The Quick Read: The cash is whatever is left of the new loan after every required payoff and cost comes out of it, and the PACE balance is one of those payoffs. FHA cash-out tops out at 80% of the home’s appraised value, so a large PACE balance can leave little or no cash. FHA will not insure a home with PACE left in place, so the payoff is mandatory, not optional.
Here is the short version of what moves the number:
- The new loan is capped at 80% of the adjusted (appraised) value.
- The old first mortgage, the PACE balance and any other required liens come out first.
- Financed costs and the upfront mortgage insurance premium come out next.
- What remains is yours.
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.
What Is an FHA Cash-Out Refinance With a PACE Payoff?
An FHA cash-out refinance replaces your current mortgage with a new, larger loan and pays you the difference. PACE (Property Assessed Clean Energy) is a different kind of debt. It funds solar panels, windows or HVAC work, and it is repaid as an added assessment on your property tax bill. This article covers what happens when PACE sits on the same file.
Across the wholesale programs Lendmire arranges FHA files with, the FHA cash-out reaches 80% LTV on a home you have owned and lived in for the 12 months before the case number is assigned. That 80% applies to the whole new loan, not just the cash portion. People miss this. They hear “80%” and picture 80% of the equity. It is 80% of the value, and every payoff comes out of that same room. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
PACE is not a government loan. The federal consumer-finance regulator says the U.S. government does not pay for or insure PACE loans, and that they are repaid through property taxes. That tax-bill collection is why the payoff matters so much to an FHA file.
Why Does FHA Require the PACE Payoff?
FHA briefly allowed loans on PACE homes, then reversed course. HUD’s superseded-policy index shows the PACE letters were folded into the Handbook, which is now the governing document. The practical result is the one borrowers feel: a home with PACE still attached is not eligible for FHA insurance, and a refinance is the way out.
The reason is lien position. PACE rides on the tax bill and sits ahead of the first mortgage. A lender placing a new FHA loan needs clear first-lien status, so the PACE assessment has to be paid off at closing, not left behind.
One caution. The current Handbook wording on how FHA classifies a PACE payoff inside a cash-out loan should be confirmed against the live HUD Handbook 4000.1 before you rely on any single reading. Lender guidelines and file review decide how a given file is treated.
How Is the Cash Figure Calculated?
The math is simple subtraction. Take 80% of the appraised value. That is the ceiling on the new loan. Then subtract these items in order:
1. Your current first-mortgage payoff.
2. The PACE payoff, using a current statement from the administrator.
3. Any other lien that must be cleared.
4. Financed closing costs.
5. The upfront mortgage insurance premium, which is 1.75% of the base loan and is financed into the balance.
What is left is the cash to you. This is arithmetic from the cap, not a formula HUD prints. The appraisal drives everything because it sets the value the 80% is applied to. A low appraisal shrinks the ceiling and the cash with it.
HUD’s Mortgagee Letter 2019-11 cut the FHA cash-out cap from 85% to 80% of adjusted value. HUD said the change was meant to strengthen equity in cash-out loans. If you read an older page that says 85%, it is out of date.
What Do Different Scenarios Look Like?
The PACE balance comes out of the same 80% room as your old mortgage. Four common shapes, described in percentages and plain words:
| Scenario | PACE balance | Likely result |
|---|---|---|
| No PACE | None | Most of the room above the old mortgage becomes cash |
| Small PACE | Low share of value | Cash shrinks by the payoff and costs |
| Large PACE | Sizable share of value | Cash is thin |
| PACE exhausts room | Fills the gap | No cash; loan acts like a rate-and-term |
Take a home with a first mortgage near 60% of value. The 80% ceiling leaves about 20 points of room before costs. Costs and the financed premium take a bite. If the PACE balance is 10% of value, roughly half of what is left goes to the payoff. If it is 15% or more, there is almost nothing left.
Run your own file the same way. Get the payoff numbers first, then compare them to 80% of what the appraiser is likely to say.
When Is It Not a Cash-Out at All?
Sometimes the proceeds only retire existing liens, PACE included, and the borrower gets nothing. In that case the loan is a rate-and-term refinance, not a cash-out. That matters for two reasons. The cap can differ, and the file is underwritten as a different transaction.
On the programs Lendmire works with, the FHA rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous 12 months. That is a much higher ceiling than 80%. A borrower with a big PACE balance and little equity above it may find the rate-and-term path fits better than a cash-out. The trade-off is that you receive no cash at closing.
The FHA Streamline does not help here. It refinances an existing FHA loan with no appraisal and a limited credit review, and it produces no meaningful cash. Whether a PACE payoff can ride inside a Streamline depends on lender guidelines.
Where Does the General Rule Break?
Several edge cases change the answer.
- Occupancy. Standard FHA cash-out is for an owner-occupied principal residence. Second homes and rentals do not qualify. Occupancy is the first test, and the 12-month occupancy history is part of it.
- Hawaiian Home Lands. Section 247 mortgages were excluded from the move to 80%.
- PACE taken after an FHA loan. A borrower with an FHA loan can add PACE later. The rule bites at the next refinance or sale, when the payoff comes due.
- Property-tax priority. The CFPB’s final rule on PACE loans did not change the “super lien” status. PACE still sits ahead of the first mortgage.
- Older versus newer PACE. The CFPB’s ability-to-repay rule for PACE took effect March 1, 2026 and is not retroactive to older loans, so it does not fix an existing assessment.
For contrast only, conventional rules differ. Fannie Mae has its own PACE treatment and a cash-back limit on PACE payoffs. FHA does not follow those conventional exceptions, so do not assume the two work alike.
What Does the Payoff Do to Your Tax Bill and Payment?
Paying off PACE removes the assessment from your property tax and escrow side. It also adds the payoff amount to your new FHA loan balance, which changes the mortgage payment. You are swapping one obligation for another, not erasing it.
The size of the swap can be large. CFPB research found PACE raised borrowers’ annual property taxes substantially. Removing that assessment can ease the tax-bill side, though the new loan carries the debt forward.
On the mortgage insurance side, the annual FHA premium runs between 0.15% and 0.75% of the balance depending on term, amount and LTV. On a thirty-year loan above 90% LTV, it lasts the full term. At or below 90% LTV, it ends after 11 years. Because the new loan is capped at 80% of the adjusted (appraised) value, a cash-out sits under that line, which is worth knowing. These are program facts, not prices, and your Loan Estimate shows the actual figures. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What Should You Request Before You Apply?
The PACE paperwork is where files stall. Get these three things in hand early:
1. A current payoff statement from the PACE administrator, with a per-diem so the amount can be updated to the closing date.
2. Evidence of the lien, found on the title report and the property tax bill.
3. Written release instructions, so the assessment is cleared and drops off the tax bill after closing.
Payoff timing matters. The balance moves with interest and with where you sit in the tax-installment cycle, so a stale statement produces a wrong cash figure. The payoff is paid directly to the administrator or taxing authority from loan proceeds. Closing has to leave the FHA mortgage in clear first-lien position. Escrow is recalculated afterward.
A partial PACE payoff generally does not work. The assessment needs to be cleared, not reduced.
Because this is a consumer mortgage, you receive a Loan Estimate and a Closing Disclosure, and the final cash figure on the Closing Disclosure is the one that counts. Sale-side files follow a related rule: HUD’s Mortgagee Letter 2026-07 restates that where a property has PACE, the sales contract must say the seller will satisfy the obligation at or before closing.
What If the Cash Comes Out Too Thin?
Run the numbers before paying for an appraisal. If the PACE payoff eats the room, you have a few options.
- Wait and pay down. Reducing the first mortgage or the PACE balance widens the gap.
- Use rate-and-term. If cash is not the goal, the higher-leverage structure may fit.
- Compare other routes. Some borrowers look at a second-lien product, though that may be hard to arrange while PACE is still on the tax bill.
- Think about the real goal. If you only need to get out from under the assessment, a no-cash refinance may be the honest answer.
Key Terms Defined
PACE: A financing program that funds home improvements and is repaid as an assessment on your property tax bill.
Adjusted Value: The appraised value FHA uses, after adjustments, as the base for the loan-to-value test.
Payoff statement: A written figure from the lienholder showing what is owed on a given date, including per-diem interest.
Rate-and-term refinance: A refinance that replaces existing debt without giving the borrower meaningful cash.
First-lien status: The position of the new mortgage as the first claim on the property after taxes and assessments are cleared.
Frequently Asked Questions
Can I leave the PACE lien in place and still get an FHA cash-out?
No. FHA will not insure a loan on a home with PACE left in place, so the payoff is part of getting into the loan. The assessment is paid from loan proceeds at closing.
Will the PACE payoff always wipe out my cash?
Not always. It depends on how much value sits above the first mortgage and the PACE balance together, measured against 80% of the appraised value. A small PACE balance on a home with solid equity can still leave cash. A large one can leave none.
Is an FHA cash-out the same as a rate-and-term refinance if I get no cash?
If the proceeds only retire existing liens and you receive nothing, the loan is a rate-and-term refinance. That path can reach a higher loan-to-value than a cash-out, which can help when equity is thin.
Does my home have to be my primary residence?
Yes. Standard FHA cash-out is for an owner-occupied principal residence, with the home owned and lived in for the 12 months before the case number. Second homes and investment properties do not qualify.
What happens to my property tax bill after the payoff?
The PACE assessment should drop off, and escrow is recalculated. Your monthly mortgage payment changes because the payoff is added to the new loan balance. Your Loan Estimate shows the actual figures.
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, subject to lender guidelines and full file review. Nothing here is a commitment to lend. 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.
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
2. HUD superseded policy index
3. HUD Mortgagee Letter 2019-11
4. HUD archived press release on cash-out risk
7. HUD Mortgagee Letter 2026-07
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 Much Cash an FHA Cash-Out Releases to an Irrevocable Trust · How Much Cash Reserves an FHA Cash-Out Requires on a Duplex · How Much a Broker Can Charge on an FHA Cash-Out Refinance?
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
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.