The Quick Read: On an FHA cash-out refinance, the upfront mortgage insurance premium is usually financed. That means it is added on top of the loan you borrow rather than paid at the closing table. The premium is 1.75% of the base loan, and it is charged on the whole new loan, not just the cash you take out. The base loan is capped at 80% of the home’s adjusted value, and the financed premium sits on top of that cap. A separate annual premium is also billed monthly, for as long as the loan’s term and loan-to-value (LTV) call for it.
Key Takeaways
- The upfront premium is either financed or paid in cash, as a whole.
- The 80% cap applies to the base loan. The financed premium is added afterward.
- The premium is figured on the entire new loan, so a bigger payoff means a bigger premium, even when the cash out is small.
- Financing the premium defers it. It becomes principal and accrues interest for the life of the loan.
- The annual premium is a separate monthly charge, set by term, loan amount and LTV.
What Does “Rolling It In” Actually Mean?
Rolling the premium in means the lender adds the upfront insurance charge to your new mortgage instead of collecting it as cash at closing. You don’t write a check for it. The loan balance on your note ends up a little larger than the amount you were approved to borrow against the home’s value.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 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 rule, as HUD’s Handbook language is quoted by FHA News and Views, is all-or-nothing. The upfront premium must be entirely financed into the mortgage or entirely paid in cash. Any amount paid in cash is added to the cash you need to bring to closing. When it is financed, the whole premium goes in, except any amount under one dollar, and the mortgage amount is rounded down to the nearest whole dollar.
That’s the mechanical core. For the program basics, Lendmire’s FHA cash-out refinance program page is the place to start. Most of the confusion comes from two numbers people mix up: the base loan and the final note amount.
Key Terms Defined
Base loan: The loan amount before the upfront premium is added. It is roughly your payoff, plus closing costs and prepaids, plus the cash you take out.
Final note amount: The base loan plus the financed upfront premium. This is the balance you actually owe.
Upfront mortgage insurance premium (UFMIP): A one-time FHA insurance charge, 1.75% of the base loan, that is typically financed.
Annual mortgage insurance premium (MIP): A recurring FHA insurance charge, paid monthly with your housing payment, that ranges from 0.15% to 0.75% of the balance depending on term, loan amount and LTV.
Adjusted value: The appraised value as run through HUD’s formula. The 80% cap is measured against it.
Cash-out refinance: A refinance where the proceeds are not limited to paying off the old loan and closing costs. You can use the leftover equity however you choose.
How Is the Loan Built, Step by Step?
The loan is built from the inside out: first the base loan, then the premium on top, then the monthly premium. Each step feeds the next, which is why the order matters.
The FHA cash-out is available on a home you have owned and occupied as your principal residence for the 12 months before the case number is assigned. The case number is the identifier assigned to your file when the appraisal is ordered. That 12-month window counts back from the date the case number is assigned, not from closing day. You do not need an existing FHA loan. A conventional loan, or even a paid-off home, can be refinanced into an FHA cash-out.
The maximum LTV, and the combined LTV, is 80% of adjusted value, according to the Handbook 4000.1 text as reproduced. The appraisal drives everything downstream. A lower value shrinks the ceiling and the cash you can reach.
Step 1: Add up the base loan.
Take the payoff of your current mortgage. Add closing costs and prepaid items. Add the cash you want. The total cannot exceed 80% of adjusted value, and county loan limits apply.
Step 2: Calculate the upfront premium.
Take 1.75% of the base loan. That is the premium. If you finance it, it is added to the base loan to form the final note amount.
Step 3: Set the annual premium.
This is a separate charge. It depends on the loan term, the base loan amount and the LTV, and it is collected monthly with your payment. HUD’s Mortgagee Letter 2023-05 laid out the annual premium table by base loan amount, LTV and duration. That letter has since been superseded by the Handbook’s premium chart, so current figures should be confirmed with your loan officer.
Step 4: Underwriting reviews the file.
Payment history on your current mortgage matters here. HUD’s Mortgagee Letter 2020-30 added cash-out payment history requirements, and a file that doesn’t meet them can be downgraded to a Refer and manually underwritten. In plain terms: a clean recent payment record helps, and slips can change how the file is reviewed.
Qualifying ratios start at 31/43 (housing to total debt) with no compensating factors. Documented compensating factors can raise that to as high as 40/50, though the automated finding governs most files, so your own limits may differ. All of this is subject to lender guidelines and full file review.
Does the Financed Premium Count Against the 80% Cap?
No. The cap is measured on the base loan, and the financed premium is added afterward. Many borrowers expect the premium to count against the 80% figure, but it does not.
HUD’s Handbook treats the upfront premium as outside the calculation of the area-based mortgage limits and the LTV limits. The practical read: the base loan stops at 80% of adjusted value, and the final balance can land a bit above that figure by the amount of the financed premium.
Here is the structure, shown in percentages so you can map it to any home. Say the appraised value is 100%. The base loan can reach 80% of it. The upfront premium is 1.75% of that base loan. So the final note amount is the base loan times 1.0175. You keep at least 20% equity measured on the base loan, though the final balance eats a sliver more.
| Step | What it is | How it’s figured |
|---|---|---|
| 1 | Base loan | Payoff + closing costs + prepaids + cash out |
| 2 | Cap check | Base loan at or below 80% of adjusted value |
| 3 | Upfront premium | 1.75% of the base loan |
| 4 | Final note amount | Base loan + financed premium |
| 5 | Cash you receive | Base loan minus payoff, costs and prepaids |
Look at row five. The premium is not subtracted from your cash when it is financed. It rides on top of the loan. When you pay it in cash instead, the money comes out of your pocket at closing, and the final note amount equals the base loan.
Is the Premium Charged on the Cash Out or the Whole Loan?
The whole loan. The 1.75% applies to the full base loan, including the part that simply pays off your old mortgage. That is why a small cash-out on a large balance still carries a full-size premium.
This shapes how to think about the cost per dollar of cash. Suppose you only need a modest amount. The premium is still figured on the entire new loan, so the effective cost relative to the cash you receive is higher than it looks. A bigger cash-out spreads the same percentage over more proceeds, though it also raises your balance and monthly insurance. Neither direction is automatically better. The decision depends on what the cash is for and what you’d pay to get it another way.
Should You Finance the Premium or Pay Cash?
Financing is the common choice, because it keeps cash in your pocket at closing. But financing is a deferral, not a discount. The premium becomes principal and accrues interest for the life of the loan.
| Choice | What you gain | What it costs |
|---|---|---|
| Finance the premium | Less cash needed at closing | Larger balance, interest on the premium |
| Pay the premium in cash | Smaller balance, no interest on it | More cash due at closing |
Financing tends to make sense when cash is tight or when the equity you are pulling is going to something with a clear payoff. Paying cash tends to make sense if you have idle savings and plan to keep the loan for many years, because the interest on the financed premium compounds over a long hold. If you expect to sell or refinance again within a few years, the extra interest matters less. If you’ll keep the loan for decades, it matters more.
And remember the all-or-nothing rule: no half-and-half.
What About the Monthly Premium?
The annual premium is billed monthly and added to your housing payment, alongside principal, interest, taxes and homeowners insurance. The rate runs between 0.15% and 0.75% of the balance per year, depending on term, loan amount and LTV.
Duration is the part borrowers underestimate. On a thirty-year loan, the annual premium lasts for the full term when the loan sits in the higher-LTV bucket. In the lower-LTV bucket, it ends after eleven years. A cash-out capped at 80% base LTV usually lands in the shorter bucket, though the financed premium nudges the final balance up, and the exact LTV used for the premium chart should be confirmed with your loan officer.
HUD has cut annual premiums in the past, and that change left the upfront premium untouched. If you read an older article quoting higher annual premiums, it is stale.
A refinance also resets your term across the entire balance, not just the cash you pulled out. Plan for that.
Where the General Rule Breaks
A few situations bend the rules above.
- Refinancing an existing FHA loan. The upfront premium on your old FHA loan is generally not refundable, except when you refinance into a new FHA-insured mortgage. In that case a credit may apply toward the new premium, within a limited window after the original closing. It is a credit, never a check.
- Coming from a conventional loan. No prior FHA premium exists, so there is no credit to apply.
- Owned or occupied under 12 months. A standard cash-out is off the table. An FHA rate-and-term refinance has its own tiers: up to 97.75% on a principal residence occupied for the previous 12 months, and a lower ceiling for homes occupied fewer than 12 months.
- Streamline refinances. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It gives no meaningful cash, and estimates can be used only if you receive no more than $500 back at disbursement.
- Hawaiian Home Lands (Section 247). These mortgages do not require annual premiums.
- Older FHA loans. The 2023 annual premium cut did not reach streamline refinances of FHA loans endorsed on or before the end of May 2009.
- Rental or second homes. Standard FHA cash-out is for the home you live in as a principal residence. Occupancy decides the leverage.
Myths Worth Clearing Up
“Rolling it in is free.” It isn’t. You pay it through a bigger balance and the interest on it.
“The financed premium eats into my 80% limit.” It doesn’t. Limits are measured on the base loan.
“I can finance part of it.” No. It’s all financed or all paid in cash.
“I get my old premium back as a check.” Any credit is applied to the new premium and only on FHA-to-FHA refinances.
“The 2023 cut lowered the upfront premium.” Only the annual premium changed.
“I need an FHA loan already.” You don’t. A refinance can replace any existing mortgage.
“The 12 months run from closing.” They run back from the case number assignment.
How Does This Compare With Conventional Cash-Out?
A conventional cash-out refinance generally does not carry private mortgage insurance when the loan stays within the lender’s standard equity requirements, while FHA carries its two premiums. That doesn’t automatically make conventional the better choice. Conventional programs usually look harder at credit and debt ratios, and many borrowers who need FHA’s flexibility on credit or ratios accept the insurance as the cost of qualifying.
The flip point is simple. If you’d qualify for a conventional cash-out with comfortable equity, the missing insurance may make it cheaper over time. If your credit or ratios are the obstacle, FHA’s looser underwriting may be the only practical door.
A value that comes in lower than expected shrinks the 80% ceiling, which can leave the base loan unable to cover the payoff, closing costs and the cash the borrower planned on. Before committing to a cash-out figure, treat the appraisal as the variable that can move everything else.
What Does the Decision Look Like in Practice?
Work through four questions.
1. What is the cash for? Cash that retires higher-cost debt or adds value to the home is easier to justify than cash with no plan.
2. How long will you keep the loan? A short hold favors financing the premium. A long hold makes paying it in cash more attractive if you can.
3. Could you qualify conventionally? If yes, compare the insurance cost honestly.
4. How much equity are you leaving? The 80% cap keeps at least 20% equity on the base loan, but a larger balance means less cushion if values fall.
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. All program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does an FHA cash-out refinance always require mortgage insurance?
Yes. Every FHA cash-out carries both the upfront premium and the annual premium. The upfront premium is 1.75% of the base loan and is usually financed. The annual premium is billed monthly and runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV.
Can I pay the upfront premium in cash instead of financing it?
Yes, but it must be all or nothing. If you pay it in cash, the amount is added to the cash you need at closing, and your final loan equals the base loan. Many borrowers finance it to keep cash on hand, accepting a larger balance and interest on the premium.
Does the financed premium reduce the cash I receive?
No, not when it is financed. The premium is added on top of the base loan rather than subtracted from your proceeds. Your cash is the base loan minus the payoff, closing costs and prepaids. If you pay the premium in cash, that money leaves your pocket at closing.
Is any of my old premium refunded when I refinance?
Only if you are refinancing an FHA loan into a new FHA-insured loan, and then only as a credit toward the new premium within a limited window after the original closing. It is never paid as a check, and it does not apply to loans coming from conventional financing.
How long does the annual premium last?
It depends on term and LTV. On a thirty-year loan above 90% LTV, it lasts the full term. At or below 90%, it ends after eleven years. Because the financed premium nudges the final balance up, confirm which bucket your file falls in with your loan officer. Each figure is subject to lender guidelines and a full file review.
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.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
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 2023-05
2. HUD Mortgagee Letter 2020-30
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 a Financed Upfront Premium Sizes Your FHA Cash-Out Loan · How Much Cash Comes Out of an FHA Cash-Out Refinance That Restarts the 30-Year Loan Clock? · How Much an FHA Cash-Out Lends After a Listing With a Low Mortgage
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
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.