The Quick Read: An FHA cash-out refinance can help when a conventional quote looks expensive because of your credit profile, but it will not give you more cash. FHA caps cash-out at 80% of your home’s adjusted value, the same ceiling conventional uses. What FHA changes is how your credit and debt-to-income ratio are judged, and how mortgage insurance is structured. Whether that lowers your cost depends on your file, and it can go the other way. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Key Takeaways
- FHA cash-out is capped at a set loan-to-value (LTV) limit on a home you have owned and lived in for 12 months before the case number is assigned.
- FHA does not beat conventional on leverage. Its edge is more flexible credit and ratio review.
- FHA charges an upfront mortgage insurance premium, usually financed, plus an annual premium. Ask a qualified local professional or your loan officer how those costs apply to your loan.
- “Too expensive” has different causes. FHA fixes some of them and makes others worse.
- Cash-out turns the money you spend into debt secured by your home. Plan for that before you sign.
What Is an FHA Cash-Out Refinance?
An FHA cash-out refinance replaces your current mortgage with a larger FHA-insured loan and pays you the difference in cash. It is one new loan, not a second mortgage stacked on the first. The old balance gets paid off, the new loan takes its place, and what is left over after payoffs and costs comes to you.
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.
You do not need to hold an FHA loan today. A conventional loan, a VA loan, or a home with no mortgage can all be refinanced into FHA cash-out. The rulebook for FHA-insured mortgages is HUD’s Single Family Housing Policy Handbook 4000.1. Lenders may add stricter standards on top of it.
You can spend the proceeds on whatever you like. Common uses include home repairs, paying off other debts, and large expenses. We will come back to the debt payoff question, because it deserves a hard look.
Across the wholesale programs Lendmire places files with, the FHA cash-out is one of several ways to reach equity.
Why Does Conventional Cost Too Much?
“Too expensive” is not one problem. Before you pick a program, name the cause. Here is how the common ones sort out.
| What is driving the cost | Does FHA help? |
|---|---|
| Mid-range credit score pushes conventional pricing up | Often, because FHA reviews credit differently |
| Conventional mortgage insurance is high at your equity level | Sometimes. FHA has its own insurance, so compare both |
| Debt-to-income is too high for conventional | Often. FHA allows higher ratios with documented factors |
| Recent credit event, such as a bankruptcy or foreclosure | Possibly, once HUD’s waiting periods pass |
| You want more cash than 80% of value allows | No. FHA has the same cap |
| You have a strong score and plenty of equity | Usually not. Conventional tends to win here |
That last row matters. FHA is built for flexibility, not for bargains. If your credit is strong and your equity is deep, FHA’s insurance structure often costs more over time than conventional.
The Leverage Cap: FHA Does Not Lend More
Many homeowners assume FHA lets them borrow more against their home than conventional. On cash-out, it does not. HUD Mortgagee Letter 2019-11 cut the maximum LTV and combined LTV on FHA cash-out refinances to 80%, down from 85%. The 80% limit is measured against an “adjusted value,” not simply the raw appraisal.
HUD said the change aligned FHA with the maximum cash-out leverage the Fannie Mae and Freddie Mac programs allow, according to its press release on the change. The same release notes that FHA had moved this cap earlier as well, lowering it from a higher level. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
So the practical result: you must keep at least 20% equity in the home after the refinance. And “80%” caps the whole new loan, not your cash. Here is the order things come out:
1. The new loan pays off your existing first mortgage.
2. Any other liens that must be paid off, or that stay and count toward combined LTV, come next.
3. Financed costs, including the upfront insurance premium, are added to the balance.
4. What remains under the 80% ceiling is your cash.
Say you own a home and owe 50% of its value. The 80% cap leaves room for roughly 30 percentage points of that value, before costs and the financed premium shrink it. That is smaller than most people expect, so run the arithmetic before you get your hopes up.
How the Loan Is Underwritten, Step by Step
Here is what happens from first conversation to closing table.
Step 1: The ownership and occupancy test. Standard FHA cash-out is for your principal residence. Across the programs we work with, the home must be owned and occupied for 12 months before the FHA case number is assigned. The clock runs to the case number date, not your application date. Inherited homes and homes rented out during that period have special handling, so raise either situation at the start.
Step 2: Case number and appraisal. The lender orders an FHA case number, then an FHA appraisal. HUD’s adjustments to that value produce the adjusted value that the 80% cap applies to.
Step 3: Payoff and liens. The lender totals the first mortgage and any other liens. A home equity loan or line you keep uses up part of your 80% combined room.
Step 4: Credit, income and ratios. The minimum decision score across the wholesale programs we place FHA loans with is 580. HUD’s own rules reach lower, but those lower tiers are not available through this network. Debt-to-income is reviewed as two ratios: housing cost against income, and total debt against income. The base pair is 31/43, meaning housing cost up to 31% of income and total debt up to 43%, with no compensating factors. Documented compensating factors, such as reserves or a strong payment history, can raise that pair to as high as 40/50, which is available only at the top credit tier. The automated underwriting finding governs most files.
Step 5: Insurance and loan limits. The upfront premium is 1.75% of the base loan, and borrowers commonly finance it. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. County loan limits apply, and they change each year, so your county’s current limit is part of the file review.
Step 6: Closing. You receive a Loan Estimate early and a Closing Disclosure before signing. Compare them line by line against any conventional quote.
Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Where the Cost Comparison Really Lands
Put FHA and conventional side by side on the things that change your cost.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Maximum LTV | 80% | 80% |
| Credit flexibility | Wider | Narrower |
| Mortgage insurance | Upfront 1.75% plus annual premium | Private insurance, structured differently |
| Occupancy | Principal residence | More options |
| Ownership wait | 12 months owned and occupied | Varies by program |
| Exit path | Refinance out of FHA | Insurance can end at set equity |
Two details drive most of the lifetime cost. First, FHA’s annual premium can last for the full term of a thirty-year loan when leverage is high. At lower leverage, it ends after eleven years. Since cash-out lands well below the highest leverage levels, the eleven-year version is the one that typically applies to this loan type, though your lender confirms it on your file.
Second, the upfront premium is financed. That adds to your balance and trims your net cash.
Here is where the decision turns. If conventional gets you approved at a price that reflects a modest score gap, conventional may still cost less. If conventional denies you, or prices you so high the cash is not worth it, FHA’s wider doors may be the better route. This one is a genuine toss-up for borrowers in the middle, and it takes a real side-by-side to settle.
The Break-Even Question
Think about how long you will keep the loan. FHA insurance is a recurring cost. Conventional mortgage insurance can fall away once you build enough equity. A borrower who plans to refinance out of FHA once their score improves may find FHA a useful bridge. A borrower who plans to hold the loan for a long stretch should weigh the full insurance cost over that whole period.
Ask any lender comparing the two to show you both options across the time you expect to keep the loan. If the comparison only shows the first year, push for more.
Where the General Rule Breaks
A few situations bend the usual picture.
Owned less than 12 months. Standard FHA cash-out generally is not available. A rate-and-term FHA refinance, which pays off your loan without handing you cash, can reach 97.75% on a principal residence occupied for the previous twelve months. That is a different program with a different purpose. Do not confuse the two.
The FHA Streamline. This refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It does not pay you cash.
Credit events. HUD’s waiting periods are two years from a chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise from any one lender, and lenders may require more.
Free-and-clear homes. A home with no mortgage can still be refinanced into a cash-out. The same 80% cap applies.
Hawaiian Home Lands. Section 247 mortgages were left out of the 80% change, according to the Consumer Finance Monitor summary of the HUD letter. That is a narrow case most borrowers never meet.
Appreciation. A big jump in value does not shorten the 12-month ownership and occupancy test. Equity and the occupancy rule are separate questions.
Second homes and rentals. Occupancy decides leverage. Standard FHA cash-out is for the home you live in.
Think Before You Pay Off Cards With Home Equity
Using cash-out to clear credit card and auto balances is common. The CFPB’s research on cash-out borrowers found that credit scores rose sharply after the refinance, then gradually worsened. Card balances moved back toward earlier levels within a year.
The lesson is simple. Paying off a card with home equity converts unsecured debt into debt secured by your house. If the spending habits that built the balance stay in place, the cards can fill back up and you carry both. Consolidation works best when you have a plan to keep the old balances at zero.
Key Terms Defined
Adjusted value: The appraised value after HUD’s adjustments. The 80% cap is measured against it.
Combined loan-to-value (CLTV): Your new first loan plus any other liens that stay, divided by the home’s value.
Upfront mortgage insurance premium: A one-time FHA charge of 1.75% of the base loan, usually financed into the balance.
Annual mortgage insurance premium: A recurring FHA charge, collected monthly, based on term, loan amount and LTV.
Case number: The FHA identifier assigned to your loan file. The 12-month ownership and occupancy test is counted back from it.
Compensating factors: Strengths in your file, like reserves or a strong payment history, that let the lender approve higher debt-to-income ratios.
Who Should Skip FHA Cash-Out
FHA is the wrong tool in several cases:
- You have strong credit and conventional approves you at a fair price.
- You need more than 80% of your home’s value. No standard cash-out program reaches that.
- You have owned and lived in the home for under 12 months.
- You plan to keep the loan a long time and conventional insurance would drop off sooner.
- You are not sure how you will handle the larger payment.
A smaller option may fit better than a full refinance. A home equity line leaves your first mortgage alone, which can matter if your current loan is a good one. The tradeoff is that a kept second lien counts against your combined limit.
Common Mistakes
- Comparing only the monthly payment. Look at insurance, the financed upfront premium, and how long each lasts.
- Assuming 80% means 80% in cash. It caps the entire new loan.
- Counting the 12 months from the application. It runs to the case number.
- Ignoring county loan limits. They apply and change every year.
- Treating a minimum score as an approval. A floor gets you into the review, not through it.
- Skipping the Loan Estimate comparison. Line up both quotes and read the full terms.
Frequently Asked Questions
Can FHA cash-out give me more money than conventional?
No. Both cap cash-out at 80% of value. FHA’s difference is who it can approve and how mortgage insurance is structured, not how much you can pull out. Costs and financed premiums can leave you with less cash on FHA than the same equity would produce on a conventional loan. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Do I need an FHA loan today to refinance into FHA cash-out?
No. You can refinance a conventional loan, a VA loan, or a paid-off home into FHA cash-out. You do need to meet the 12-month ownership and occupancy test and pass credit and income review.
What credit score do I need?
Across the wholesale programs Lendmire places FHA files with, the starting point is a decision score of 580. HUD’s rules reach lower, but this network does not. Some lenders set higher minimums, and your full file decides the outcome, subject to lender guidelines.
Can I finance the upfront insurance premium?
Yes, borrowers commonly roll the 1.75% upfront premium into the loan. It raises your balance and reduces the cash you receive, so account for it when sizing the loan.
Can I leave FHA later?
Yes, by refinancing into another loan type. Doing it depends on your equity, credit and the new loan’s requirements. Refinancing out of FHA can end the mortgage insurance sooner than waiting for it to drop off on its own schedule. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
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. Lendmire arranges FHA, VA, conventional and jumbo loans through wholesale lenders for consumer borrowers in 16 states. Nothing here is a commitment to lend, and every program figure is subject to lender guidelines and full file review.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s FHA loan programs page.
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 Single Family Housing Policy Handbook 4000.1
2. HUD Mortgagee Letter 2019-11
3. HUD press release on FHA cash-out refinance risk
5. CFPB’s research on cash-out borrowers
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 vs Selling an Inherited Home as a Retiree · How an FHA Cash-Out Works During a Divorce Buyout · Cash-Out Refinance Lenders to Move From FHA to Conventional With 20 Percent Equity
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
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.