Can You Get an FHA Cash-Out Refinance?

The Quick Read: Yes, but only on a home you live in as your primary residence. The new loan is capped at 80% of the home’s appraised value, and you must have owned and lived in the home for 12 months before the case number is assigned. The loan you pay off does not have to be an FHA loan. Lendmire’s FHA cash-out refinance program page covers the program in more detail, and approval always depends on lender guidelines and a full file review.

How Does an FHA Cash-Out Refinance Work?

You replace your current mortgage with a new, larger FHA-insured loan. The new loan pays off the old one, covers any financed costs, and the difference comes to you as cash.

Think of it as a reset, not an add-on. The old first mortgage goes away. A home equity loan or HELOC (a revolving credit line secured by your home) sits beside your first mortgage. A cash-out refinance replaces it.

The 80% cap covers the whole new loan, not just the cash. Your payoff balance and any financed costs use up room under the cap first. What remains is your cash.

Here is the picture. Say your home appraises at a given value. The new loan can reach 80% of that value. Subtract what you owe and the financed costs. That leftover slice is the most cash you could take. Less equity means less cash. Sometimes none.

Do You Need an Existing FHA Loan?

No. Your current loan can be conventional, VA, or anything else. FHA’s definition of a cash-out refinance covers refinancing any mortgage. It even covers a home you own free and clear, where you pull equity out with no loan to pay off.

That surprises people. Many assume FHA cash-out is only for current FHA borrowers. It isn’t.

Who Qualifies, and Who Doesn’t?

You qualify on the basics if the home is your principal residence and you have owned and lived in it for the 12 months before the case number was assigned. That clock runs backward from the case number date, not from your application date. The loan also has to fit under the county loan limit, which changes every year. Check the current limit for your county rather than trusting an old number.

Here is a quick self-check:

A few more points shape the file:

• Credit. Across the wholesale programs Lendmire places FHA files with, the starting point is a decision score of 580. Some lenders set a higher floor. A score does not raise the 80% cap. The cap is a program rule.
• Income and debt. The base pair is 31/43. That means housing costs up to 31% of income and total debts up to 43%. Documented compensating factors, such as savings or a strong payment record, can stretch it up to 40/50 at the top tier. The automated underwriting finding governs most files.
• Payment history. The lender documents your last 12 months of payments. Late payments on your current mortgage draw scrutiny. Handbook rules on late payments have been revised over time, so ask your loan officer how they apply to you.
• Not eligible. Rental properties and second homes don’t fit standard FHA cash-out. Occupancy decides the leverage.

HUD’s own handbook is the rulebook here. The current version is HUD Handbook 4000.1, and HUD has revised its refinance section more than once. Use it as the reference point for the current rules.

Why Is the Cap 80% and Not 85%?

HUD lowered it. HUD Mortgagee Letter 2019-11 cut the maximum loan-to-value (LTV, the loan as a percentage of the home’s value) on cash-out refinances from 85% to 80%. It applies to case numbers assigned on or after September 1, 2019. The combined LTV, which counts any second lien, is capped at 80% as well.

HUD’s reasoning was risk. In its announcement of the change, HUD said cash-out loans were 64% of FHA-insured refinances and 15% of forward endorsements. It had last lowered the cap from 95% to 85% in 2009.

Old web pages still say 85%. Those are stale. The current cap is 80%.

What Does It Cost to Take Cash Out?

Mortgage insurance is the main program cost. FHA charges an upfront premium of 1.75% of the base loan, and it is typically financed into the loan. There is also an annual premium, which runs between 0.15% and 0.75% of the balance. Where you land depends on your term, loan amount and LTV.

Duration matters too. On a thirty-year loan above 90% LTV, the annual premium lasts the whole term. At or below 90%, it ends after eleven years. Cash-out loans cap at 80%, so the second case is the likelier one for a thirty-year term, subject to lender guidelines.

Those are program facts, not a price quote. You get actual figures on your Loan Estimate, and your Closing Disclosure shows the final numbers. Compare both against what you pay today.

Also expect an appraisal. It sets your value, and value sets your cap. A lower appraisal means less cash.

One more cost is easy to miss. You give up your current loan’s terms. If your existing first mortgage has a favorable rate or a short remaining term, replacing it may cost you more than the cash is worth. Run that comparison before you apply.

How Does It Compare With Other Ways to Tap Equity?

Each option fits a different situation.

The CFPB notes that the cost can go either way, depending on the terms of each product. It also points out that a larger loan can raise your payment and stretch out your payoff. Its guide says lenders typically want you to keep 10% to 20% of your home’s value as equity. FHA’s 80% cap sits at the top of that range.

What If You Don’t Meet the Rules?

Edge cases come up often. Here is how they usually play out.

• Under 12 months in the home. Standard cash-out doesn’t fit. A no-cash-out refinance may. Our programs allow an FHA rate-and-term refinance up to 97.75% LTV on a principal residence you’ve occupied for the previous twelve months, with a lower tier if you haven’t.
• Inherited home. If you rent it out after inheriting, you generally can’t cash out until you’ve lived in it as your principal residence for 12 months.
• Free and clear. You can still do it. The loan simply has nothing to pay off.
• Wanting the lowest hassle. 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 continues. It does not put cash in your pocket.
• Hawaiian Home Lands. A special program, Section 247, is outside the 80% change. It rarely applies, so ask your loan officer if it fits you.
• Manufactured homes. Lenders often add their own conditions. Ask early.

Some lenders add overlays, which are rules stricter than HUD’s. A listing-status rule is one example. Different lenders quote different minimums for that reason. Your loan officer can tell you which apply.

What Do Borrowers Actually Do With the Cash?

FHA doesn’t restrict how you use it. Many borrowers pay down higher-interest debt or fund home repairs.

The CFPB’s research on borrowers from 2014 through 2021 is a useful caution. They often paid down credit card and auto debt, and their credit scores rose. Then the scores slipped back gradually, and card balances started creeping up again within a year.

The lesson is plain. Clearing cards with home equity only helps if the cards stay clear. You are swapping unsecured debt for debt secured by your house.

Is It Right for You?

It fits when:

• You live in the home and have for over a year.
• Your credit is in the 580-and-up range but maybe not top-tier.
• You have meaningful equity left after the 80% cap.
• The cash has a clear job, such as repairs or debt payoff.

Look elsewhere when:

• Your current first mortgage has terms you’d hate to lose.
• You need only a small amount, where a second lien may cost less.
• You are close to the 80% line, so the cash would be thin.
• The cash would cover spending you can’t sustain.

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 the loan through wholesale lenders. Reach the team at 828-256-2183.

Key Terms Defined

• Cash-out refinance: A new, larger mortgage that pays off your old one and gives you the difference in cash.
• LTV (loan-to-value): Your loan balance as a percentage of the home’s appraised value.
• Adjusted value: HUD’s formula for the appraised value used to apply the 80% cap.
• Case number: The FHA ID assigned to your loan file. The 12-month occupancy clock counts back from it.
• Mortgage insurance premium (MIP): FHA’s insurance charge, paid upfront and annually.
• Compensating factors: Strengths in your file, like savings, that can offset a higher debt ratio.

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.

For the program’s current guidelines, see FHA loan programs.

References

1. HUD Handbook 4000.1

2. HUD Mortgagee Letter 2019-11

3. HUD press release PR 19-114

4. CFPB’s research