The Quick Read: The new FHA loan pays off your old FHA loan, and you keep the difference in cash. Underwriters test four things in order: whether you have lived in the home long enough, whether your mortgage payments are clean, whether the appraised value supports the loan, and whether your credit and income carry the new payment. Because the old loan is already FHA, one extra wrinkle shows up in the mortgage insurance. Everything here is subject to lender guidelines and a full file review, and none of it is a commitment to lend.
Key Takeaways
- A cash-out reaches up to 80% of the appraised value, so at least 20% equity stays in the home.
- You must have owned and lived in the home for 12 months before the case number is assigned.
- A Streamline refinance can’t hand you cash. Taking cash makes it a different loan with different tests.
- The old FHA loan changes the insurance math, not the equity math.
What Is an FHA Cash-Out Refinance?
It is a new FHA first mortgage that replaces your current one and is larger. The old lien gets paid off, closing costs and the financed upfront insurance premium come out, and what’s left reaches you as cash. HUD’s rules let that cash go to any purpose, which is why lenders examine the file more closely than they do on a no-cash refinance.
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.
Plenty of homeowners confuse this with a home equity loan. It isn’t one. A home equity loan or line of credit sits on top of your first mortgage. A cash-out refinance replaces the first mortgage entirely.
What follows is the underwriting sequence behind a cash-out refinance, the way a broker sees it when a file goes to a wholesale lender.
How Does Cash-Out Differ From the Other FHA Refinances?
Cash-out is the only FHA refinance built to put equity in your hands, and it carries the lowest leverage of the group. The others trade cash for simplicity or higher leverage.
| Refinance type | Cash to you | Appraisal | Leverage |
|---|---|---|---|
| Streamline | No | No | No appraisal-based cap |
| Rate-and-term | No | Yes | Up to 97.75% (principal residence) |
| Cash-out | Yes | Yes | Up to 80% |
Two details matter. A Streamline refinances an existing FHA loan with a limited credit review and requires a net tangible benefit, meaning the new loan must measurably help you. The insurance premium continues on the new loan.
The rate-and-term version reaches 97.75% on a principal residence you’ve occupied for the previous twelve months. Those figures come from the programs Lendmire places files with, and they are subject to lender guidelines.
Here’s the catch people miss: you can’t use a Streamline as a back door to cash. If meaningful cash comes out, the file is a cash-out and gets the cash-out tests.
Step 1: Do You Meet the Occupancy and Ownership Test?
Underwriters start with a simpler question. Did you own the home and live in it as your main residence for 12 months before the case number was assigned? The case number is the identifier FHA gives the loan, and the 12 months count back from that date.
Standard FHA cash-out is for principal residences only. A second home or rental doesn’t qualify for this version, because the program’s leverage limit rests on the home being your main residence.
Lenders typically want proof, such as employment records or utility bills showing you at the address. A rising home value doesn’t shorten the clock. The wait is about occupancy, not appreciation.
A home owned free and clear can still be refinanced as a cash-out. An inherited home you rented out can’t, until you’ve lived in it for the required period.
Step 2: Is Your Payment History Clean?
Underwriters review the payment record on every mortgage on your credit report, not just the FHA loan being paid off. That includes a home equity line. Cash-out files get far less tolerance for late payments than other refinances, and a recent late payment can stop the file until the record is clean.
Even if you are confident the FHA loan is spotless, a late payment on a second lien can still turn up in the review. Pull your own credit report before applying, since you’ll find these items there.
Step 3: How Does the Appraisal Set the Loan Size?
The appraisal sets the ceiling. HUD Mortgagee Letter 2019-11 lowered the cash-out loan-to-value cap, and the combined cap, from 85% to 80% of adjusted value. HUD cited the growing share of insured cash-out loans as the reason. Older web pages still quoting 85% are stale.
Adjusted value is an appraisal-based figure defined in HUD’s rules, not your contract price or your own estimate. A lower appraisal shrinks the maximum loan, and the cash with it.
The maximum-loan worksheet counts what the new loan must cover: the payoff of the old mortgage, interest owed, any late charges, escrow shortages and borrower-paid costs. It subtracts any refund of the old upfront premium. Whatever remains under the 80% cap is your cash.
Here’s a simple picture with percentages only. Say a home appraises at a value you can call 100%. The new loan can reach 80% of that. Your old payoff, closing costs and financed premium come out of that 80%, and the remainder is yours. If the old balance is already near 70%, the cash is thin. If it’s near 40%, there’s far more room.
Appraiser-required repairs can add costs to the transaction. Property condition counts, because the home is the collateral.
Step 4: How Are Credit, Income and Ratios Reviewed?
For manual review, the base ratio pair is 31/43. The first number is housing cost as a share of income. The second is total monthly debts as a share of income. With documented compensating factors, such as reserves or a strong payment record, ratios can stretch to 40/50 at the top tier. Those figures come from the programs Lendmire works with and depend on the lender.
On credit, the wholesale programs Lendmire places FHA loans with start at a 580 decision score. HUD’s own rules reach lower, but the lenders in that network don’t. Some lenders set a higher floor, so a score that works at one may not work at another. A higher score doesn’t buy more leverage on a cash-out, since 80% is the cap either way. It mainly affects approval and pricing.
Income documents are the usual set: pay stubs, W-2s, tax returns where needed, and bank statements. The lender confirms employment and verifies what you owe.
Step 5: How Does Mortgage Insurance Work on the New Loan?
The new loan carries two insurance charges. The upfront premium is 1.75% of the base loan and is usually financed into the balance. The annual premium runs between 0.15% and 0.75% of the balance, depending on the term, loan amount and LTV. HUD’s schedule appears in Mortgagee Letter 2023-05.
Duration matters too. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years. A cash-out at 80% or under falls in that second group, which is a real difference from a high-leverage purchase loan. These are program facts, not a price quote. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
What Changes When the Old Loan Is Already FHA?
Insurance is where the old loan shows up. When an FHA loan is refinanced into another FHA loan soon enough after the first, HUD gives a refund credit that reduces the new upfront premium. Two things to understand:
- It’s a credit against the new premium, not a check to you.
- It’s why the payoff figure and the old loan’s insurance history get pulled early.
The underwriter also confirms the old loan’s case number and history, and the payoff statement comes from the current servicer. The handbook doesn’t promise a refund if you leave FHA for a conventional loan. That’s worth knowing if you’re weighing both paths.
HUD’s single rulebook for all of this is Handbook 4000.1. It is updated regularly, so lenders check the latest Mortgagee Letters before relying on older descriptions.
Where Does the General Rule Break?
- Under 12 months of ownership or occupancy. Standard cash-out isn’t available in this case. The no-cash rate-and-term path may be an alternative.
- Late payments in the review period. In this case, the file waits until the record is clean.
- Manufactured homes. Special foundation and seasoning rules apply, and not every lender writes them.
- Rentals and second homes. Occupancy decides the leverage, so this program doesn’t fit.
- Low appraisal. The cap shrinks, and the cash may not cover your goal.
- Lender overlays. Wholesale lenders can be stricter than HUD on score, payment history and property type. This is why a broker shops several.
What Does a Typical File Look Like?
Picture a borrower with an FHA loan who has lived in the home for several years and wants cash for repairs and to clear card balances. The broker checks the 12-month occupancy and payment history first. Then the file goes to a wholesale lender whose overlays suit the borrower’s credit profile.
The lender orders the appraisal. The automated system returns a finding. The underwriter orders the old payoff, confirms the insurance history, and applies the 80% cap.
Typical documents include:
- Recent pay stubs and W-2s, plus tax returns where required.
- Bank statements.
- A current mortgage statement and homeowners insurance.
- Proof of occupancy, such as utility bills.
- A government ID.
Under federal disclosure rules, you receive a Loan Estimate and later a Closing Disclosure. Compare them line by line.
What Do Borrowers Do With the Cash?
A CFPB report on cash-out borrowers found they often use the money to pay down other debts, particularly credit card and auto loans. Card balances drifted back up over the following year.
That pattern is a warning. Paying off cards with home equity turns unsecured debt into debt tied to your house. The CFPB’s home equity guide also notes the new loan may extend your payoff time, and your monthly payment may increase. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Common Misconceptions
- “A Streamline can give me cash.” It can’t. Meaningful cash makes it a cash-out.
- “FHA cash-out goes to 85%.” That cap ended. It’s 80% now.
- “The insurance refund comes back to me.” It reduces your new upfront premium.
- “Only the FHA loan’s payment history counts.” Every mortgage on the file is reviewed.
- “HUD’s minimum score is the lender’s minimum.” Lenders set their own floors.
Key Terms Defined
Adjusted value: The appraisal-based value HUD uses to apply the 80% cap, not your purchase price or list price.
Case number: The identifier FHA assigns to a loan; the 12-month occupancy test counts back from its assignment date.
Net tangible benefit: A test on Streamline refinances requiring that the new loan measurably help the borrower.
Upfront premium: The one-time FHA mortgage insurance charge, usually financed into the loan balance.
Compensating factors: Documented strengths, such as reserves, that let a file stretch past the base ratios.
Frequently Asked Questions
Can I take cash out with an FHA Streamline?
No. A Streamline is a no-cash refinance with a limited credit review. If meaningful cash comes out, the loan becomes a cash-out and gets the appraisal, the 80% cap and the full payment-history review.
Does my current mortgage have to be FHA to get an FHA cash-out?
No. A homeowner with a conventional loan, or a home owned free and clear, can qualify for an FHA cash-out. An existing FHA loan only changes the insurance treatment, through the possible refund credit on the new upfront premium.
How much equity can I actually take out?
The new loan can reach 80% of adjusted value, so 20% equity stays in the home. Your cash is what’s left after the old payoff, closing costs and the financed upfront premium. A lower appraisal means less cash.
Why was my cash-out file stalled over a late payment I didn’t think mattered?
Cash-out reviews cover the payment record on every mortgage on your credit report, including a home equity line. Late payments get little tolerance on this loan type. The file may need to wait until the record is clean.
Will a higher credit score get me more cash?
No. The 80% cap applies regardless of score. A stronger score can help with approval and pricing, and the wholesale programs Lendmire works with start at 580. Lenders can set higher floors.
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. Before applying, check your occupancy timeline and review your credit report for any late payment. Those two items stop more files than anything else, and finding them early costs nothing.
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 2019-11
2. HUD Mortgagee Letter 2023-05
4. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
5. CFPB Using Home Equity guide
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 on an Existing FHA Loan After the Waiting Period · Best FHA Cash-Out Refinance Program Without Bringing Cash · FHA Cash-Out Refinance Requirements With No 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
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.