The Quick Read: A home with no mortgage can still carry a new FHA cash-out loan, and that loan can fund the payment to a departing spouse. The new loan is sized to the buyout amount in your settlement, plus eligible costs. It generally has to fit under 80% of the appraised value, and the spouse who stays must qualify alone. Final eligibility depends on lender guidelines and a full file review.
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.
Does a Home With No Mortgage Count as Cash-Out?
Yes. A home with no mortgage is treated as a cash-out refinance, because you are pulling equity out of a property that has no loan to pay off. The transaction has no old balance to replace, so the new loan is the cash you need plus the costs of getting it.
That label matters because cash-out carries stricter rules than other refinances. The main ones:
- Leverage. FHA cash-out tops out at 80% loan-to-value (LTV, the loan as a percentage of the home’s value).
- Ownership and occupancy. The home must have been owned and lived in as a primary residence for 12 months before the case number is assigned. The case number is the FHA file ID your lender requests at the start.
- Credit. The wholesale programs Lendmire places FHA loans with start at a 580 decision score. Some lenders set a higher floor.
- Debt ratios. The base pair is 31/43 (housing costs over income, then total debts over income). Documented compensating factors can stretch it to 40/50 at the top tier.
Lendmire’s FHA cash-out refinance program page covers the program side in more detail. Every figure here is subject to lender guidelines and full file review. Nothing is a commitment to lend.
Is This the Right Tool for You?
FHA cash-out tends to fit when most of these are true:
- You are staying in the home and your name goes on the new loan alone.
- Your income, by itself, can carry a full new mortgage payment.
- The buyout, plus costs, fits under 80% of what the home appraises for.
- Your credit is in decent shape but not perfect. FHA is often more forgiving than conventional loans here.
- You have a signed decree or settlement that states the equity owed.
If you miss on income or leverage, other paths may work better. A later section lays those out.
How the Buyout Math Works When There Is No Loan
Start with the home’s value. The departing spouse’s share comes from your decree or settlement, not from the lender. The lender funds the number the document states.
With no existing balance, the loan is just the buyout plus costs. Here is an illustration using percentages of value only:
| Step | Even-split example |
|---|---|
| Appraised value | 100% |
| Existing mortgage balance | 0% |
| Departing spouse’s share | 50% of value |
| Costs and upfront premium (financed) | A few more percent |
| Total new loan | Roughly mid-50s % |
| FHA cash-out ceiling | 80% of value |
The headroom looks comfortable here. Plenty of buyouts are not 50/50, though. Other assets may be traded off, or one spouse may be owed more. The bigger the share owed, the closer you get to the 80% line.
The upfront mortgage insurance premium is 1.75% of the base loan, and it can be financed into the loan. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV, it lasts for the whole term. At or below 90%, it ends after eleven years. That is a mechanical fact about the program, not a price quote.
Insurance applies to the whole new loan. It does not apply only to the cash you take out. That matters for the budget more than most people expect.
What If the Appraisal Comes In Low?
Here is where buyouts go sideways. Say your decree sets the buyout as a fixed amount based on a value you assumed. The appraisal lands lower. That fixed amount is now a bigger slice of the home’s value, and the 80% cap shrinks with it.
Three practical moves help:
1. Write the settlement as a percentage of equity, or tie it to the appraised value, when your attorney agrees.
2. Keep a cushion. Don’t plan a buyout that already uses nearly all of the 80%.
3. Line up a fallback, such as paying part of the buyout over time or trading another asset.
Who Has to Be on the Loan, and What About the 12-Month Test?
Whoever signs the new note generally needs to be on title at closing. The loan is also underwritten on the remaining spouse alone. Their credit, income and debts decide the file.
Two points trip people up:
- Income from someone who does not live in the home. On a cash-out loan, that income generally cannot be used to qualify. Purchase loans are more flexible on non-occupant co-borrowers. Cash-out is not.
- The 12-month test when only one spouse lived there. The rule asks whether at least one borrower owned and occupied the home as a primary residence for the 12 months before the case number. How that applies when a spouse takes sole title through a divorce is a question your lender and underwriter confirm against the handbook. Don’t assume the answer. Ask early, before you spend money on an appraisal.
If you inherited the home, there is an exception to the occupancy period. It applies only if the home was never treated as a rental. Once it is rented, the 12-month occupancy test applies.
Second homes and rentals do not qualify for FHA cash-out. Occupancy decides the leverage, and FHA cash-out is an owner-occupied program.
What Federal Rules Say About the Buyout
FHA’s rulebook is HUD’s Single Family Housing Policy Handbook 4000.1, listed as the active policy source on HUD’s handbooks page. The current handbook PDF contains a section on refinancing to buy out a title-holder’s equity. In plain terms, the equity owed to the other spouse can count as part of the new loan calculation. The lender must see a divorce decree, settlement agreement or other legally enforceable equity agreement showing the amount.
That section speaks of refinancing an “existing” mortgage. A paid-off home has none. In practice, lenders treat the file as a cash-out transaction, so the 12-month test and the 80% cap apply. Confirm the exact handling with your lender, because overlays vary.
The 80% cap itself comes from a HUD Mortgagee Letter on cash-out refinance limits. It lowered the older, higher cap that still appears on dated web pages. If a site tells you FHA lets you borrow more than 80% on cash-out, check its date.
Step by Step: The Order of Operations
1. Get the equity amount in writing. Your decree or settlement sets what the departing spouse is owed. The document must be legally enforceable.
2. Check eligibility before spending money. Confirm the 12-month test, your credit and your income on one paycheck.
3. Order the appraisal. The lender applies the 80% cap to the adjusted value HUD’s rules produce.
4. Underwrite. The lender reviews your income, credit, debts and any support you pay or receive.
5. Close. The buyout is paid to the departing spouse from the loan proceeds. Eligible costs are covered.
6. Record the deed. The departing spouse’s name comes off title, often through a quitclaim deed.
Sequencing is the part people get wrong. The departing spouse should be paid, and the new loan funded, before or at the deed transfer. Signing the home over first, then hoping to refinance, leaves the person who left with no money and the person who stayed with no loan.
How Support Payments Affect Qualifying
Child support you pay is a recurring debt in your ratios. Alimony you pay is either subtracted from income or counted as a debt. Support you receive can count as income when a decree or order documents it and it is likely to continue. Your lender will tell you how each item is applied to your file.
What the Lender Will Want to See
Expect to provide:
- The divorce decree, settlement agreement or other equity agreement
- Proof of occupancy, such as utility bills or employment records
- Income and asset documentation for the remaining spouse
- Documentation of any support paid or received
- Title information showing who owns the home today
- The appraisal and the usual closing items
How Does FHA Cash-Out Compare With the Alternatives?
| Option | Best for | Tradeoff |
|---|---|---|
| FHA cash-out | Lower credit scores, one income | Mortgage insurance on the full loan |
| Conventional cash-out | Strong credit and low debts | Usually stricter on credit |
| Home equity loan or HELOC | Smaller buyouts | A second lien, and it eats into the 80% room |
| Installment buyout | Not enough equity for a lump sum | The ex stays tied to the home longer |
| Selling | Income can’t carry a new loan | You lose the house |
Conventional loans treat a spouse buyout under different rules. Lendmire’s piece How to Buy Out a Spouse on a Paid-Off Home With a Cash-Out Refinance walks through that side. If you are weighing FHA against a second loan on a paid-off home, see whether an FHA cash-out beats a second lien.
Across the wholesale programs Lendmire works with, one pattern shows up often. Borrowers who qualify on paper still get stuck on the budget. The home goes from no payment to a full mortgage payment, with insurance, taxes and homeowners coverage on top. Run that picture on one income before you commit to a buyout number.
Common Pitfalls
- Believing the decree removes your ex from the mortgage. It does not. The Consumer Financial Protection Bureau says you generally remain responsible for a debt unless the creditor releases you or the loan is refinanced and your name is removed. For a home with no mortgage, this mainly matters later, if either of you ever signs a loan on it.
- Thinking a quitclaim deed ends liability. A quitclaim changes ownership only. Taking a name off title does not take it off a loan.
- Using a Streamline refinance. That product refinances an existing FHA loan. It gives no cash and does not fit a paid-off home.
- Planning around a value you assumed. Appraisals decide the cap, not you.
- Ignoring a second lien. Any loan that stays on the home uses room under the same 80%.
- Missing language in the settlement. If the agreement isn’t legally enforceable, the lender can’t use it.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit. A family-law attorney should review the settlement before anyone signs a deed.
Key Terms Defined
Cash-out refinance: A new loan on a home that provides cash from the equity. On a paid-off home, the whole loan is cash-out.
Loan-to-value (LTV): The loan amount as a percentage of the home’s appraised value.
Adjusted value: The appraised value after HUD’s adjustments, used to apply the 80% cap.
Quitclaim deed: A deed that transfers one person’s ownership interest. It does not release anyone from a loan.
Mortgage insurance premium: FHA’s insurance charge, paid upfront (financed) and annually.
Case number: The FHA file number a lender requests. The 12-month test counts back from its assignment.
Frequently Asked Questions
Can I do this before the divorce is final?
It is possible only if you have a legally enforceable equity agreement the lender can use. Without a signed agreement, the buyout amount is undefined. Most people wait until the settlement is in place.
Does my ex stay on the loan?
No. On a paid-off home there is no old loan, and the new loan is in your name alone. The ex comes off title once the buyout is paid.
What if the home isn’t worth what we expected?
A lower appraisal shrinks the 80% cap. If the agreed buyout no longer fits, you can renegotiate, pay part over time, or look at a different program.
Can the cash cover more than the buyout?
Cash-out proceeds are not limited to one purpose, so eligible costs and other items may fit. Everything still has to stay under the 80% cap and fit your budget on one income.
Do I need an existing FHA loan?
No. FHA cash-out works on a home with a conventional loan or with no loan at all. Only the Streamline requires an existing FHA loan.
Next Step
If you are weighing a cash-out refinance on a home you own outright, 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 that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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
3. HUD Mortgagee Letter on FHA cash-out limits
4. Consumer Financial Protection Bureau: debt after divorce
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 Qualify for an FHA Cash-Out on a 2-4 Unit Primary Home · How to Borrow Against a Paid-Off Home With an FHA Cash-Out · How to Buy Out a Spouse or Co-Owner With an FHA Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.