The Quick Read: On an FHA cash-out refinance, the appraiser’s number sets the loan-to-value ceiling on your new loan, though county or nationwide FHA loan limits and your own qualifying can also hold the loan below it. The ceiling is 80% of the appraised value, and that one cap covers the whole new loan. Your cash is what is left after the old loan is paid off and costs are covered. A lower appraisal shrinks the ceiling, and the cash shrinks faster.
Your own estimate, a listing site’s guess, and what the house down the street sold for last spring do not set the loan. Only the appraisal ordered for your FHA file counts.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.32% as of October 22, 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.
Key Terms Defined
Appraised value. An FHA-approved appraiser’s written opinion of what your home is worth, based on comparable sales and the home’s condition.
LTV (loan-to-value). The new loan balance divided by the home’s value, shown as a percentage.
Cash-out refinance. A new, larger mortgage that pays off the old one and hands you the difference in cash.
Payoff. The amount needed to clear your existing mortgage and any other liens on the home.
Prepaids. Costs paid up front at closing, such as the first stretch of homeowner’s insurance and escrow deposits.
Mortgage insurance premium (MIP). FHA’s insurance on the loan. There is an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium.
What Does “Appraised Value Sets the Loan” Actually Mean?
It means the lender starts from the appraisal and works down. It never starts from what you hope to borrow. The appraisal produces a value. The program applies a percentage cap to that value. The result is the most the new loan can be.
Across the wholesale programs Lendmire places FHA files with, the cash-out refinance reaches 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned. That 80% comes from HUD. HUD’s Handbook 4000.1 transmittal records the change that set the maximum LTV and combined LTV at 80 percent on cash-out refinances. Older material still circulates with an 85% figure. That number is outdated. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
If you want the program overview first, Lendmire’s FHA cash-out refinance program page lays out the basics. Here, the focus is the appraisal and what it does to your numbers.
Why Isn’t This Just “80% of My Equity”?
Because the 80% applies to the home’s value, not to your equity. This is the most common misreading, and it makes people overestimate their cash.
Say your home appraises at a round 100 units of value. The loan ceiling is 80 units. If your current mortgage balance is 60 units, the new loan can add at most 20 units on top of that payoff. Then costs come out of the 20. If you had read “80% of equity,” you would have expected far more.
The cap also covers the combined liens. If a second mortgage sits on the home, it has to be paid off or fit under the same ceiling. The first loan plus any subordinate liens cannot exceed the cap.
How Is the FHA Cash-Out Loan Underwritten, Step by Step?
The appraisal is step three, but the steps before it can stop the loan before the appraiser ever visits. Here is the sequence.
1. Eligibility first. Cash-out is for your owner-occupied principal residence. Under the wholesale programs we use, you must have owned and lived in the home for 12 months before the case number is assigned. Lenders look at things like utility bills or employment records to confirm you live there. Keep those papers handy.
2. Payment history. Lenders must document that you made your mortgage payments within the month due for the previous 12 months, or since you got the loan if that is shorter. HUD’s Mortgagee Letter 2020-30 carries that language, and payments must be current for the month before disbursement. HUD later clarified that the 12-month history applies whether the file is run through the automated TOTAL Scorecard or underwritten manually.
3. The appraisal. The lender orders an FHA appraisal. The value, as adjusted under HUD’s rules, becomes the base for the percentage cap.
4. The ceiling. Maximum new loan equals 80% of the adjusted value.
5. The cash. New loan, minus the payoff of existing liens, minus closing costs and prepaids, equals the cash you receive.
6. Qualifying. Income, credit, and the new payment still have to work. FHA mortgage insurance and the ratios apply. The usual base pair is 31/43 (housing and total debt as a share of income), and documented compensating factors can stretch that to 40/50 at the top tier. An automated finding governs most files.
Step six is why the ceiling is not a promise. You can sit right at 80% and still not qualify. Credit, income, and payment history are tested separately, subject to lender guidelines and full file review.
A Worked Example With Round Numbers
These inputs are modeled assumptions, not market data. They use plain units so no dollar figures sneak in.
Picture a home that you expect to appraise at 100 units. Your current loan balance is 55 units. Estimated closing costs and prepaids come to about 4 units.
| Appraised value | Ceiling (80%) | Less payoff | Less costs | Cash to you |
|---|---|---|---|---|
| 100 | 80 | 55 | 4 | 21 |
| 95 | 76 | 55 | 4 | 17 |
| 90 | 72 | 55 | 4 | 13 |
| 105 | 84 | 55 | 4 | 25 |
Look at the pattern. A 5% miss on value moves the ceiling by 4 units, and the cash falls by 4 units. Compare the 100 row with the 90 row: a 10% drop in value cuts the cash from 21 to 13. That is a drop of roughly 38% in cash from a 10% drop in value.
The payoff and costs do not shrink when the appraisal does. The whole swing lands on your cash. This is why a modest appraisal miss can feel like a big one.
Which Number Actually Binds?
Usually the 80% cap does. But three limits can each be the binding one, and the lowest wins.
| Limit | What it is | When it controls |
|---|---|---|
| Value-based cap | 80% of adjusted appraised value | Most files |
| County loan limit | Set by county, changes each year | Higher-priced homes |
| Qualifying limit | Income, credit, ratios | When the payment will not fit |
County loan limits apply to FHA loans, and the first mortgage plus any subordinate liens cannot exceed the Nationwide Mortgage Limit under the handbook text. Your loan officer checks your county’s figure. It is worth asking about before you assume the 80% number is the end of the story.
The third row is the one borrowers forget. A home can appraise beautifully and the loan can still come up short because the new payment strains your income.
What Happens When the Appraisal Comes In Low?
Your ceiling drops and your cash drops with it. You have four practical options.
- Take less cash. Re-size the request to the new ceiling. If the payoff and costs still leave room, the loan can go ahead at a smaller amount.
- Skip the cash-out. If the cash is gone, ask whether a different FHA refinance fits. The FHA rate-and-term with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months. That is a different product with a different goal: no cash comes out.
- Ask about the value. Raise it with your loan officer, with evidence (more on that below).
- Wait. Home values and your own payoff balance both move. Sometimes the answer is to try again later.
A high appraisal helps the same way in reverse. A higher value lifts the ceiling, though you still only borrow what you need and qualify for.
Notice the missing piece from a purchase. When you buy, the loan follows the lesser of price or value, so the price competes with the appraisal. A refinance has no price. Value alone sets the basis. There is nothing to renegotiate with.
Value Versus Condition
The appraiser does two jobs. One is the number. The other is a check on whether the home meets FHA’s property standards. A home can have a fine value and still need repairs before the loan goes forward, such as safety or structural items the appraiser flags.
So a good result on value does not close the file by itself. If the report calls for repairs, those have to be handled. Walk the property with fresh eyes before the appraiser arrives. Peeling paint on an old house, a broken railing, or a leaking roof can turn into conditions on the loan.
Can You Challenge the Value?
You can ask. You cannot demand a particular outcome. Here is where the rules have moved around, so be careful.
HUD created a formal borrower-initiated Reconsideration of Value process in Mortgagee Letter 2024-07. A later HUD mortgagee letter rescinded it. So do not assume a federally mandated FHA appeal right exists today. The practical move is to ask your loan officer how the lender handles a value you believe is wrong.
If you do ask, bring evidence, not opinions:
- Recent sales of similar homes close by that the appraiser may have missed.
- Documented upgrades or square footage that the report left out.
- Any factual error, like a wrong bedroom count or lot size.
Your own estimate or an online price guess is a planning range only. It does not govern the loan.
What Edge Cases Break the Normal Rule?
The 80% rule is general. These cases bend it, per the handbook text. Confirm specifics for your file.
- Inherited homes. The 12-month occupancy rule can be waived for an inherited property, as long as you have not treated it as an investment since inheriting. If you rent it out after inheriting, you would first need to live in it as your principal residence for 12 months.
- Manufactured homes. The home must have been permanently installed on its site for more than 12 months before the case number is assigned.
- Hawaiian Homelands. The 80% policy does not apply to loans insured under Section 247.
- Forbearance or modification in the past 12 months. The lender needs the plan and proof of the payment amounts and dates.
- No existing mortgage. HUD has addressed cash-out refinances where no mortgage was in place before, with its own documentation requirements.
- Rentals and second homes. One sentence covers it: occupancy decides the leverage, and the FHA cash-out is for the home you live in.
What Does the Decision Look Like in Practice?
Start with the cash you actually need, not the maximum available. Every extra unit borrowed means a bigger loan, a bigger payment, and more FHA mortgage insurance. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years. A cash-out at 80% sits below that line, but premiums still apply and depend on term, amount, and LTV. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Then compare it to what you have. If your current loan is already a strong one, trading it for a bigger loan only makes sense if the cash earns its keep. Weigh the new mortgage insurance, the costs, and the larger balance against what you plan to do with the money.
You also have appraisal rights. Under federal rules, you get a copy of the appraisal, and the lender must tell you of that right in writing, per the CFPB’s valuation factsheet. The lender can charge a reasonable fee for the appraisal itself, but the copy comes at no added cost, per the Federal Register. Read yours. Mistakes in a report are easier to fix early.
Lendmire’s piece How a Lender Sizes Your Cash-Out Refinance From Appraised Value covers the same math from the lender’s side.
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.
Frequently Asked Questions
Is the FHA cash-out limit 80% or 85% of value?
It is 80% of the adjusted appraised value. The older 85% cap was cut to 80% in HUD’s 2019 change. Archived HUD reference material still shows 85%, which is outdated. Program figures remain subject to lender guidelines and full file review.
Can I use an online home value estimate to calculate my FHA cash-out limit?
No. Only the appraisal ordered for your FHA case sets the value. Treat online numbers as a rough planning range. They can help you decide whether to start, but the appraiser’s figure is the one the lender uses.
If I hit the 80% ceiling, am I approved?
No. The ceiling is a maximum, not a promise. Income, credit, the 12-month payment history, the new payment, and FHA mortgage insurance all still have to qualify. Nothing here is a commitment to lend.
Can I get FHA cash-out money on a rental property?
No. The FHA cash-out refinance is for an owner-occupied principal residence. The one named exception is an inherited home you have not treated as an investment property since receiving it.
What if I disagree with the appraised value?
Talk to your loan officer about how the lender handles it. HUD’s formal reconsideration process was rescinded, so do not count on a federally required appeal. Bring recent comparable sales or documented errors, and be ready to re-size the loan if the value stands.
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.
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References
1. HUD Handbook 4000.1 transmittal (Oct 2019)
2. HUD Mortgagee Letter 2020-30
3. HUD Mortgagee Letter 2024-07
4. CFPB ECOA Valuations transaction coverage factsheet
5. Federal Register, ECOA/Reg B appraisal rule
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 an FHA Cash-Out Refinance Sizes the Loan Versus a Streamline · FHA Cash-Out Refinance Requirements Versus an FHA Streamline · Can You Qualify for an FHA Cash-Out Refinance With Thin Credit?
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.