The Quick Read: You qualify once you have owned the home and lived in it as your primary residence for the twelve months before your FHA case number is assigned. The base loan can reach 80% of the home’s appraised value, and the financed upfront premium is added on top of that base loan. You apply, the lender orders an appraisal, the file is underwritten, and the cash is whatever is left from the base loan after the payoff and costs. Everything here is subject to lender guidelines and full file review.
What Is an FHA Cash-Out Refinance?
An FHA cash-out refinance replaces your current mortgage with a new, larger FHA-insured loan. The new loan pays off the old one, and you receive the difference in cash. It only works on the home you live in.
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 an FHA loan today. A conventional, VA, or FHA loan can all be paid off this way. Homes with no mortgage at all can also be refinanced for cash.
Cash-out is one of several ways to refinance, and the differences matter. A streamline refinance can’t give you cash. An FHA rate-and-term refinance can reach 97.75% of value on a home you have occupied for the previous twelve months, but it only resets your loan. Cash-out is the one that turns equity into money.
Key Terms Defined
Case number: The ID the lender pulls from HUD when your FHA application starts. The twelve-month clock is measured back from this date.
Adjusted value: The appraised value HUD uses to set your maximum loan. A low appraisal shrinks your available cash.
LTV (loan-to-value): The loan balance divided by the home’s value. At 80% LTV, a home worth 100 units carries at most 80 units of debt. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
CLTV (combined loan-to-value): The same math, but it adds any second mortgage or home equity loan to the first.
Upfront mortgage insurance premium: A one-time FHA premium of 1.75% of the base loan, usually financed into the balance on top of the base loan.
Annual premium: The ongoing FHA insurance charge, paid monthly. Its size depends on loan term, amount, and LTV.
What Does the Twelve-Month Rule Actually Mean?
The twelve months are counted backward from the day your FHA case number is assigned. You must have owned the home and lived in it as your principal residence for that whole stretch. That is the rule in HUD’s Handbook 4000.1, and lenders confirm current wording at application.
Here is how to count it. Say you closed on your home on the 15th of a month. Your twelve months finish on the 15th of the same month a year later.
Three points trip people up:
- Appreciation doesn’t shorten the clock. A home that gained value in six months still needs twelve months of occupancy.
- Ownership and occupancy both count. Owning a rental for years and moving in last month doesn’t qualify.
- At least one borrower must meet the test. Lenders look at who actually lived there.
How Much Can You Actually Borrow?
The ceiling is 80% of the appraised value. HUD set that cap in Mortgagee Letter 2019-11, which applies to both LTV and combined LTV. Before the change, the cap was 85%. HUD’s announcement said the move aligned FHA with the cash-out limit the government-sponsored enterprises allow.
HUD’s reasoning was risk. Its letter reports that cash-out endorsements rose from 43,052 to 150,883 over five years, an increase of 250.47 percent. Capping leverage protects the insurance fund and your equity.
Note what 80% is not. It is not the cash you receive. It is the ceiling on the base loan, and the financed upfront premium is added on top of that base. Subtract these from the ceiling:
1. Your current mortgage payoff.
2. Any closing costs rolled into the loan.
3. Any second lien that stays in place (that’s the CLTV test).
What remains is your cash. The financed premium sits on top of the base loan, so it raises your total balance without adding to your cash or reducing the amount left under the ceiling. If your existing balance is large, the net may be smaller than you pictured. Credit score doesn’t change the cap, though it affects approval and terms.
Two more points on size. County loan limits apply and change every year, so ask your loan officer for your county’s current figure. And the cap sits on the appraised value, so one low appraisal can reduce your cash even if your payoff is unchanged.
How Is the Loan Underwritten, Step by Step?
Underwriting follows the same logic as most FHA loans: can you repay it, and does the home support the loan? Here is the practical path, step by step.
Step 1: Confirm your clock. Pull your closing date and gather proof you lived there. Don’t apply early.
Step 2: Review your payment history. Your mortgage payment record is reviewed. Lenders can set stricter standards than HUD, which is why two lenders sometimes answer differently on the same file.
Step 3: Check credit. Your credit is reviewed for the same repayment question, and each lender sets its own minimum score and may add overlays. Some set a higher floor than others, so ask your loan officer which standard applies to your file.
Step 4: Apply and receive a case number. The lender assigns the FHA case number, and the occupancy clock is measured from that date.
Step 5: Appraisal. An FHA appraiser sets the value. This number drives everything.
Step 6: Income, debts, and assets. The base debt ratio is 31/43: housing costs at no more than 31% of gross income and total debts at no more than 43%, with no compensating factors. Documented compensating factors, such as reserves or strong credit, can raise those limits, reaching 40/50 (housing / total) for the strongest files. The automated underwriting finding governs most files.
Step 7: Closing. The new loan pays off the old mortgage and sends you the balance. You get a Loan Estimate early in the process and a Closing Disclosure before signing, so compare them line by line.
One more practical note: for a refinance on your primary residence, you generally get a three-day right of rescission after signing, before funds are released. Your closing paperwork will spell out the dates.
What Documents Should You Gather?
Most of the work is prepping before you apply. Lenders typically ask for:
- Your most recent mortgage statement and homeowners insurance declarations page.
- Pay stubs, W-2s, and tax returns, or equivalent income documents.
- Recent bank statements for any assets.
- Proof of occupancy: a driver’s license, utility bills, voter registration, or tax records showing the home address.
- A statement on any second lien or home equity line.
- Your closing statement from the original purchase, to confirm your ownership date.
Occupancy proof is strongest when several sources agree. A license, utility bills, and mail all pointing to one address tell a clean story.
Where Does the Standard Rule Break?
The twelve-month rule has named exceptions and a few traps.
Inherited homes. HUD’s archived reference guide describes an exception for property acquired by inheritance within the past twelve months, if the borrower has lived there as a primary residence since inheriting. If you rent out the inherited house, expect the occupancy clock to apply. Ask your loan officer how current handbook language treats your situation.
Rentals and second homes. Occupancy decides the leverage. This program is for your principal residence, and a rented or second property doesn’t fit it.
Moves, title changes, and rental periods. Moving out, renting the home for part of the year, or changing who is on the title can interrupt the story the lender needs to see. Talk through these before you apply, not after.
Multiple borrowers. Lenders look at who occupies the home. Whether a co-borrower’s income counts depends on the lender and the file, so ask early.
Hawaiian Home Lands. The 80% change does not apply to loans insured under Section 247 of the National Housing Act, which covers these lands. Read the HUD letter or ask your loan officer if that applies to you.
Mortgage insurance doesn’t drop off at 80%. Conventional borrowers are used to private insurance falling away at 80% equity. FHA works differently. The premium applies to the whole new balance, including the part you don’t take as cash. The length of the annual premium depends on LTV: on a thirty-year loan above ninety percent it lasts the term, while at or below ninety percent it ends after eleven years. Because the base loan on a cash-out refinance tops out below that ninety percent line, the eleven-year schedule is the one that generally applies.
How Does It Compare to Other Options?
| Option | Gives you cash? | Appraisal? | Best for |
|---|---|---|---|
| FHA cash-out | Yes | Yes | Equity access, 12 months owned and lived in |
| FHA rate-and-term | No | Yes | Changing terms; reaches 97.75% |
| FHA streamline | No | No | Existing FHA loans, net tangible benefit |
| Home equity loan | Yes | Usually | Keeping your current first mortgage |
The rate-and-term version reaches 97.75% on a principal residence occupied for the previous twelve months, but it can’t put cash in your pocket. A streamline refinances an existing FHA loan with no appraisal and a limited credit review, and the premium continues. Neither gives cash.
A home equity loan leaves your first mortgage in place. That can matter if your current loan has features you want to keep. A cash-out replaces the whole thing.
What Does It Cost You Over Time?
The cash isn’t free money. The CFPB’s guide to using home equity notes that a cash-out refinance may extend the time it takes to pay off the mortgage, and the monthly payment may rise because the loan is larger. Because it replaces the whole loan, your interest rate and other loan terms change too.
If you plan to use the cash to pay off credit cards, think carefully. The CFPB’s cash-out borrower report cautions that paying non-mortgage debts with mortgage debt can increase the risk of foreclosure. The same report found credit scores improved sharply at first, then gradually worsened, though they stayed above pre-refinance levels over the period studied.
The tradeoff is straightforward. You swap unsecured debt for debt secured by your home. That can lower your monthly burden, but if money gets tight, the home is now on the line. A cash-out for home improvements that add value is a different decision from one that clears cards you may run up again.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What Does the Decision Look Like in Practice?
Picture a homeowner in month thirteen who owes a modest balance and wants to pay for a kitchen remodel. The home appraises well. The lender works out 80% of the appraised value for the base loan, subtracts the payoff and any costs rolled in, and finds a net amount smaller than the homeowner expected. The financed premium then raises the balance on top of that base.
That is the moment to ask three questions. Is the cash enough for the project? Does the larger loan and added insurance still fit the monthly budget? Would a home equity loan keep a better first mortgage in place?
Now picture someone at month ten. They still have a couple of months to wait, but the answer isn’t “nothing.” They can pull credit, check payment history, collect occupancy documents, and talk to a loan officer so everything is ready on the date the clock completes.
If You Don’t Qualify Yet
Missing the twelve months is a timing problem, not a verdict. Use the wait:
- Keep every mortgage payment on time.
- Avoid new credit accounts or large purchases.
- Save for reserves, which can strengthen a file with compensating factors.
- Keep proof of occupancy organized.
- Ask a loan officer to walk through your numbers so you know your likely net cash before you apply.
Credit events carry HUD’s own waiting periods: two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD rules, and individual lenders may be stricter.
Frequently Asked Questions
Can I do an FHA cash-out refinance if I’ve lived in my home for only eleven months?
Generally no. The standard rule requires twelve months of ownership and occupancy before the case number is assigned. The named exception covers inherited homes you’ve lived in since inheriting. Otherwise, use the extra time to prepare.
How much equity do I have to leave in the home?
At least 20% of the appraised value. The base loan, with any second lien counted in the combined test, can’t exceed 80% of the adjusted value. HUD set that limit in a mortgagee letter that cut the earlier 85% cap.
Does my current loan have to be an FHA loan?
No. A conventional, VA, or FHA mortgage can be paid off with an FHA cash-out refinance. If your current loan isn’t FHA, there’s no existing FHA premium to credit toward the new one.
Can I use the cash for anything I want?
Generally the proceeds aren’t limited to specific purposes. The risk is converting unsecured debt into debt secured by your home, which the CFPB cautions can raise foreclosure risk.
Does FHA mortgage insurance end once I reach 80% equity?
No. FHA charges an upfront premium on the base loan and an annual premium. At or below ninety percent LTV, the annual premium ends after eleven years, subject to lender guidelines.
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. Program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
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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References
2. HUD Mortgagee Letter 2019-11
4. HUD Archives Refinances reference
5. CFPB guide to using home equity
6. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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 to Qualify and Apply for an FHA Cash-Out Refinance After Your Home Value Jumps · FHA Cash-Out Refinance vs Conventional Cash-Out Without Selling the House · FHA Cash-Out Refinance vs Conventional Cash-Out Minimum Credit Score
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.