How Much Debt an FHA Cash-Out Can Combine Into One Payment

The Quick Read: FHA sets no dollar cap on how much debt you can roll into a cash-out refinance. Two limits decide the amount, and county loan limits apply to the new loan as well. The first is loan-to-value: the new loan, together with any liens that stay, cannot exceed 80% of the home’s adjusted value. The second is your debt-to-income ratio, which tests whether the new payment fits your income.

What an FHA Cash-Out Actually Does

An FHA cash-out refinance replaces your current mortgage with a larger one. The extra amount pays off the old loan, covers financed costs, and then clears the debts you choose, such as credit cards, auto loans, or personal loans. Whatever remains comes to you as cash. You end up with one mortgage payment where there used to be several bills.

That is the whole appeal, and it is also the whole catch. One bill is not less debt. The balances move into a bigger loan with a longer term, and they become secured by your home. This article focuses on how to size the debt you can fold in.

Across the wholesale programs we place FHA files with, cash-out is available on a home you have owned and occupied for the 12 months before the case number, up to the program’s maximum loan-to-value. It is for your principal residence only. It is not available on rentals. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Key Terms Defined

Cash-out refinance: A new mortgage larger than your current one, with the difference paid out as cash or used to pay off other debts.

Adjusted value: The appraised value after HUD’s adjustments, which is the number the loan-to-value cap is measured against.

Combined loan-to-value (CLTV): The total of all mortgage liens on the home divided by its adjusted value.

Debt-to-income ratio (DTI): Your monthly obligations divided by your gross monthly income, tested with the new mortgage payment included.

Payoff statement: A creditor’s written balance, required for any debt paid directly at closing.

What Limits the Amount? Two Ceilings and One Cap

Think of the loan as a bucket with a fixed size. Two limits decide the amount: the 80% loan-to-value ceiling and your debt-to-income ratio. The county loan limit is a third check that applies to the new loan.

1. The 80% ceiling. HUD Mortgagee Letter 2019-11 cut the maximum LTV and combined LTV on cash-out refinances to 80% of adjusted value, for case numbers assigned on or after September 1, 2019. Some older lender sheets still show 85%. That figure is out of date for new loans. HUD’s archived announcement framed the change as a way to reduce risk, noting that cash-out had grown to 64 percent of FHA refinances.

2. The county loan limit. FHA limits are set by county and unit count, and they change every year. County loan limits apply to the new loan, so check HUD’s lookup tool for your county. For many homeowners the 80% ceiling bites first, but in higher-cost areas or on larger balances it is worth checking both.

3. Your DTI. Equity may leave room for the debts, but your income still has to support the new payment. Across the programs we work with, the base ratio pair is 31/43 (housing over total) with no compensating factors. With documented compensating factors, the ratios can reach 40/50 at the top tier. The automated underwriting finding governs most files.

How to Size the Debt You Can Combine

Here is the sizing logic, step by step. You can run it on a napkin before you talk to anyone.

1. Start with the appraised value. Adjustments under HUD’s rules may change it, and a low appraisal shrinks everything below.

2. Take 80% of the adjusted value. That is the largest total of all liens the home can carry.

3. Subtract your current first mortgage payoff. The new loan has to retire it.

4. Subtract any second lien. If it stays in place, it still counts toward the combined 80%. If you pay it off, it comes out of the new loan instead. Either way it uses room. A second lien does not get you past the cap.

5. Subtract financed costs. That includes closing costs and the upfront mortgage insurance premium, which is financed into the balance. Confirm the exact premium and cost amounts with your lender and a qualified local professional.

6. What remains is the room for debt payoffs and cash to you. Compare it to the balances you want to retire.

Run it in percentages. If you owe 60% of the home’s value on your first mortgage and costs take a few more points, the room left under 80% is modest. If you owe 40%, the room is wide. The ratio of what you owe to what the home is worth does most of the work, not the dollar size of your credit card balances.

When the Debt Exceeds the Room

If your balances are bigger than the leftover room, the loan cannot cover all of them. Nothing blocks the closing. You simply choose which debts to retire. A sensible priority order:

• Highest-cost unsecured debt first. Credit cards and personal loans usually carry the steepest costs.
• Debts with the largest monthly payments relative to their balances. These free the most DTI room.
• Leave alone low-cost debts, loans that are nearly paid off, and federal student loans that carry protections a mortgage does not.

Some lenders also cap how much a borrower can take as cash. Ask whether your file allows debts paid at closing to exceed the cash you receive.

Which Debts Can You Roll In?

HUD defines a cash-out refinance as one where the proceeds are not limited to specific purposes, so paying off consumer debt is a permitted use. Here is how common debts behave in practice.

How Paid-Off Debts Affect Your DTI

Debts paid off at closing generally drop out of the DTI calculation. But the underwriter counts the larger new mortgage payment first, and that is the number that matters. A borrower whose monthly obligations are heavy only because of card payments often sees DTI improve. A borrower whose DTI is already tight for other reasons may not.

Creditors must provide payoff statements for debts paid at closing. Payoffs go straight to the creditors, not to you. That keeps the accounts from being paid out of your pocket and the balances from lingering.

Installment loans with only a small number of remaining payments may be excluded from DTI under the handbook, so rolling them in can add cost without helping the ratio. A student loan that reports no required monthly payment may still be counted by underwriting under HUD’s rules, so do not assume it disappears from the calculation.

Where the General Rule Breaks

The 80% rule and the DTI test cover most files. These edge cases change the picture.

• Judgments. HUD Mortgagee Letter 2013-24 says FHA requires judgments to be paid before a loan is eligible for insurance. On a cash-out, a judgment can be paid from proceeds at closing, which uses part of your 80%. HUD’s current guidelines have since absorbed that letter, so current treatment can include repayment-agreement options. Confirm the details with a loan officer.
• Collections. The same letter says FHA does not require collection accounts to be paid off, though large balances trigger a capacity analysis. Medical collections and charge-offs are excluded from that guidance. Above a cumulative threshold set by HUD, a payoff or a payment treatment in DTI can come into play.
• Free-and-clear homes. HUD’s definition of a cash-out refinance covers a withdrawal of equity where no mortgage currently exists. Debt consolidation is possible on a home with no loan.
• Inherited homes. The 12-month occupancy test may be relaxed for heirs who have not rented the home. Treat that as an exception to verify with your loan officer.
• Hawaiian Homelands (Section 247). The 80% change does not apply to these mortgages.
• Rentals and investment properties. FHA cash-out is for your primary residence only.
• Recent late payments. Generally you need about a year of ownership and occupancy and a clean recent payment record on the loan being refinanced. Exact tiers are set in HUD’s guidelines and reviewed file by file.

What Does One Payment Really Mean?

Consolidation shrinks the number of bills, and often the monthly total. It does not shrink the debt. The CFPB notes that a lower monthly payment on a consolidation loan can come from a longer repayment period, and that can raise the overall cost. Credit card balances you used to pay off in a few years may now sit inside a mortgage with a far longer term.

Also, the cost of getting there is real. Closing costs apply, and FHA mortgage insurance applies on top. Across the programs we work with, the upfront premium is 1.75% of the base loan, financed. The annual premium runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV. On a thirty-year loan with a higher LTV, the annual premium lasts the full term. With a lower LTV, it ends after eleven years. If you move or refinance again soon, those costs can outweigh what you saved. Subject to lender guidelines, the Loan Estimate shows exactly what applies to your file.

Risk: Unsecured Becomes Secured

Credit card debt that you cannot pay has limited consequences for your house. Mortgage debt you cannot pay does not. The CFPB warns that consolidating credit card debt with home-secured borrowing is risky because you could lose your home to foreclosure if you do not repay. It also notes you could end up underwater if values fall, and that the equity may not be there later for emergencies or repairs. Because the FHA cash-out caps the loan at 80% of value, your equity cushion is at least 20% right after closing, and it can shrink if values fall.

Risk: The Balances Come Back

The CFPB report on cash-out borrowers is worth reading before you commit. It found that borrowers’ credit scores rose sharply at first, then gradually worsened. Card balances trended back toward pre-refinance levels within a year, though not all the way. A paid-off card is only a fresh start if the spending that built it has changed.

How FHA Compares With Other Ways to Consolidate

FHA tends to fit borrowers whose credit profile or ratios are a better match for FHA guidelines than for conventional ones. If you hold a strong score and ample equity, a conventional cash-out may carry lower ongoing insurance costs. If your current first mortgage is one you would rather keep as is, a second lien may be worth a look, but it still counts against the combined 80%.

The Closing Process in Plain Terms

You receive a Loan Estimate, then a Closing Disclosure. Because this is a refinance on your principal home, the right of rescission gives you three business days after signing to cancel. If you cancel, you still owe your original loan. Funds are generally disbursed after that window ends, and payoffs then go to creditors.

Is It the Right Move for You?

An FHA cash-out tends to make sense when your balances carry high costs, your equity leaves room under the 80% ceiling, your DTI works with the new mortgage payment, and you plan to stay long enough for the costs to pay off. It tends to be the wrong move when you are likely to sell soon, when your debts are small or nearly paid, or when the spending behind them has not changed.

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.

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 (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.

References

1. HUD Mortgagee Letter 2019-11

2. HUD Archives press release PR 19-114

3. HUD Mortgagee Letter 2013-24

4. CFPB: consolidating your credit card debt

5. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores

6. CFPB: Right of rescission