The Quick Read: Yes, if the home is your principal residence, you have owned and lived in it for 12 months before the case number, and at least 20% equity stays in the home after closing. The new FHA loan pays off your current mortgage and hands you the difference in cash. Approval then turns on payment history, credit, debt ratios and the appraisal. Everything here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
What “Replacing Your Mortgage” Actually Means
A cash-out refinance does not add a second loan on top of the first. One new loan closes, and the first thing it does is pay off the old mortgage. Whatever is left after the payoff, closing costs and the financed insurance premium comes to you as cash.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.24% as of October 29, 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.
That order matters. The cash is the leftover, not the headline number. Borrowers who assume they can pocket the full gap between the current balance and the maximum loan are the ones who get surprised at the settlement table.
The old loan does not have to be FHA. A conventional loan, a VA loan or a mortgage you paid off years ago can all be replaced by an FHA cash-out. That is different from the FHA Streamline, which only refinances an existing FHA loan and pays no cash at all.
Lendmire’s FHA cash-out refinance program page lays out the program basics. The rest of this piece covers how approval works in practice.
How Much Equity Do You Need?
Plan on keeping at least 20% equity. FHA cash-out reaches 80% loan-to-value, so the new loan, plus any other lien that stays on the home, cannot exceed 80% of the home’s adjusted value.
HUD set that cap in Mortgagee Letter 2019-11, which cut the maximum from the old level for case numbers assigned on or after September 1, 2019. HUD’s press release on the change says the cut aligns FHA with the cash-out limit used by the government-sponsored enterprises.
You will still see 85% quoted on older web pages. It is out of date. If a page quotes it, skip that page.
Two practical points on the cap:
- It is measured against HUD’s adjusted value, which starts from the appraisal. It is not simply what a neighbor’s house sold for.
- Combined loan-to-value counts. If a second mortgage or home equity line stays in place, it uses up part of the 80%.
The Occupancy and Ownership Test
The home must be your principal residence. Second homes and rentals do not qualify for FHA cash-out. Occupancy decides the leverage, and the investor-style programs are a separate product, so that is all this page says about them.
Across the wholesale programs Lendmire places FHA files with, the working rule is that the home is owned and occupied for 12 months before the FHA case number is assigned. The case number date starts the clock, which is why timing matters. A borrower who moved in eleven months ago is not denied for good. The file waits.
Two situations come up often:
- Paid-off homes. A home owned free and clear can still be refinanced as a cash-out. No existing mortgage is needed.
- Inherited homes. Handling differs depending on whether you have lived there since the inheritance. A borrower who inherited and then rented the property has a different occupancy question than one who moved in. Confirm the details with the loan officer before ordering an appraisal.
One more eligibility item. HUD’s Mortgagee Letter 2025-09 revised residency requirements for FHA case numbers assigned on or after May 25, 2025, reserving FHA financing for U.S. citizens and lawful permanent residents. Non-permanent-resident borrowers should ask about this before applying.
What Lenders Check Before Approving
Approval is a stack of tests. Each one can stall a file even when the others pass.
| Test | What the lender looks at | What helps |
|---|---|---|
| Occupancy | 12 months owned and occupied before the case number | ID, utility bills, tax records |
| Payment history | Your current mortgage over the prior 12 months | A clean record, month by month |
| Equity | 80% LTV cap on adjusted value | A realistic home value |
| Credit | Decision score, 580 or higher on the network’s programs | Paying down card balances |
| Ratios | Housing and total debt against income | Documented compensating factors |
| Documents | Income, assets, payoff statement, credit report | A complete package at the start |
Payment history
This is the test that surprises people most. FHA looks hard at how you paid your current mortgage in the prior 12 months. FHA’s idea of a late payment can differ from what a credit bureau reports, so a payment that never showed as late on your credit report may still draw a question. Pull your own mortgage statements before you apply. If there is a blemish, ask the loan officer how it will be read before you pay for an appraisal.
A recent late payment does not always mean a permanent denial. It can mean a delay, a downgrade to manual underwriting, or both. Time cures a lot here.
Credit score
The wholesale programs Lendmire works with start at a 580 decision score. HUD itself reaches lower on some loans, but the network does not go below 580. Some lenders set a higher floor than that. A strong score does not buy more leverage on this loan, because the 80% cap is the same for everyone. Score affects whether you are approved and how the file is underwritten, not how much equity you can reach.
HUD’s newer credit-scoring letter, a 2026 HUD mortgagee letter, changes which scores get submitted to FHA’s automated system and bars loans where the decision score is under 500. Confirm the current effective date with your loan officer, since the practical floor is the network’s 580 either way.
Debt ratios
The base pair is 31/43: housing costs at 31% of income and total debts at 43%. With documented compensating factors, ratios can stretch to 40/50 at the top tier. Most files are decided by the automated finding, not by hand-counting percentages. Compensating factors are things like cash reserves, a long job history, or a small payment increase. They need paper.
What Can Derail an Approval (and the Fix)
Most stalled FHA cash-out files fail on one of five things.
1. A low appraisal. At an 80% cap, a lower value shrinks the loan directly. A reconsideration request with recent, nearby sales sometimes recovers value. Sometimes it doesn’t. Then the cash shrinks, and the numbers need to be run again.
2. A recent late payment. The lookback runs 12 months from the case number. If the late payment is near the front of that window, waiting may beat applying.
3. Occupancy gaps. If the paper trail on where you lived is thin, the file gets stuck. Gather it early.
4. Ratios that don’t clear. Extra debt, a car loan or a card balance can tip a file. Paying a balance down before applying sometimes fixes it.
5. A second lien in the way. A home equity line counts toward the 80% combined cap. Either it gets paid off in the same transaction or the second lender has to agree to stay in second position. Ask early.
Notice that most of these fail at the document stage, not the judgment stage. Underwriters rarely deny a file because they dislike the borrower. They pend it because a page is missing.
What You Pay and What You Keep
Mortgage insurance is built into every FHA loan. HUD’s FHA answers page explains that an upfront premium is collected at closing and an annual premium is collected in monthly installments. Across the wholesale programs Lendmire works with, the upfront premium is 1.75% of the base loan, and it is typically financed into the loan. The annual premium falls between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV.
Duration is where cash-out differs from a purchase. On a thirty-year loan at or below 90% LTV, the annual premium ends after eleven years. Above 90% it lasts the full term. Because cash-out stops at 80%, the shorter duration is what this loan type normally lands on, subject to the term and amount on your file.
Closing costs run on the whole new loan, not just the cash portion. That is why the check you get is smaller than “80% of the value minus your balance.” Work it as a sequence:
1. Start at the maximum loan-to-value limit applied to adjusted value. That is the ceiling on the base loan.
2. Subtract the payoff of your current mortgage and any lien you are clearing.
3. Subtract closing costs and the financed upfront premium.
4. What remains is your cash.
Under TRID, you receive a Loan Estimate after applying and a Closing Disclosure before closing. Compare the cash-to-borrower line on those forms, not a back-of-napkin estimate.
Should You Replace Your Mortgage at All?
Sometimes the better move is to keep the loan you have. Replacing it resets the term, changes the monthly payment and adds monthly mortgage insurance. If your current loan has terms you like, a cash-out refinance gives all of that up to get at your equity.
The Consumer Financial Protection Bureau says that using home equity means taking on a loan you must repay and that your home is at risk if you can’t. It also advises borrowing only what you need. A cash-out refinance may stretch out how long you take to pay off the mortgage.
This is a genuine toss-up for many homeowners. The cash-out wins when you need a lump sum and your current loan has nothing special about it. A home equity line wins when you need a smaller or flexible amount and want to leave the first mortgage alone. The CFPB notes that a cash-out refinance can cost more or less than a HELOC, depending on the terms.
| Your situation | Often the better fit |
|---|---|
| Need a large lump sum, current loan is ordinary | FHA cash-out refinance |
| Need a smaller or flexible amount | Home equity line |
| Want a lower balance or term change, no cash | Rate-and-term refinance |
| Have an FHA loan, want no cash | FHA Streamline |
| Plan to move soon | Probably none; costs may not pay back |
If your existing loan is adjustable, Lendmire’s piece on FHA cash-out terms for an adjustable first mortgage covers how that changes the file.
Think about the use of the cash too. Paying off high-balance credit cards, funding repairs that raise value and covering a one-time expense are common reasons. Using the equity for spending that leaves nothing behind is the riskiest use.
A Pre-Application Self-Check
Before you talk to anyone, run through this list:
- Have you owned and lived in the home as your main residence for 12 months?
- Can you show 12 months of mortgage payments made on time?
- Is your decision score at or above 580?
- Would the new loan, plus any other lien, stay at or under 80% of the home’s value?
- Are your debts reasonable against your income?
- Can you document your income, assets and occupancy?
If you answer yes to all six, the file is in good shape. If one is a no, that points to the thing to fix first.
Key Terms Defined
Adjusted value: HUD’s formula for the value used in the LTV test. It starts from the appraisal but is not identical to it.
Case number: The FHA identifier assigned to your file. Its date starts the 12-month occupancy and payment-history lookbacks.
Combined loan-to-value (CLTV): The total of all liens on the home divided by its value. FHA cash-out caps it at 80%.
Upfront mortgage insurance premium (UFMIP): A one-time FHA premium, 1.75% of the base loan, usually financed into the loan.
Annual mortgage insurance premium (MIP): A premium collected monthly that depends on term, amount and LTV.
Streamline refinance: An FHA-to-FHA refinance with no cash out.
Frequently Asked Questions
Do I need an existing FHA loan to get an FHA cash-out refinance?
No. The loan being replaced can be conventional, VA, or paid off entirely. Only the FHA Streamline requires an existing FHA loan, and it pays no cash. The new loan must meet FHA’s occupancy, equity and credit tests regardless of what you hold now.
Can I use FHA cash-out on a rental or second home?
No. FHA cash-out is for a principal residence you own and occupy. Occupancy decides the leverage, so a property that is not your main home falls outside this program.
What if I made a late mortgage payment last year?
It may delay approval rather than end it. FHA reviews your payment history over the 12 months before the case number, and its definition of late can differ from a credit report. A recent late can also push the file into manual underwriting. Ask the loan officer how your history will be read before you pay for an appraisal.
Does my credit score change how much cash I can take out?
No. The 80% cap applies to every borrower. Score affects whether the file is approved and how it is underwritten. The wholesale programs Lendmire works with start at a 580 decision score, and some lenders set a higher floor.
What happens to a second mortgage or home equity line?
It counts toward the 80% combined cap. It is either paid off through the new loan or the second lender agrees to stay behind the new first mortgage. Raise it at the start, because it can change the entire structure.
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.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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 press release on the cash-out LTV change
3. HUD Mortgagee Letter 2025-09
4. HUD FHA Answers: mortgage insurance premium structure
5. CFPB: Using home equity to meet financial needs
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: Can an FHA Cash-Out Refinance Pay Off a Spouse in a Divorce? · Best FHA Cash-Out Refinance Program When Your Current Mortgage Is an FHA Loan
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
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.