves your existing FHA loan in place. If your current loan is already FHA and you need no cash at all, an FHA Streamline is a different tool. It refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It is not a cash-out.
Where the Rules Break the Pattern
Most cash-outs follow the formula above. A few situations change the math.
The cap is a recent number
Many borrowers still quote 85%, which was the cap for years. HUD Mortgagee Letter 2009-08 set the older 85% limit. HUD Mortgagee Letter 2019-11 lowered it to 80% of the adjusted value, citing risk to the FHA insurance fund from rising balances on cash-out loans. The letter excludes Section 247 Hawaiian Homelands loans. If an old article or a neighbor told you 85%, that number is out of date.
Adjusted value on newer ownership
For a home you have owned 12 months or more, the cap uses the appraised value. For a home acquired within the past 12 months, the value is the lesser of your purchase price plus documented improvements, or the appraisal. That lower base makes costs consume a larger share of a smaller cap. There are exceptions for homes received by inheritance or gift. Cash-out eligibility itself still turns on the 12-month ownership and occupancy test described earlier.
Payment history
The ownership and occupancy tests are yes-or-no. So is your payment history. FHA looks for on-time payments over the prior 12 months, or since the loan began if shorter. A late payment inside that window can end the file. Check your own history before you pay for an appraisal.
Second liens
If you have a home equity line or second mortgage, you will usually need to pay it off or keep it in view of the combined limit. Either way, it competes for the same 80%.
County loan limits
County loan limits apply to the new loan on top of the 80% cap. They change from year to year and vary by county. Your loan officer can tell you which limit applies to your property.
Rental or second home
FHA cash-out is owner-occupant financing for your principal residence, so the rules above do not apply to a rental or second home.
The program documents for all of this sit in HUD’s Handbook 4000.1, the rulebook that lenders follow for FHA loans.
Checklist Before You Apply
- Pull your current mortgage statement and confirm the balance and the loan type.
- Confirm 12 months of ownership and occupancy as your principal residence.
- Scan the past 12 months of payments for anything posted late.
- List every lien on the home, including lines of credit.
- Decide the cash you need, not the maximum you can get.
- Ask for a Loan Estimate with the upfront premium and any premium credit shown separately.
- Ask which costs can be paid in cash and what that would do to the balance.
- At closing, compare the Closing Disclosure with that Loan Estimate line by line.
An FHA cash-out is also a new loan with a new term. Compare the new monthly premium and the new loan length against what you have now. The new loan resets the clock.
Key Terms Defined
Cash-out refinance: A new mortgage that pays off your old one and lets you keep part of the equity as cash.
LTV (loan-to-value): The loan balance divided by the home’s appraised value. The FHA cash-out tops out at 80%.
Upfront mortgage insurance premium (UFMIP): A one-time premium of 1.75% of the base loan, usually financed into the loan.
Annual mortgage insurance premium: A yearly premium, billed monthly, that depends on the loan term, amount and LTV.
Net proceeds: The cash you actually receive after the payoff, costs and premium come out.
Prepaids: Money paid in advance at closing for items like interest and homeowner’s insurance, funding your own escrow account.
Closing Disclosure: The final statement of loan terms and costs, which you should compare with your Loan Estimate.
Frequently Asked Questions
Do closing costs on an FHA cash-out come out of my cash?
Yes, if you finance them. Financed costs use room under the 80% cap, so your proceeds shrink by that amount. If you pay them in cash at closing, the cap room stays available for your proceeds, but you bring that money yourself.
Can I get my old upfront premium back when I refinance FHA to FHA?
Part of it, as a credit. The credit reduces the upfront premium on the new loan and depends on how long ago the old loan was endorsed. It does not produce cash, and a conventional loan refinanced into FHA earns none.
Why is my cash smaller than 80% of value minus my balance?
That calculation skips everything else the loan must pay. Your payoff includes accrued interest. Then come closing costs, prepaids and the 1.75% upfront premium. Those all come out of the same capped amount before you receive anything.
Does the cap include my home equity line?
Yes. The 80% limit applies to the combined liens on the home. A second mortgage or line of credit leaves less room for the new first loan, so you may need to pay it off as part of the transaction.
Is a cash-out the right tool if I only need a little cash?
Often not. Costs are largely fixed, so a small cash need can be swallowed by fees and premium while you reset the loan term. Compare it with equity borrowing that leaves your current loan in place. Program figures are subject to lender guidelines and full file review.
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. It is not a commitment to lend, and every figure here is subject to lender guidelines.
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. Consumer Financial Protection Bureau, Closing Disclosure explainer
2. HUD Office of Inspector General, HUD’s Oversight of FHA Refunds
3. HUD Mortgagee Letter 2009-08
4. HUD Mortgagee Letter 2019-11
5. HUD Housing Handbooks index (Handbook 4000.1)
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: FHA Streamline vs FHA Cash-Out for a Better Loan and a Little Cash · How to Pay Off Debts at Closing on a Texas Homestead FHA Cash-Out · Does an FHA Cash-Out Refund Upfront MIP on Your Existing FHA Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.