The Quick Read: FHA cash-out lends on a duplex with a vacant unit at the same cap as any owner-occupied home: 80% of the appraised value. An empty unit does not shrink that cap. It changes what the appraiser reports about rent and how much rental income can help you qualify. Terms are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
What Does the 80% Cap Actually Measure?
The cap is 80% of adjusted value, applied to the whole new loan. It is not 80% of the cash you take out. Your payoff, any lien that stays, and financed costs all sit inside that 80% before a dollar reaches 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.
HUD set this limit in Mortgagee Letter 2019-11, which caps both the loan-to-value (LTV) and the combined loan-to-value (CLTV) at 80% of adjusted value. LTV is the loan balance divided by the home’s value. CLTV adds any other liens on top. The letter measures both against adjusted value, the appraised value after HUD’s adjustments.
Older numbers still float around. HUD’s archived announcement says the cap dropped from 85% to 80%, and that FHA had earlier cut it from 95% to 85%. If a website tells you FHA cash-out goes to 85% or 95%, it is stale. Skip it.
Here is the practical result. You must keep at least 20% equity in the duplex. A tenant in the second unit does not raise that. A vacant second unit does not lower it.
Does a Vacant Unit Change the Loan Amount?
No. The loan ceiling comes from three things: the appraised value, the 80% cap, and the county loan limit. County loan limits apply and change every year, so confirm yours with a loan officer. Occupancy of the other unit is not an input to the cap.
The vacancy matters somewhere else. It affects how the file shows income, and it can affect what the appraiser notes about the building. Those are real issues. They are just not leverage issues.
Think of the file as two separate questions. How much can the property support? That is value times 80%. Can you qualify for that amount? That is your income, debts, credit, and payment history. A vacant unit touches the second question only.
How Is the Loan Underwritten, Step by Step?
The loan moves through six checks: occupancy, ownership time, appraisal, the maximum loan, qualifying income, and credit. Each one is separate. Passing one does not carry the others.
1. Occupancy. FHA cash-out is for a principal residence only. You live in one unit of the duplex, and the vacant unit is the other. A duplex you do not live in is not an FHA cash-out candidate. Occupancy decides whether the program fits at all, while the vacant unit does not change the cap.
2. Ownership time. The FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned. The case number is the file’s FHA identifier, assigned early in the process. HUD’s archived reference guide shows the same one-year ownership idea, though that page is outdated on the cap itself. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
3. Appraisal. The appraiser reports two outputs on a two-unit building: value and market rent. Rent goes on the Small Residential Income Property Appraisal Report (Fannie Mae Form 1025 / Freddie Mac Form 72), per HUD Mortgagee Letter 2023-17. A vacant unit has no lease, so the appraiser’s rent opinion stands in for one.
4. Maximum loan. Take 80% of adjusted value. Subtract nothing for the empty unit.
5. Qualifying income. Your documented income is the base. Rent from the unit you do not occupy may be counted as a discounted amount, under HUD’s rental-income rules and each lender’s overlays. An overlay is a lender’s own stricter rule layered on top of HUD’s.
6. Credit and payment history. These are separate tests. The wholesale programs Lendmire places FHA loans with set the floor at a 580 decision score. The decision score is the credit score the lender uses to make the call. The base ratios are 31/43 (housing payment over income, then total debt over income) with no compensating factors. Documented compensating factors, such as reserves or a strong payment history, can reach 40/50 at the top tier. The automated underwriting finding governs most files.
How Does the Lender Treat Rent on a Vacant Unit?
The lender relies on the appraiser’s market-rent opinion, not a lease. HUD’s rules allow subject-property rent as effective income on a two- to four-unit dwelling. Where a unit has little or no rental history, the documentation is an appraisal showing fair market rent on Form 1025, per Mortgagee Letter 2023-17.
Now the honest part. How much of that projected rent a lender will count on a cash-out, as opposed to a purchase, depends on HUD’s rental-income rules and the lender’s overlays. Lenders apply a discount to rent, and they differ on the details. I will not hand you a single percentage, because it is not one number across the board. Ask your loan officer how the lender treats vacant-unit rent on a cash-out file before you pay for an appraisal.
Two points hold in nearly every case:
- Only the unit you do not occupy counts toward your income. Your own unit’s rent does not.
- Rent can improve your debt-to-income ratio. It does not enlarge the loan.
A unit with a tenant is documented differently. Leases and tax returns can show a history of rent. A vacant unit takes the no-history path.
Vacant Versus Leased: What Changes?
The cap, the equity you must keep, and the loan ceiling stay the same. The evidence for rent and the risk to you change.
| Factor | Leased unit | Vacant unit |
|---|---|---|
| Rent evidence | Leases, returns, appraisal | Appraiser’s market rent |
| Effect on loan size | None | None |
| Effect on qualifying | Documented rent may help | Projected rent may help |
| Cost to you | Income arrives | Costs continue, no rent |
Run a mental picture. Take a duplex appraised at a round number, and apply 80%. That is the ceiling whether the second unit has a tenant or a “for rent” sign. What differs is how much of your qualifying story rests on an estimate. The appraiser’s rent figure is an opinion, not guaranteed income.
That brings up a cost the underwriting never shows. The mortgage and upkeep continue while the vacant unit earns nothing. If the file only works by counting projected rent, ask yourself whether it works on your own paycheck too.
Where Does the General Rule Break?
The rule bends at three- and four-unit buildings, at property condition, and at a few narrow exceptions. A duplex is the simplest case.
Three- and four-unit buildings. These must pass a self-sufficiency test, which is a rent-based test of whether the property’s income supports itself. A duplex does not face that test. If you are eyeing a triplex, the vacant-unit question gets heavier.
Condition. An empty unit can leave the appraiser free to see and note problems that a tenant’s belongings might have hidden. FHA appraisals check property standards, and a deficiency can hold up the file until it is fixed. An appraisal is also not a home inspection. It reports value and condition against standards. It does not tell you what is behind the walls.
Inherited homes. HUD’s archived guide shows a property inherited within the past 12 months can qualify for cash-out if you have lived in it as a primary residence since the inheritance. That is an older reference, so check current rules before relying on it.
Hawaiian Home Lands. The 80% change does not apply to Section 247 mortgages, per the Consumer Finance Monitor summary of the HUD letter. Rarely relevant. Mentioned for completeness.
Loan limits. County limits cap the loan regardless of LTV. Two-unit limits run higher than one-unit limits and vary by county. Ask what your county’s limit is before you assume 80% is reachable.
What Does the Decision Look Like in Practice?
Your income carries the loan alone. The vacant unit is irrelevant to approval. The loan runs at the cap, and the empty unit is simply a cost you absorb.
Projected rent tips the ratio. Your debt-to-income is close to the line, and counted rent moves it across. This is the file that depends on the lender’s rental-income treatment and overlays. Get the lender’s position in writing before you commit to an appraisal.
The numbers only work with a tenant. Then a lease may change the picture.
Whatever the vacancy looks like, confirm the 12-month ownership clock first. The FHA cash-out requires that you have owned and occupied the home for 12 months before the case number, so check that before anything else.
Think through the costs too. A cash-out replaces your current mortgage with a larger one and hands you the difference. The CFPB notes you often pay closing costs. It also warns that a larger loan can raise your payment and lengthen your payoff. FHA adds mortgage insurance. There is an upfront premium of 1.75% of the base loan, which is financed into the balance. There is also an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV. On a thirty-year loan above 90% LTV the annual premium lasts for the loan term. At or below 90% it ends after eleven years, and a cash-out at its cap falls in that lower group.
Both of those costs are program mechanics, not advertised prices. Your Loan Estimate shows what applies to your file.
What Mistakes Cost Borrowers Most?
Most missteps come from treating rent like a lease it is not. Avoid these:
- Counting your own unit’s rent as income.
- Assuming a vacancy lowers the 80% cap. It does not.
- Quoting old 85% or 95% limits.
- Skipping the occupancy and 12-month ownership check.
- Renting both units, which breaks the principal-residence premise.
- Ordering an appraisal before asking how the lender treats vacant-unit rent.
Where Does Lendmire’s Program Fit?
Lendmire is a mortgage broker. It arranges FHA loans through wholesale lenders, and the lender makes the credit decision.
Other FHA refinance paths exist. The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It requires a net tangible benefit, and the mortgage insurance premium continues. It does not pay you cash. The FHA rate-and-term refinance, with an appraisal, reaches 97.75% on a principal residence you have occupied for the previous twelve months. It also does not pay cash. Only the cash-out reaches into your equity, and it is the one capped at 80%.
Key Terms Defined
LTV (loan-to-value): The loan balance divided by the property’s value.
CLTV (combined loan-to-value): All loans against the property, added together, divided by its value.
Adjusted value: The appraised value after HUD’s adjustments, used to measure the cap.
Market rent: The rent the appraiser estimates a unit would earn, reported on Form 1025.
Seasoning: The required time you have owned and occupied the home before the case number is assigned.
Overlay: A lender’s own rule, stricter than HUD’s minimum.
Principal residence: The home you live in as your main address.
Frequently Asked Questions
Can I do an FHA cash-out if one unit of my duplex is empty?
Yes, if you live in the other unit and meet the ownership and occupancy tests. The vacancy does not disqualify you or lower the 80% cap. It affects how rent is documented and how much rental income helps you qualify, subject to lender guidelines.
Does the lender count rent from the vacant unit as income?
It may, in a discounted form, using the appraiser’s market-rent opinion in place of a lease. The treatment on a cash-out depends on HUD’s rental-income rules and the lender’s overlays. Ask your loan officer for the lender’s position before you order an appraisal.
Is the 80% cap based on the cash I receive?
No. It applies to the entire new loan, including your payoff, any lien that remains, and financed costs. Cash to you is what is left inside that limit.
Do I have to live in the duplex?
Yes. FHA cash-out is for an owner-occupied principal residence. A duplex you do not live in does not fit the program.
Should I use a Streamline instead?
Only if you want a different loan and not cash. The Streamline refinances an existing FHA loan with no appraisal and a limited credit review, and it does not pay out equity.
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.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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 Mortgagee Letter 2019-11
2. HUD Archives press release on cash-out risk
3. HUD Archives reference guide on refinances
4. HUD Mortgagee Letter 2023-17
6. CFPB: loans similar to a HELOC
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 Reserves an FHA Cash-Out Requires on a Duplex · How Much an FHA Cash-Out Lends After a Listing With a Low Mortgage · How Much an FHA Cash-Out Lends on a Home With Leased Solar Panels
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.