The Quick Read: The FHA cash-out refinance is built to accept Social Security as qualifying income, and the part of the benefit that is not taxed can be grossed up to raise the income used in the debt-to-income ratio. The gross-up changes how the lender counts your income, not how much cash you receive. Cash is set by your home’s appraised value, which caps the new loan at 80% LTV. The best program for your situation depends on your ratios, your documented income, and how much equity you hold.
Key Takeaways
- Grossing up is an underwriting adjustment. It raises qualifying income on paper. It does not add money to your monthly budget.
- Only the non-taxable portion of Social Security can be grossed up, not automatically the whole benefit.
- The FHA cash-out reaches 80% LTV on a home you have owned and occupied as your primary residence for 12 months before the case number.
- The lender must document the income, its continuance, and the tax rate it relies on.
- The gross-up helps you qualify. Equity sets the cash.
What Does “Grossed Up” Mean on an FHA Loan?
Grossing up means the lender increases a non-taxable income amount to a higher figure that is comparable to taxable income. The reason is simple. A dollar you do not pay tax on goes further than a taxable dollar. The ratio math should reflect that.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.24% as of October 29, 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.
HUD’s FHA knowledge base says the percentage added cannot exceed the greater of 15 percent or the appropriate tax rate, based on the borrower’s tax rate for the previous year. The lender has to document and support both the amount grossed up and the tax rate behind it.
Two words in that rule matter. “Cannot exceed” makes the gross-up a ceiling, not an entitlement.
Here is what grossing up is not:
- It is not extra cash in your account.
- It is not a bigger loan by itself.
- It is not automatic on the full benefit.
- It does not stand in for documentation.
How Is the FHA Cash-Out Underwritten, Step by Step?
On a file with Social Security income, the underwriting runs in a set order. Knowing the order tells you which documents to gather first.
1. Eligibility screen. The home must be your primary residence. Across the wholesale programs Lendmire places FHA files with, the cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. Payment history on the current mortgage and the equity position both have to hold up. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
2. Credit review. The wholesale programs start at a decision score of 580. Credit events follow HUD’s waiting periods: two years from a chapter 7 discharge and three years from a foreclosure. Those are HUD rules, not a promise from the network.
3. Income documentation. Social Security needs proof of receipt and proof it continues. Typical proof includes the SSA award letter, a benefits or proof-of-income letter, the SSA-1099, or a recent bank statement showing the deposit. The award letter also helps show continuance.
4. Continuance test. Income that will end within three years of the application cannot be used as effective income. Retirement benefits generally have no end date. Some disability benefits do carry a review or expiration date, and that is where files get stuck.
5. Gross-up calculation. The lender isolates the non-taxable portion, adds the supported percentage, and uses the result as monthly income in the ratio.
6. Ratio check. The base pair is 31/43 (housing to total) with no compensating factors. Documented compensating factors can reach 40/50 at the top tier, and the automated finding governs most files.
7. Appraisal and sizing. A full appraisal sets the value. The new loan is capped at 80% LTV, and county loan limits apply. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
If you want the program-level view, Lendmire’s FHA cash-out refinance program page lays out how the product is structured before you start gathering documents.
How Do You Find the Non-Taxable Portion?
You find it from your tax situation, and there are two paths.
If you file a federal return. Your SSA-1099 shows total benefits for the year. Your return shows how much of that was taxed. What was not taxed is the non-taxable portion. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. A higher documented tax rate can mean a gross-up above 15 percent.
If you were not required to file. HUD allows the lender to gross up by 15 percent. Many retirees with Social Security as their main income fall here.
In both cases the lender holds the pen. The 15 percent figure is a limit the lender may use, and the lender must support whatever it applies. Do not build your budget around the largest possible number.
Combined income can add up too. A borrower with Social Security plus a pension or retirement-account income may see a gross-up on each non-taxable source. HUD’s list of non-taxable types includes some federal and state retirement income and Railroad Retirement. Taxable pension income does not get the same treatment.
How Does the Gross-Up Flow Into the Cash-Out File?
It flows into the ratio, and then the ratio decides whether the loan is reviewed. Here is a walk-through without dollar figures.
Picture a retiree whose only income is Social Security, with no federal return required. The lender documents the benefit, confirms it continues, and grosses up the non-taxable portion by 15 percent. Monthly income for the ratio rises. The proposed housing payment and the other monthly debts are then divided by that larger number. The ratio falls. A file that sat just past 43 on raw income may now sit under it.
That is the whole benefit. The loan amount still comes from equity, not from income. Take 80% of the appraised value and subtract the payoff on the current mortgage. The gap is the most cash available, and closing costs and the financed upfront premium shrink it further.
The upfront premium is 1.75% of the base loan, financed into the balance. 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 the annual premium lasts for the term. At or below 90% it ends after eleven years. Because the cash-out sits at 80% LTV, the shorter schedule is the one a cash-out borrower typically sees. These are program facts, not an advertised price.
What the Gross-Up Won’t Fix
- A payment history with recent late payments on the current mortgage.
- A benefit with an expiration date inside three years.
- Not enough equity after the 80% cap.
- A decision score below 580.
- Missing or inconsistent income documents.
Why Is the Cash Capped at 80%?
HUD lowered it on purpose. HUD Mortgagee Letter 2019-11 cut the maximum LTV and CLTV on cash-out refinances to 80 percent of Adjusted Value, for case numbers assigned on or after September 1, 2019. The previous limit was 85 percent. HUD’s announcement says the change aligns FHA with the GSE cash-out maximum.
Old articles still quote 85 percent. If you see it, the page is out of date.
One short exception: the change does not apply to Section 247 mortgages.
How Does FHA Treat Social Security Differently From Conventional?
FHA asks the lender to prove the gross-up. Conventional presumes more. The Fannie Mae Selling Guide says the lender is not required to document that 15 percent of Social Security is nontaxable. FHA does require the lender to document and support the grossed-up amount and the tax rate.
That does not make conventional the better product. Credit, equity, and ratios decide that. A conventional cash-out generally wants stronger credit and more equity left in the home. FHA often fits a borrower with a lower score or a tighter ratio who still has enough equity under the 80% cap.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Gross-up support | Lender documents amount and tax rate | Lender documentation requirements vary by program |
| Cash-out LTV cap | 80% of Adjusted Value | Set by lender and agency guidelines |
| Credit floor | 580 in the wholesale programs | Often higher |
| Mortgage insurance | Upfront and annual premium | Depends on LTV and program |
| Fit | Lower scores, tighter ratios | Stronger credit, more equity |
The right program is a function of your numbers. A broker who shops several wholesale programs can match the file to the product instead of forcing it into one.
Where the General Rule Breaks
Social Security is not one benefit. The edge cases decide most denied or delayed files.
Disability (SSDI) and SSI. These can carry review dates. HUD’s older Mortgagee Letter 2012-15 says income due to expire within three years cannot be used as effective income. If the award letter has no defined expiration date, the lender may treat it as likely to continue. A pending medical review alone is not a reason to throw it out. Current handbook wording governs, so a lender’s reading may differ.
Retirement benefits. These generally do not expire, but still need documents.
Survivor and dependent benefits. These can call for different paperwork, such as proof of the child’s age or the survivor’s eligibility period. A benefit that ends when a child turns 18 will not count past that date.
Filers with a higher tax rate. A documented rate above 15 percent can raise the allowed gross-up. The lender still has to support it.
Inherited homes. If you inherit a property and rent it, you reset the occupancy clock. Standard FHA cash-out needs you to have occupied it as a principal residence. Occupancy decides the leverage on a second or rental property, and the 80% cash-out is for the home you live in. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Existing FHA borrowers. A borrower who holds an FHA loan may not need cash at all. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit, and the premium continues. It gives no cash, though. For a borrower with an FHA loan who wants cash, the cash-out is the right comparison. For one who only wants a lower payment, the Streamline may fit better.
Key Terms Defined
Gross-up: An increase to a non-taxable income amount so it is comparable to taxable income in the ratio.
Adjusted Value: The value HUD uses to measure the cash-out LTV cap.
Debt-to-income ratio (DTI): Your monthly debts divided by your monthly income, shown as housing and total ratios.
Continuance: Proof that an income source will keep arriving, usually for at least three years.
Case number: The FHA identifier assigned to a loan; the 12-month ownership and occupancy test is measured before it.
Upfront premium: The FHA mortgage insurance charge, 1.75% of the base loan, financed into the balance.
Net tangible benefit: A measurable improvement a borrower must gain for an FHA Streamline.
What Should You Gather Before You Apply?
Most delays are paperwork gaps. A short list helps.
- SSA award letter, benefits letter, or SSA-1099.
- A recent bank statement showing the Social Security deposit.
- Federal returns for the prior year, if you filed.
- Statements for any pension or retirement income, with tax status noted.
- Current mortgage statement and 12 months of payment history.
- Homeowners insurance declarations page.
- Identification and proof of occupancy.
If the award letter shows an end date inside three years, raise it early. It changes the plan.
Is This the Best Program for You?
It depends on the borrower. A few profiles help.
FHA cash-out likely fits when your score is in the 580 range or a bit above, your ratio is near the edge, your income is mostly Social Security, and you have enough equity under 80%.
Conventional may fit when your credit is strong, your ratios are comfortable, and you want to avoid FHA mortgage insurance.
VA may fit when you are an eligible veteran, since it follows its own rules.
Keeping your loan may fit when the new term and closing costs would outweigh what you gain.
Before you decide, run the fixed-income check. A cash-out is a larger new mortgage. It pays off the current loan and gives you the rest in cash, and the CFPB’s home equity guide points out that the cash becomes a debt you must repay. It also recommends speaking with an HUD-approved housing counseling agency. The CFPB has also found that cash-out borrowers often use the money to pay down credit card and auto balances, and that card balances drifted back toward earlier levels in the following year. Paying off cards with house debt only helps if the spending stops.
A gross-up that gets you under 43 does not mean the payment is comfortable. Your real income did not change. Check the payment against your actual monthly money.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Does the whole Social Security benefit get grossed up?
No. Only the non-taxable portion is eligible, and the lender has to document the amount. If part of your benefit is taxed on your return, that part is counted at its taxed value.
What if I was not required to file a tax return?
The lender may gross up by 15 percent. That is the figure HUD allows when no federal return was required for the prior period. Whether the lender applies the full 15 is the lender’s call.
Can disability or SSI income count?
It can, if it is not due to expire within three years of the application. An award letter with no defined end date can support continuance. A benefit with a near-term end date generally cannot be used as effective income.
Does grossing up increase my cash-out amount?
No. It only raises the income used in your ratios. The loan is capped at 80% LTV of Adjusted Value, so equity sets how much cash is possible. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Is an FHA cash-out better than conventional for a retiree?
It depends. FHA often suits a lower score or a tighter ratio, and it carries both an upfront and an annual premium. Conventional can fit stronger credit with comfortable ratios. A broker comparing several wholesale programs can test both against your file.
Next Step
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. Every program figure here is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
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.
For the program’s current guidelines, see FHA loan programs.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Mortgagee Letter 2019-11
2. HUD press release PR 19-114
3. Fannie Mae Selling Guide B3-3.4-15
4. HUD Mortgagee Letter 2012-15
5. CFPB: Using home equity to meet financial needs
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How an FHA Lender Sizes a Cash-Out Refinance Against a Streamline · How an FHA Lender Averages Seasonal Employment Income · Gift of Equity vs Cash Gift for a Family FHA Purchase: What Decides
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.