How an FHA Lender Sizes a Cash-Out Refinance Against a Streamline

The Quick Read: The two loans are sized from different starting points. A cash-out refinance is sized on your home’s appraised value, capped at 80% loan-to-value on a home you have owned and lived in for 12 months. A streamline is sized on the loan you already have, with no appraisal and no equity released. One answers “how much can I borrow against the house?” The other answers “can I swap my FHA loan for a better one?” Everything below is subject to lender guidelines and full file review.

Key Terms Defined

Loan-to-value (LTV): the new loan balance divided by the home’s appraised value, shown as a percentage.

Adjusted value: the appraisal-based figure FHA uses as the value in its leverage math.

Combined loan-to-value (CLTV): the same math, but counting every lien on the home, including a second mortgage.

Streamline refinance: a refinance of an existing FHA loan with limited credit review and underwriting.

Net tangible benefit: a measurable gain the lender must find before doing a streamline, such as a lower combined cost or a move from an adjustable to a fixed loan.

Seasoning: the waiting period between an earlier event, like your last closing, and the new loan.

Mortgage insurance premium (MIP): FHA’s insurance charge, paid upfront and annually.

What Is the Basic Difference in How They Are Sized?

A cash-out loan starts with the appraisal and works down to your cash. A streamline starts with your current payoff and works up to a new loan that replaces it. That one difference explains almost everything else.

On a cash-out, the lender orders an appraisal and sets the ceiling at a percentage of value. Your equity is not the number being measured. The value is. Your payoff, closing costs and prepaid items all come out of that ceiling, and whatever remains is your cash.

On a streamline, the appraisal drops out for most files. The new loan is built around what you owe. HUD describes the streamline as a refinance of an existing FHA-insured mortgage with limited borrower credit documentation and underwriting. It comes in credit-qualifying and non-credit-qualifying versions.

How Does a Lender Size an FHA Cash-Out Refinance?

The ceiling is 80% of adjusted value, and every lien on the home counts toward it. Across the wholesale programs Lendmire places FHA files with, that cap applies to a home you owned and occupied for 12 months before the case number.

Here is the sequence a lender follows:

1. Check ownership and occupancy. The home must be your principal residence, and the 12-month history must be in place. A payment history on the property matters too.

2. Order the appraisal. The lender takes the appraisal-based adjusted value.

3. Apply the cap. HUD’s Mortgagee Letter 2019-11 cut the maximum LTV and CLTV on cash-out refinances to 80 percent. HUD said the change was meant to reduce risk to the FHA Insurance Fund from growing insured balances. The Handbook section was updated to match, per the Handbook 4000.1 transmittal.

4. Subtract the old debt. The payoff of your current mortgage comes off first. A second lien counts toward the CLTV cap.

5. Subtract costs and prepaids. What is left is cash to you.

6. Qualify the borrower. Credit and income are fully underwritten. Ratios start at 31/43 with no compensating factors, and documented factors can reach 40/50 at the top tier. County loan limits also apply, and the lower of the two ceilings controls.

The formula in words: cash to you equals 80% of adjusted value, minus your payoff, minus any other liens, minus costs and prepaids. Work it backward when you know the cash you need. Add your payoff and costs to the cash target, then divide by adjusted value. If the result lands above 80%, the loan does not fit.

Picture a home appraised well above what you owe, with a first mortgage at 60% of value. An 80% cap leaves roughly 20 points of value to cover costs and your cash. Add a second lien at 10% and the room shrinks to about 10 points. That is the mechanic people miss when they assume “80%” means 80% of their equity. It does not.

Mortgage insurance also continues. The new loan carries an upfront premium of 1.75% of the base loan, which is financed. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. Above 90% LTV on a thirty-year loan it lasts the full term. At or below 90%, it ends after eleven years. These are program facts, not a price quote. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

How Does a Lender Size an FHA Streamline?

The streamline is anchored to the existing FHA loan, not to the home’s value. That is why an underwater homeowner can still use it. It is also why it cannot pay you.

The steps look like this:

1. Confirm the loan is FHA-insured and current. A conventional or VA loan cannot be streamlined into an FHA streamline.

2. Check seasoning. HUD’s archived reference describes at least six full months of payments and 210 days since the closing of the loan being refinanced. That page is archived, so treat those thresholds as a guide and confirm current rules against Handbook 4000.1, section II.A.8.

3. Find a net tangible benefit. The lender must determine one exists, with or without an appraisal. Typically that means the new combined cost is lower, an adjustable loan becomes a fixed one, or a payment change stays within bounds on a shorter term. The exact tests change, so expect your lender to run them for you.

4. Collect limited documents. On the non-credit-qualifying track, steps like ordering an appraisal and meeting the minimum decision credit score are exempted. The lender still needs a payoff statement for the loan being replaced.

5. Respect the cash limit. Under HUD’s Mortgagee Letter 2026-11, cash back is limited to a $500 incidental amount, and lenders may reduce principal to fit under it. The FDIC’s streamline summary confirms no cash may be taken out.

The streamline’s premium also continues. It is a net-benefit refinance, not a premium reset.

Same House, Both Products

Take one homeowner with an FHA loan and strong equity. Run the streamline and the loan tracks the old balance, so cash is close to zero. Run the cash-out and the loan can climb toward 80% of value, but the payoff, any second lien and costs come off the top first. Same house, very different outputs.

Where the General Rule Breaks

Several edge cases bend the picture. Check each against current HUD guidance with your lender.

• A big payment change can force credit qualifying. Older HUD handbook language pushed a streamline into credit-qualifying territory when a term change raised the payment sharply, or when removing a borrower triggered a due-on-sale clause. That chapter is superseded, so confirm the current trigger in Handbook 4000.1.
• Equity buyouts. A streamline’s cash limit means it cannot fund a departing co-borrower’s share. A cash-out is the usual route, with the 12-month rules and full qualification.
• Closing costs on a streamline. HUD says FHA does not allow lenders to include closing costs in the new mortgage amount. You pay them, or you accept the “no cost” version, where the costs are built into the interest rate. Both are mechanics, not freebies.
• Forbearance and modifications. HUD has set post-forbearance payment counts that differ by refinance type, and those counts may have changed. Ask your lender how your history is treated now.
• Hawaiian Homelands. Section 247 mortgages are excluded from the 80% cap in ML 2019-11.
• Rental or second homes. FHA leverage on cash-out depends on you occupying the home as your principal residence. Occupancy decides the loan.
• Credit score methods. For case numbers assigned on or after a stated effective date, HUD’s ML 2026-11 adds FICO 10T and VantageScore 4.0 beside Classic FICO. That matters most for cash-out, since the minimum decision credit score does not apply to streamlines. Lendmire’s wholesale programs start at a 580 decision score, so a score below that is outside the network even where HUD’s own rules reach lower.
• Past credit events. HUD’s waiting periods are two years from a chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise of approval.

Which One Fits Your Goal?

A lender chooses by asking what you need the loan to do. Use this if/then list as a first pass.

• You want a lower combined cost or a more stable loan, and you owe on an FHA loan. Look at the streamline first. It is lighter on paperwork and does not depend on your home’s current value.
• You need cash for a repair, a debt payoff or a buyout. Only the cash-out gets you there. Lendmire’s piece How an FHA Cash-Out Refinance Sizes the Loan Versus a Streamline walks through that comparison from another angle.
• Your credit has slipped but your payment history on the FHA loan is clean. The non-credit-qualifying streamline leans on loan history, not a fresh credit review.
• Your home value has dropped. The streamline is not tied to appraised value. The cash-out is, and the 80% cap may leave little or nothing.
• You have a second lien you want to fold in. That points toward a cash-out, since the CLTV cap counts every lien.

If you are shopping, the FHA cash-out refinance program page shows what Lendmire arranges for owner-occupied homes. For the appraisal side of the math, see Lendmire’s explanation of how a cash-out lender sizes your loan against appraised value.

What Does the Choice Cost You?

A cash-out raises your balance and often lengthens the term. The CFPB’s research blog notes that a typical cash-out carries a longer term and larger payment than the loan it replaces. It also warns that a cash-out at a higher rate than the old mortgage can raise borrowing costs, while a home equity loan or HELOC leaves your first loan alone.

You also own less of your home afterward. The Federal Reserve notes that taking equity out reduces your ownership stake and leaves less cash if you sell. The CFPB’s home equity guide says lenders typically want 10% to 20% of home value to stay as equity.

A streamline is cheaper to document. It is not free. The savings come mostly from skipping the appraisal, and “streamline” does not mean there are no costs.

Common Sizing Mistakes

• Treating 80% as 80% of equity. It is 80% of value, and the payoff comes out first.
• Assuming a streamline can pull a little cash. It cannot beyond the small incidental amount.
• Rolling costs into a streamline. HUD does not allow it.
• Quoting the old 85% cash-out cap. It was cut from 95% to 85% in 2009, then to 80% in 2019.
• Forgetting the second lien. It counts toward the combined cap.
• Skipping the benefit test. Streamlines are not test-free. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

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 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.

References

1. HUD Streamline Refinance

2. HUD Mortgagee Letter 2019-11

3. HUD

4. HUD Handbook 4000.1 transmittal

5. HUD Mortgagee Letter 2026-11

6. FDIC Affordable Mortgage Lending Guide: FHA Streamline

7. CFPB’s research blog

8. Federal Reserve

9. CFPB’s home equity guide