The Quick Read: The two FHA refinances differ mainly in what the new loan does with the money and how much of the home’s value it can reach. A cash-out refinance puts cash in your hands and tops out at 80% loan-to-value on a home you have owned and lived in for 12 months. A rate and term refinance only replaces what you owe and reaches up to 97.75% on a principal residence you have occupied for the previous twelve months. Both are subject to lender guidelines and full file review.
Key Takeaways
- Purpose decides the product. If any proceeds go to you, it is cash-out. If proceeds only pay off liens and costs, it is rate and term.
- Leverage splits sharply. Cash-out stops at 80% of adjusted value. Rate and term can reach 97.75% on a principal residence.
- Both replace your existing loan. The full new balance is re-insured, not just the cash portion.
- Cash-out has the tighter screen. Expect a 12-month ownership and occupancy history and closer attention to payment record.
- Streamline is a third path. It is for homeowners who already hold an FHA loan, and it is not a cash product.
What Makes a Refinance “Cash-Out” in FHA Terms?
A refinance is cash-out when proceeds are not limited to paying off existing liens and closing costs. That is the whole test. Everything else here follows from it.
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.
The HUD Handbook 4000.1 glossary defines a rate and term refinance as a no-cash-out refinance of any mortgage, FHA or not, where all proceeds pay existing mortgage liens and the transaction costs. A simple refinance is the same idea, limited to an existing FHA loan. Cash-out is the remaining category: money beyond the payoff goes to the borrower.
Two boundary cases trip people up. First, a home owned free and clear that takes out a new loan is still treated as cash-out, even though there is no old mortgage to pay off. Second, a “rate and term” request that carries meaningful cash back to the borrower does not stay rate and term.
For the program itself, Lendmire’s FHA cash-out refinance program page lays out how this product is arranged through wholesale lenders.
Side-by-Side: The Core Requirements
Here is the comparison most borrowers are really after. Figures reflect the wholesale programs Lendmire places FHA loans with, and every item is subject to lender guidelines and full file review.
| Factor | FHA Cash-Out | FHA Rate and Term |
|---|---|---|
| Purpose | Proceeds can go to you | Payoff and costs only |
| Max leverage | 80% LTV | 97.75% on a principal residence |
| Occupancy | Owner-occupied primary home | Principal residence, 12 months occupied |
| Ownership history | Owned and lived in 12 months | Occupancy for the previous twelve months |
| Appraisal | Required | Required |
Two rows deserve a closer look. Leverage is the biggest gap, and it changes everything about how much equity stays in the home. Underwriting looks identical on paper, but cash-out files get a tighter look at payment history because the lender is releasing equity.
Why the Leverage Gap Exists
The cash-out cap is 80% because equity is the lender’s cushion against loss. HUD lowered the cap from 85% to 80% after cash-out volume climbed sharply, according to an Orrick summary of the policy change. The stated aim was a stronger equity position and smaller losses when loans go bad. So the old 85% figure is history, even though some borrowers still quote it.
Rate and term carries less risk in the agency’s eyes. No new cash leaves the property, so the borrower’s equity position does not shrink, apart from financed costs. That is why the cap is so much higher.
Two details change how you read “80%”:
- It applies to adjusted value, not the raw appraisal. If you bought the home within the last 12 months, adjusted value is the lesser of your purchase price plus documented improvements, or the property value.
- It covers the whole new loan. The payoff, financed costs and any subordinate liens all count against it. It is not 80% of your equity.
A second ceiling also applies. County loan limits cap the loan size regardless of the percentage. Those limits are set by county and change every year, so check the current figure for your county with a loan officer.
One Borrower, Two Paths
Picture a homeowner whose current balance equals 50% of the home’s adjusted value. This is an illustration with no dollar figures, using the program percentages above.
Under cash-out, the new loan can reach up to 80% of adjusted value. That leaves roughly 30 points of value as room for financed costs and cash to the borrower. The new loan is much larger than the old balance, and the full amount is re-insured at new terms.
Under rate and term, the new loan covers the old balance and costs. The borrower receives no cash. What changes is the interest cost or the term, and the equity stays where it was.
Now flip the case. A homeowner whose balance is already 85% of value cannot do a cash-out at all, because the existing loan exceeds the 80% cap. A rate and term refinance can still work there, since it reaches up to 97.75% on a principal residence. For that borrower, rate and term is not the weaker option. It is the only one on the table.
What Does Each Refinance Do to Mortgage Insurance?
Both products carry FHA mortgage insurance, and both reset it. The structure is mechanical:
- Upfront premium: 1.75% of the base loan, typically financed into the balance.
- Annual premium: between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV.
- Duration: on a thirty-year loan above 90% LTV, the annual premium lasts for the loan term. At or below 90% it ends after eleven years.
Here is where the products diverge. A cash-out is capped at 80%, so it lands in the at-or-below-90% tier, and the annual premium can end after eleven years. A rate and term refinance run near its 97.75% ceiling sits above 90%, so the premium typically lasts the full term. That is a real tradeoff. Higher leverage buys flexibility today and a longer insurance tail.
HUD also changed annual premium levels in the past, so the exact tier for any given file depends on current schedules. Treat the figures above as the framework, not a quote.
Who Qualifies? The Underwriting Steps
Both products follow the same basic sequence.
1. Choose by purpose. Payoff only means rate and term, or streamline if the current loan is FHA. Cash to the borrower means cash-out.
2. The case number starts the clock. Ownership, occupancy and payment-history lookbacks are measured back from the date the FHA case number is assigned.
3. Appraisal and adjusted value. The cap is applied to adjusted value, as described above.
4. Maximum loan. The lesser of the percentage cap and the county limit governs.
5. Credit and income review. Across the wholesale programs Lendmire places FHA files with, the automated finding governs most files. The base ratio pair is 31/43 (housing to total debt) with no compensating factors. Documented factors can stretch that to 40/50 at the top tier.
6. Final file review. The lender checks the appraisal, title, insurance and the borrower’s documents before anything is final.
Credit floors vary by lender. Some set a higher floor than others, and some add their own overlays on top of agency rules. Those overlays are why two lenders can give different answers on the same file. Programs placed through Lendmire’s wholesale channel generally start at a 580 decision score for FHA purchases, and refinance files are reviewed against the specific lender’s guidelines.
Where the General Rule Breaks
The comparison above holds for most files. These are the edge cases where it does not.
- Home owned less than 12 months. Not eligible for cash-out, and adjusted value is capped by purchase price plus documented improvements.
- Inherited home. If the heir rents it out rather than living in it, cash-out generally waits until the heir has occupied it as a principal residence for 12 months. Confirm this one with the lender, since it depends on how the home passed to you.
- Second home. Standard cash-out is for owner-occupied principal residences only. Occupancy decides the leverage, and a second home does not fit the cash-out lane.
- Non-occupant co-borrower. Their income generally cannot be used to qualify for cash-out, although the purchase program allows one.
- Existing loan is not FHA. You can still move into FHA cash-out or rate and term. Only the streamline and simple refinance require an existing FHA loan.
- Home listed for sale. Lenders typically treat a recently listed property as ineligible for cash-out unless it has been off the market for a period.
Where the FHA Streamline Fits
The FHA Streamline is a different tool for a different borrower. It refinances an existing FHA loan with no appraisal and a limited credit review. HUD’s streamline page states the conditions: the loan must already be FHA-insured and current, the refinance must deliver a net tangible benefit, cash back is limited to a small amount, and closing costs cannot be rolled into the new loan amount. The mortgage insurance premium continues.
One marketing term needs care. A “no-cost” streamline does not mean the costs vanish. It typically means a higher interest cost on the new loan, with the lender covering expenses from the premium. The cost moves; it does not disappear.
If you hold a conventional loan, the streamline is not available to you. If you want cash, it is not an option either.
What a Cash-Out Actually Changes
A cash-out refinance replaces your original mortgage. That separates it from a HELOC or home equity loan, which leave the first lien intact. The CFPB’s research blog on cash-out refinances makes that distinction, and it matters: your entire balance resets at new terms, not just the cash portion.
How the cash gets used matters too. The CFPB found that cash-out borrowers often pay down credit card and auto debt. The Federal Reserve’s consumer guide to refinancings cautions that using cash-out to pay unsecured or short-term debt converts it into debt secured by your home.
This is a genuine judgment call. Using cash-out for a durable improvement to the home can make sense. Using it to clear card balances you may run up again is a pattern worth stress-testing before committing.
Which One Fits Your Goal?
| Your goal | Likely fit | Watch for |
|---|---|---|
| Change rate or term, no cash | Rate and term | Longer insurance tail at high LTV |
| Existing FHA loan, no cash needed | Streamline | Net tangible benefit required |
| Fund repairs or large expense | Cash-out | 80% cap, reset on full balance |
| Remove a co-borrower | Rate and term, if qualified | Income must stand on its own |
| Balance above 80% of value | Rate and term | Cash-out is off the table |
Sometimes neither product is the right answer. A conventional loan, a HELOC or simply keeping your current mortgage can beat an FHA refinance, especially if your balance is low and the existing loan’s terms are already good.
Key Terms Defined
Adjusted value: The value FHA uses to apply its leverage cap, which on a recently purchased home is limited by price plus documented improvements.
Case number: The FHA identifier assigned to a loan, which starts the clock on ownership and occupancy lookbacks.
Cash-out refinance: A refinance where proceeds are not limited to paying off existing liens and costs.
Rate and term refinance: A no-cash-out refinance of any mortgage, where proceeds only pay existing liens and costs.
Net tangible benefit: A measurable improvement a streamline must deliver, which HUD defines differently depending on the loan being refinanced.
County loan limit: The maximum FHA loan size for a county, set by HUD and updated every year.
Frequently Asked Questions
Can I do an FHA cash-out refinance if my current loan is conventional?
Yes. Any existing loan type can be refinanced into an FHA cash-out or rate and term loan. Only the streamline and simple refinance require an existing FHA mortgage. You will go through full underwriting, including an appraisal, and the 12-month ownership and occupancy history still applies for cash-out.
How much equity do I need to keep after a cash-out?
At least 20% of adjusted value stays in the home, because the new loan cannot exceed 80%. That cap includes the payoff, financed costs and any subordinate liens. If your balance already sits above 80%, a cash-out will not work, though a rate and term refinance may.
Does a higher credit score raise the cash-out limit?
No. The 80% cap does not move with your score. Credit affects whether a lender approves the file and how it is priced, and lenders can set floors above the program minimum.
Is a paid-off home treated differently?
A free-and-clear home taking a new loan is still cash-out, so the 80% cap applies. There is no old lien to pay off, which means the proceeds go to you by definition.
Can a rate and term refinance include any cash back?
Not meaningfully. Proceeds must stay limited to payoff and costs. Meaningful cash to the borrower changes the classification to cash-out, along with its lower leverage cap and tighter screen.
Next Steps
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. The decision usually comes down to one question: whether the cash you need is worth resetting the entire balance and re-insuring it.
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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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 Handbook 4000.1 Glossary
2. Orrick InfoBytes: Maximum LTV Lowered for FHA Cash-Out Refinances
4. CFPB Office of Research Blog on Cash-Out Refinances
5. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
6. Federal Reserve Consumer Guide to Refinancings
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: Best FHA Cash-Out Refinance Program to Maximize Your Cash Out
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.