The Quick Read: An FHA cash-out refinance lends up to 80% of your home’s appraised value, and your pension and Social Security income decide how much of that room you can actually use. The 80% is a ceiling on the new loan, not a promise of cash. Your payoff, closing costs and financed mortgage insurance come out of the room first. Whatever remains is the cash you can receive, and only if your documented income carries the new payment.
Key Takeaways
- Two limits shape the loan: equity sets the ceiling, and income decides whether you can reach it.
- Retirement income counts when it is documented, current and likely to continue.
- Only the nontaxable slice of your income can be “grossed up,” which means counted at a higher value on paper.
- The cash in your pocket is smaller than 80% of the value minus your payoff.
- Cash-out is for a home you live in. A rental or second home is a different loan, and occupancy sets the leverage.
What an FHA Cash-Out Refinance Actually Is
An FHA cash-out refinance replaces your current mortgage with a new, larger FHA-insured one. You keep the difference between the new loan and what you owed, after costs. That difference is the cash.
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.
The loan must be on your primary residence. The home generally must be one you have owned and lived in for the 12 months before the case number is assigned. A case number is the file ID FHA gives each loan. On most files, the borrower on title must be the one who meets that 12-month test.
You do not need an existing FHA loan. A conventional loan, a VA loan or a paid-off home can all be refinanced into FHA cash-out. Cash-out here means the proceeds are not limited to one purpose. You can use them for repairs, debt, medical bills or a cushion.
Key Terms Defined
Adjusted value: The value a lender uses for loan sizing after reviewing the appraisal, which may differ from the contract price or the borrower’s own estimate. The 80% ceiling is measured against it.
LTV (loan-to-value): The new loan divided by the home’s value. An 80% LTV means the loan equals 80% of value. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
DTI (debt-to-income): Your monthly debts divided by gross monthly income. Gross means before taxes.
Gross-up: A lender’s adjustment that raises nontaxable income on paper to reflect the tax you do not pay on it.
Effective income: Income the lender is allowed to count because it is documented and likely to continue.
Upfront mortgage insurance premium: A one-time FHA charge of 1.75% of the base loan, which can be financed into the balance.
How the Loan Gets Underwritten, Step by Step
Underwriting is the lender’s review of whether the file fits the program. Here is the sequence on an FHA cash-out.
Step 1: The eligibility screen. The lender confirms you owned and occupied the home for the 12 months before the case number. It also checks your payment history on the current loan. Late payments in that window can stop a file early.
Step 2: The appraisal. An appraiser sets the value. The 80% ceiling is applied to that number. A low appraisal shrinks everything downstream.
Step 3: Income documentation. You prove each income source. The next section shows what each one needs.
Step 4: The gross-up. If part of your income is nontaxable, the lender may add back the tax savings and count the higher figure. The amount added is capped, and the lender must document how it got there.
Step 5: Debt-to-income ratios. The lender compares your total monthly debts, including the new payment, with your gross-up-adjusted income. FHA’s base ratios are 31/43: housing costs at 31% of income and total debts at 43%, with no compensating factors. Documented compensating factors, such as reserves or a low payment increase, can stretch those ratios, and the top tier reaches 40/50. An automated underwriting finding governs most files.
Step 6: The credit score. Across the wholesale programs Lendmire places FHA files with, the starting decision score is 580. Some lenders set a higher floor than that, so a 580 does not mean every lender will say yes.
What the Lender Wants to See for Each Income Type
HUD’s Handbook 4000.1 glossary defines pension as income from a former employer. It defines retirement income as pensions, 401(k) distributions and Social Security. It also notes that “some portion” of Social Security can be nontaxable. Those definitions drive the table below.
| Income source | Typical proof | Continuity question |
|---|---|---|
| Pension | Award letter, bank statements | Likely to last three years? |
| Social Security (retirement) | Award letter, bank deposits | Current amount counts |
| Social Security disability | Award letter plus one backup | Expiration within three years? |
| 401(k) or IRA draws | Account statements | Can the balance support draws? |
The three-year test comes straight from HUD’s own guidance. Effective income must be reasonably likely to continue for at least the first three years of the mortgage. That document comes from HUD’s reverse-mortgage guidance, so treat it as a pointer. The same principle runs through the forward-mortgage rules.
For a pension, the lender verifies the payments are received and will go on. A pension with a stated end date, or one that drops at a certain age, needs a closer look. A survivor option can matter too.
Disability is different. The lender needs the latest award letter or an equivalent document, plus a backup such as a tax return or bank statement showing the deposits. The Consumer Financial Protection Bureau has noted that an award letter with no expiration date is treated as income likely to continue. It has also said lenders may not ask about the nature of your disability or your medical condition.
Why the Gross-Up Helps (and Where It Stops)
The gross-up is the most useful and most misunderstood piece of retiree underwriting. If your Social Security is partly or fully nontaxable, you keep every dollar of that slice. A lender can count it at a higher value for qualifying purposes.
Three limits apply.
- Only the nontaxable portion qualifies. A fully taxable pension gets no gross-up.
- The addition is capped, and the lender must document the figure and the tax rate used.
- It improves your ratio on paper. It does not put one extra dollar in your account each month.
Your tax documents decide how much of your Social Security is nontaxable. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The gross-up also does not carry across every program. Reverse mortgages use a different method, called a residual-income analysis, in which taxes are counted as expenses. So a trick that helps on FHA cash-out will not automatically work elsewhere.
From Home Value to Cash in Hand
Here is the walkthrough in percentages, because the dollar amounts depend entirely on your home. Think of the appraised value as 100%.
1. The ceiling is 80% of that value.
2. Say your current mortgage balance is 55% of value.
3. That leaves 25 points of value as room, before costs.
4. Closing costs come out of that room, whether you pay them in cash or roll them into the balance.
5. The 1.75% upfront premium is financed into the loan, so it also reduces what you net.
6. What remains is your cash, if your income supports the new payment.
The county loan limit also applies, and it changes every year. Combined liens cannot exceed the program maximums either, so the first and any subordinate liens together must stay within the limits.
The 80% limit is on the loan, not on the cash. A cap of “80% of your home” is easy to read as a check for that much. The payoff alone can take most of it.
Three Retiree Profiles, Without the Dollar Signs
The pension-heavy borrower. A retired teacher draws a steady pension and a smaller Social Security check. Pension income is usually fully taxable, so there is little to gross up. The file lives or dies on whether the pension continues for three years and whether the new payment fits the base 31/43 ratios.
The Social Security-heavy borrower. A retiree lives mostly on Social Security with a modest pension. Part of that benefit may be nontaxable, so the gross-up can lift qualifying income noticeably. The honest limit is that a thin income file can still strain the ratios even with the lift. Then the loan amount shrinks, or a lower-cost loan structure is the better answer.
The combined-income borrower. A couple with two Social Security checks, a pension and small account withdrawals has the most to document. Each source gets its own proof. The lender adds them up, grosses up the nontaxable slices, and runs the ratios on the total. More paper, but often the strongest file.
In all three, the underwriter asks the same question. Can this household carry the new payment on income that is documented, current and likely to last?
Where the General Rule Breaks
Income that ends within three years. Disability income due to expire inside that window generally cannot count as effective income. The same goes for any benefit with a visible end date.
Retirement account draws. A 401(k) or IRA can count, but the lender needs evidence the account can support the draws. Requirements here vary by lender, so ask early.
A paid-off home. A new loan on a home with no mortgage still counts as cash-out. The 80% ceiling applies, and the income test is the same. Taking on a payment for the first time in retirement deserves honest thought.
An inherited home. A property you inherited may qualify if you have lived there as your primary residence since the inheritance. Rules on this have changed over time, so confirm the current handbook language with your loan officer before assuming it works.
A rental or second home. Standard FHA cash-out is for a principal residence only. Occupancy decides the leverage.
Lender overlays. HUD sets minimums, and individual lenders can add their own. Some require a higher credit score than the program minimum. A “no” from one lender is not always a “no” from all of them.
Cash-Out or Something Else?
| Option | Cash to you | Income test | Key tradeoff |
|---|---|---|---|
| FHA cash-out | Yes, up to a capped LTV | Yes | New payment on larger loan |
| FHA rate-and-term | No | Yes | Reaches 97.75% LTV |
| FHA streamline | No | Limited review | Needs existing FHA loan |
| Home equity loan or line | Yes | Yes | Second payment, keep first loan |
| Reverse mortgage | Yes | Residual income | No monthly mortgage payment |
A streamline is the lightest-touch refinance. It has no appraisal and a limited credit review, but it has to show a net tangible benefit and it pays out no cash. The FHA rate-and-term with an appraisal reaches 97.75% on a primary residence you have occupied for the previous twelve months, and it is for lowering a payment or changing a term, not pulling equity.
This one is a genuine judgment call. A retiree with a low-cost first mortgage may be better off keeping it and borrowing against equity separately. A retiree whose current loan is already unaffordable might get more from a refinance that changes the payment. The right answer depends on what the first loan costs and what the cash is for.
For a veteran, a VA-based path can change the picture entirely. Lendmire’s piece How Much a VA Cash-Out Lends a Retiree on Pension and Social Security walks through that comparison.
Mistakes Retirees Make
- Counting the 80% as cash. The payoff and costs come first.
- Assuming one lender’s answer is final. Overlays differ.
- Forgetting the payment stability question. For fixed income, a steady payment matters more than the size of the check.
- Overlooking survivor income. If a spouse dies and a benefit drops, the household income drops too. Think about that before you sign.
- Treating gross-up as extra cash. It helps the paperwork, not the budget.
- Skipping the mortgage insurance math. 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 at higher LTVs it lasts for the term. At lower LTVs it ends after eleven years. These are program facts, not a price quote. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Before You Apply: A Short Checklist
1. Gather your benefit award letters for every income source. 2. Pull recent bank statements showing the deposits. 3. Collect your latest tax return, since it shows the taxable and nontaxable split. 4. Check your payment history on the current mortgage. 5. Confirm your 12 months of ownership and occupancy. 6. Decide what the cash is for, and whether a smaller amount would do. 7. Look at your monthly budget before the payment, not after.
Weighing It Against Your Current Loan
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 is a mortgage broker, so it arranges these loans through wholesale lenders rather than lending directly. Every figure here is a program guideline, subject to lender review of your full file, and none of it is a commitment to lend.
Frequently Asked Questions
Can pension or Social Security be my only income?
Yes, if it is documented, current and likely to last at least three years. Retirement Social Security uses the current amount you receive. Pension needs proof that payments continue. The file still has to pass the ratio test with the new payment included, and underwriting is subject to lender guidelines.
Does an FHA cash-out lend 80% of my home’s value in cash?
No. The 80% limit is on the total loan. Your existing mortgage balance, closing costs and the financed 1.75% upfront premium come out first. What remains is your cash, and your income has to support the new payment before you can use all of that room.
Will the lender ask about my disability?
The lender needs documents that prove the income, such as an award letter. It may not ask about the nature of your disability or your medical condition. If the award letter shows an end date inside three years, that income cannot count as effective income.
Can I use a 401(k) or IRA as income?
Often yes, but the lender needs proof that the account can support the draws. The test is about the balance supporting the withdrawals, not just that you take them. Requirements differ by lender, so ask about them before you start gathering statements.
Do I need an FHA loan already?
No. A conventional, VA or paid-off home can all qualify, as long as the home is your primary residence and you meet the ownership and occupancy test. Your credit and payment history on the current loan still get reviewed.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. 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
1. HUD Handbook 4000.1 glossary
2. HUD HECM Financial Assessment Guide attachment
3. CFPB Bulletin on disability income
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 an FHA Cash-Out Lends a Veteran With Thin Credit · How Much an FHA Cash-Out Lends on a Home With Leased Solar Panels · How Much an FHA Cash-Out Lends Under the Inheritance Exception
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.