The Quick Read: Underwriting treats a medical bill like any other use of cash-out money. The lender tests the home, your income and debts, your credit, and your mortgage payment history, then caps the new loan at 80% of the home’s appraised value. The bill itself is rarely the deciding factor. The equity in the home is. Everything below is subject to lender guidelines and full file review, and none of it is a commitment to lend.
What an FHA Cash-Out Refinance Actually Is
An FHA cash-out refinance replaces your current mortgage with a new, larger FHA-insured loan and hands you the difference in cash. The “cash-out” label means the loan pays off your old balance and puts the extra money in your hands.
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.
Nothing about it is built for medical expenses. There is no medical version of the product. You can spend the proceeds on a hospital bill, a roof, or tuition, and the loan works the same way. A lender may ask what the money is for, but the purpose does not change the guidelines.
Lendmire is a mortgage broker. It arranges these loans through wholesale lenders and does not lend directly. The brokerage describes its FHA cash-out refinance program in more detail, and the sections below explain how the file gets tested.
Key Terms Defined
Cash-out refinance: a new mortgage that pays off the old one and gives you the leftover money.
Adjusted value: the home value FHA uses for the leverage test, based on the appraisal.
LTV (loan-to-value): the new loan balance divided by the home’s value, shown as a percentage.
Seasoning: the time you must have owned and lived in the home before you can take cash out.
Manual underwriting: a person reviews the file line by line, instead of relying on the automated risk finding.
Mortgage insurance premium: the FHA charge that protects the lender, paid partly upfront and partly each month.
How the Loan Is Underwritten, Step by Step
Across the wholesale programs we place files with, the sequence is consistent. Each step is a gate, and the file moves forward only if it clears the one before.
1. Eligibility check. The home must be your principal residence. It must be one you have owned and lived in for 12 months before the case number is assigned. A rental or second home does not qualify for FHA cash-out.
2. Mortgage payment history. Lenders look hard at your current mortgage. A recent late payment can stop a cash-out outright, even when the equity is strong.
3. Appraisal and the 80% test. The appraiser sets the value. The new base loan can reach 80% of that adjusted value and no more, with any financed premium added on top.
4. Credit and income review. The lender pulls credit and verifies income, then runs the file through FHA’s automated risk model. If the model does not approve it, a person reviews it manually.
5. Debt ratios. The new housing payment is added to your other recurring debts. The base ratio pair is 31/43, meaning housing payment to income and total debt to income, with no compensating factors. Documented compensating factors can raise the limits as far as 40/50 for the strongest files. For most files, though, the automated finding governs.
6. Mortgage insurance. The new loan carries an upfront premium of 1.75% of the base loan, which is financed, plus an annual premium that is collected monthly.
7. Closing. You sign the loan documents, the old mortgage is paid off, and the remaining cash is released to you.
Does the Lender Care That the Money Is for a Medical Bill?
Not as a deciding factor. Underwriting asks whether the loan stands on its own: enough equity, a clean payment history, and income that supports the new payment. The reason for the cash does not change those answers.
A lender can still ask about the purpose. Even the federal medical-debt rule that was later struck down had room for lenders to consider medical information when assessing loans meant to cover medical expenses, as HousingWire reported. So expect a question, not a ban.
You generally don’t have to submit invoices to prove the spending. Some lenders may ask for a statement if the bill shows up as an account on your credit report.
What the Underwriter Tests (and What It Means for You)
| Test | What the lender reviews | Medical-bill angle |
|---|---|---|
| Equity | Appraised value vs. current payoff | Sets the cash ceiling, not the bill size |
| Occupancy | 12 months owned and lived in | A recent move can block the loan |
| Payment history | Your current mortgage record | A late payment can end the file |
| Credit | Scores, collections, disputes | Only the credit footprint matters |
| Debt ratios | New payment plus recurring debts | A payment plan counts if documented |
| Mortgage insurance | Upfront and annual premium | Shrinks net cash you receive |
The 80% Cap Sets Your Cash, Not the Bill
The cash you can get is limited by the property, not by what you owe the hospital. HUD lowered the cash-out cap to 80% of adjusted value in HUD Mortgagee Letter 2019-11. HUD’s announcement said the cap lines up with the cash-out limit used by the government-sponsored enterprises. Older web pages still show 85%, so ignore those.
A credit score does not push that cap higher. A strong score can help you qualify, but it does not unlock more equity.
A worked example (hypothetical, no dollar figures)
Say your home appraises at 100 units of value. Your current mortgage payoff is 55 units. The 80% cap allows a new loan of up to 80 units.
Subtract the 55-unit payoff and you have 25 units of room. Now take out the closing costs and the financed upfront premium of 1.75% of the base loan. What is left is your net cash.
If the medical bill is smaller than that net cash, the loan works. If it is larger, you have a shortfall. You would cover the gap with a payment plan, a bill reduction, or another source.
That is the lesson of the 80% test. The appraisal can shrink your cash. A low value cuts the available amount, and the bill does not change that.
Medical Collections, Disputes, and Payment Plans
This is where the general rule bends, and where files get messy.
Medical collections. HUD’s collection guidance sets a $2,000 aggregate threshold for collection accounts, and HUD’s notice says medical collections and charge-offs are excluded. That notice is older, and the current rule lives in HUD Handbook 4000.1. In practice, medical collections are generally not treated like other collections. A lender’s own overlays or a manual review can still apply, so expect some variation.
Disputed accounts. The same HUD notice says derogatory disputed accounts of $1,000 or more, excluding medical, can push a file to manual underwriting. If you are disputing a billing error, tell your loan officer early.
Payment plans. A documented hospital payment plan is usually counted as a monthly debt in your ratios. A plan you set up before applying can make your debt ratio look heavier. If the new loan pays off that balance, the plan’s monthly payment may no longer count against you, though the new mortgage payment will.
Interrupted income. Illness often means leave, reduced hours, or disability. The lender needs income that is stable and likely to continue. If your pay dropped mid-process, the file may need updated documents, and a manual review is possible.
What the Rules Say About Medical Debt on Your Credit
Many pages still say federal law bars lenders from using medical debt. That is not the current situation. A federal rule meant to keep medical debt off credit reports was vacated by a federal court in July 2025, as the Congressional Research Service explains. Lenders may consider coded medical debt that appears on a report.
A separate voluntary policy from the three credit bureaus still leaves off some medical debts. Those include paid medical debts, debts under a year old, and balances under $500, according to the same CRS summary. Check that this remains current before you rely on it.
Paying a collection can also change what shows on your report. That is a bureau practice, not a promise, so don’t count on a specific score change.
Before You Borrow Against the Home
A cash-out refinance turns unsecured medical debt into debt secured by your house. That is the real trade-off, and it deserves plain words. If you can’t make payments on a hospital bill, the provider generally can’t take the home the way a mortgage lender can. Once the bill becomes part of your mortgage, missed payments put the home at risk.
The CFPB’s view is that medical debt on credit reports is often inaccurate or inflated. So before borrowing, do these things:
- Ask for an itemized bill and check it for errors.
- Ask the hospital about financial assistance.
- Ask for an interest-free payment plan.
- Compare the new total housing payment with the cost of the bill on its own terms.
Also weigh the changes a new loan brings. You reset to a new 30-year clock. The new loan carries a new upfront premium. On a thirty-year loan at or below 90% LTV, the annual premium ends after eleven years. Above 90% it lasts the full term. A cash-out capped at 80% falls in the shorter group, but confirm with your loan officer. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Where FHA Cash-Out Compares to the Alternatives
| Option | How it works | Main trade-off |
|---|---|---|
| FHA cash-out refinance | New first mortgage, up to 80% LTV | Resets the loan; adds premium |
| Conventional cash-out | New first mortgage, different guidelines | May need stronger credit |
| HELOC or second lien | Keeps your first mortgage in place | Adds a second payment |
| Provider payment plan | Spread the bill with the hospital | No home equity at risk |
The right fit depends on your credit, your current loan, and your equity. A broker can shop multiple wholesale lenders and match your scenario to the program. Lendmire’s piece on a jumbo cash-out refinance for a medical bill covers the larger-loan version of this question.
When a Streamline or Rate-and-Term Won’t Help
An FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review, but it does not give you cash. The FHA rate-and-term refinance, which requires an appraisal, is open to a principal residence you have occupied for the previous twelve months, yet it also provides no cash for a bill. Only the cash-out version puts money in your hands.
Pre-Application Checklist
- Twelve months of mortgage statements showing on-time payments.
- Proof you have owned and lived in the home for 12 months.
- Recent pay stubs and tax documents.
- The medical bill or collection notice, plus any dispute paperwork.
- Documents for any leave, disability pay, or income change.
- Your current payoff statement.
Frequently Asked Questions
Do I have to prove the money goes to the hospital?
Usually not. The proceeds are ordinary cash-out money, and the program does not limit their use. A lender may ask the purpose, and some may ask for a statement if the bill appears on your credit file.
What if my medical bill is bigger than the cash I can get?
The 80% cap and your current payoff set the ceiling, so a large bill can exceed it. Closing costs and the financed premium reduce the net further. You can negotiate the bill, request financial assistance, or set up a payment plan for the remainder.
Do medical collections stop an FHA cash-out?
Generally not on their own. HUD’s collection guidance excludes medical collections from its $2,000 aggregate test. Lender overlays or manual underwriting can still apply, so the answer can vary by lender.
Can a late mortgage payment block the loan?
Yes. Payment history on your current mortgage is a core test, and a recent late payment can end the file even when your equity is strong. Talk to your loan officer before applying if you have one.
Is an FHA cash-out better than a HELOC for a medical bill?
It depends on your situation. FHA cash-out replaces your first mortgage and resets the term. A HELOC leaves your first mortgage alone but adds a second payment. Compare the full terms on each Loan Estimate.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. 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. HousingWire
2. HUD Mortgagee Letter 2019-11
3. HUD press release on cash-out risk
4. HUD Mortgagee Letter 13-25 on collections and disputed accounts
5. Congressional Research Service, Overview of Medical Debt
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: FHA Cash-Out Refinance Rules After a Title Change · Cash-Out Refinance Lenders to Move From FHA to Conventional With 20 Percent Equity · Best FHA Cash-Out Refinance Program Without Bringing Cash
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.