The Quick Read: To pull cash from your home with an FHA loan, you replace your current mortgage with a new, larger one, and the new loan can reach 80% of the home’s appraised value. You must have owned and lived in the home as your main residence for 12 months before the case number is assigned. You also need to pass a full credit, income and payment-history review. Your current loan can be any type, not only FHA. Meeting the checklist does not promise approval or a particular cash amount.
Key Takeaways
- The 80% cap applies to the appraised value, and it counts every lien on the home combined.
- The home must be your principal residence, owned and occupied for 12 months before the case number.
- Closing costs and the upfront mortgage insurance premium come out of your cash.
- Streamline and rate-and-term refinances are different tools. Neither puts cash in your pocket.
- Every figure here is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
What Is an FHA Cash-Out Refinance?
An FHA cash-out refinance is a new FHA-insured mortgage that pays off your old loan and hands you the leftover equity as cash. It replaces your loan. It does not sit on top of it.
The “cash” part is simple. Say your home is worth a certain amount and you owe 60% of that value. A new loan at the 80% cap pays off the old balance. The gap between the two, minus costs, comes to you. You can use the proceeds for nearly anything: repairs, tuition, medical bills or paying down other debt. FHA does not limit the purpose.
Lendmire is a mortgage broker. It arranges loans like this through wholesale lenders, and the lenders review and approve the file. Lendmire’s FHA cash-out refinance program page covers how that placement works.
One more point up front. The borrower’s equity is the fuel, and the appraisal sets how much fuel exists. You do not choose the number. The value and the rules choose it.
Do You Need an Existing FHA Loan?
No. Your current mortgage can be conventional, VA, or an older FHA loan. Across the wholesale programs Lendmire places FHA files with, the loan type you hold today does not decide eligibility. The home, your occupancy, your equity and your credit decide it.
“FHA homeowner” in the title is a little misleading, then. Many borrowers who do this are leaving a conventional loan, often because their credit has recovered or their equity has grown.
Here is a related worry. Will you end up with two FHA mortgages? No. The new loan pays off the old one at closing. You carry one mortgage after the refinance, with a bigger balance, a new term and new insurance premiums.
The Requirements at a Glance
Here is the checklist most files run through. Each lender can add its own overlays, and the lender’s review is final.
| Requirement | What it means | How it is checked |
|---|---|---|
| Occupancy | Principal residence, one to 4 units | Documents and lender review |
| Ownership clock | Owned and occupied 12 months before case number | Title and utility or ID records |
| Maximum financing | 80% LTV on appraised value | Full appraisal |
| Payment history | Existing mortgage paid as agreed | Credit report or lender proof |
| Credit | Lender-set floor, often above the purchase starting point | Credit report and score |
| Ratios | Base pair 31/43, up to 40/50 with documented factors | Income and debt review |
The ratio pair is housing cost over income, then total debt over income. A 31/43 file needs no extra support. Reaching 40/50 takes documented compensating factors, and the automated finding governs most files.
How the 80% Cap Sets Your Ceiling
The cap is 80% of the home’s appraised value, and it counts every lien. HUD lowered the maximum for FHA cash-out loans from 85% to 80% in a change that applies to case numbers assigned on or after its effective date. HUD said the move protected the insurance fund and lined FHA up with Fannie Mae and Freddie Mac. The same release notes that FHA had earlier cut the cap from 95% to 85%.
Your equity cushion follows from that number. At least 20% of the home’s value stays in the home after closing.
A worked example, no dollars needed
Say the appraisal supports your value, and you owe 60% of it.
- The cap is 80%, so about 20 points of value sit between your balance and the ceiling.
- Closing costs and the upfront insurance premium (more on that below) come out of those 20 points.
- What remains is your net cash.
Now flip it. Suppose you owe 78% of value. The ceiling leaves about 2 points of room. Costs will eat most or all of that. This is the “balance too high” case, and it is where homeowners waste an appraisal fee.
The combined-lien test
Any second loan that stays on the home counts toward the 80%. A home equity line or second mortgage you keep reduces the room for the new first loan. Ask the lender how it counts a line of credit, because the answer can change the math. Lendmire’s piece FHA Cash-Out vs HELOC for an FHA Homeowner Who Wants Cash walks through that choice.
County loan limits also apply, and they change every year. Most cash-out files never touch that ceiling, but a high-balance home can. Ask your lender for the limit in your county.
The Clocks: Ownership, Occupancy and Payment History
Three clocks run on a cash-out file, and borrowers often blur them together.
1. Ownership and occupancy. You must have owned the home and lived in it as your main residence for 12 months before the case number is assigned. The case number is the FHA ID the lender orders for your file. The clock stops there, not at closing.
2. Payment history. The lender reviews how you paid your current mortgage. Late payments can stall a file or force a wait. Some lenders set stricter standards than FHA does.
3. Age of the current loan. This is a separate question from ownership. A lender may look at how old your loan is. Do not confuse it with how long you have owned the home.
Homes you inherit are treated differently on the ownership clock. Ask your lender how it documents that situation, since details vary.
A short note on timing. Buy the home today and you are on the 12-month clock. Roll the numbers before you spend money on an appraisal.
Credit, Income and Ratios
The lender underwrites you in full, as if you were applying for a new loan. That means credit, income, employment and the new payment.
Credit floors are set by each lender and file. They can be higher than the 580 starting point that applies on purchases. A few facts help set expectations:
- Self-employed borrowers and those with irregular income should expect more paperwork, not less.
- New debts, even modest ones, can shift your ratios between application and closing.
- After certain credit events, FHA’s own waiting periods apply. HUD requires two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD rules, not a promise from any lender.
The new payment is part of the test. The balance grows, the term resets and the annual premium is added. All of that changes your ratios. Lendmire cannot give you a payment figure in an article, but a lender’s Loan Estimate will show the real number.
What It Costs: Premiums and Closing Costs
An FHA cash-out loan carries two layers of cost: closing costs and mortgage insurance.
HUD’s Mortgagee Letter 2023-05 sets the upfront premium at 1.75% of the base loan amount. Most borrowers finance it into the loan. It is a program fact, not a price quote, and it comes on top of ordinary closing costs.
The annual premium depends on term, loan amount and LTV. It runs between 0.15% and 0.75% of the balance. HUD cut annual premiums in that same letter. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90% LTV, it ends after 11 years. A cash-out loan at the 80% cap sits below 90%, but your term and amount still matter. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
A CFPB study of cash-out refinances notes that closing costs on these loans can be substantial. It lists origination fees, appraisal fees, title insurance, and taxes and fees. Add the premium, and the cash you net can land well below the headline equity.
Your old loan’s premium does not carry over to the new one. You are starting a fresh insured loan with fresh premiums.
Step by Step: From Application to Funds
1. Application. You give the lender documents on income, assets, debts and the property.
2. Case number and appraisal. The appraiser gives an opinion of value. It is not a home inspection. That value becomes the base for the 80% cap.
3. Payoff statements. The lender gets payoff figures for every mortgage on the home.
4. Underwriting. The lender reviews credit, income, payment history and the property. The loan estimate and later the closing disclosure show your costs.
5. Closing. You sign the new loan.
6. Rescission window. On a refinance of your main home, you generally get three business days to cancel. Under Regulation Z, the clock runs from the last of three events: signing, delivery of the required disclosures, and delivery of the cancellation notice.
7. Funds. Money is generally released after the window closes.
A waiver of that window is allowed only for a genuine personal financial emergency. The CFPB explains that it needs your own signed and dated statement, and pre-printed forms do not count. Do not plan on it.
Cash-Out, Streamline or Rate-and-Term?
Many people who say “I want cash” really need a different FHA refinance. Here is how the three compare.
| Feature | Cash-out | Streamline | Rate-and-term |
|---|---|---|---|
| Puts cash in your hands | Yes | No | No |
| Current loan | Any type | Existing FHA loan | Any type |
| Appraisal | Full | None | Full |
| Maximum financing | 80% LTV | Tied to the old loan | 97.75% on a principal residence |
| Credit review | Full | Limited | Full |
The rate-and-term figure applies to a principal residence occupied for the previous 12 months. The Streamline needs a net tangible benefit, and the premium continues. If you only want to improve your loan and not borrow more, one of the other two probably fits better.
Where the Rule Bends or Breaks
A few cases sit outside the normal path.
- Investment properties and second homes. Cash-out is for the home you live in. Occupancy decides the leverage, and an FHA cash-out is not available on a rental or vacation home.
- Inherited homes. The ownership clock works differently. The lender confirms how.
- Hawaiian Home Lands (Section 247). These loans get separate treatment under HUD’s rules. Ask the lender how it applies.
- A home listed for sale. Some lenders will not take a file while the home is on the market, and others want a written explanation. Check before you apply.
- Strict lender overlays. One lender may require more than FHA does. Another may not.
What If You Don’t Qualify Yet?
This is the part most articles skip. Find your symptom and your next move.
| Symptom | Likely fix |
|---|---|
| Owned the home under 12 months | Wait for the clock to run |
| Balance too close to 80% | Pay the balance down or wait for value to rise |
| Recent late payment | Build a clean record, then reapply |
| Ratios too high | Pay off small debts or document extra income |
| Credit event is recent | Wait out HUD’s waiting period |
There is also an honest alternative. A home equity line or second mortgage can leave your first loan alone. That helps if your current loan carries terms you want to keep. It also adds a second payment and a second lien. Compare both paths before you commit.
Why Older Articles Disagree
Rules changed, and old pages stayed online. The cap moved from 95% to 85%, then to 80%. Annual premiums were cut after that. Some pages also mix up cash-out seasoning with streamline timing. The streamline has its own payment and time requirements, and they do not apply to cash-out.
If a page quotes 85% or an older premium table, treat it as out of date. Ask a lender for the current guidelines on your file.
On taxes, one sentence is enough. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
- Adjusted value: The appraised value used to measure the 80% cap.
- Case number: The FHA ID a lender orders for your file; the ownership clock stops on the day it is assigned.
- Combined loan-to-value (CLTV): Your first loan plus any other liens, divided by the home’s value.
- Upfront mortgage insurance premium: A one-time charge of 1.75% of the base loan, usually financed.
- Net tangible benefit: A real, measurable gain a Streamline refinance must show.
- Rescission: Your right to cancel a refinance on your main home during a federally set waiting period; timing varies by file and lender.
Frequently Asked Questions
Can I use an FHA cash-out refinance if my current loan is not FHA?
Yes. The current loan can be conventional, VA or FHA. The new loan pays it off, so you carry one mortgage afterward.
Can I take cash out of a rental or second home with FHA?
No. FHA cash-out is for a principal residence. Occupancy decides the leverage, so a rental or vacation home needs a different program.
What can I spend the money on?
Almost anything. FHA does not limit the use of proceeds. Be careful about moving unsecured debt into a loan secured by your home. If you fall behind, the home is on the line.
Does the appraisal replace a home inspection?
No. An appraisal is an opinion of value. It does not check systems, roofing or other condition issues. Pay for an inspection separately if you want one.
Will I pay mortgage insurance again?
Yes. The new loan gets its own upfront premium of 1.75% of the base loan and an annual premium. Your old loan’s premium does not transfer.
Weighing It Out
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 is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Archives press release on cash-out refinance risk
2. HUD Mortgagee Letter 2023-05
3. CFPB research on cash-out refinances
5. CFPB: Can I ever waive my right to rescind?
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: Conventional Cash-Out vs FHA Cash-Out on a Condo · Should a Veteran Refinance an FHA Loan Into a VA Cash-Out? · FHA Cash-Out Refinance Documentation for a Locked-in Homeowner
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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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.