The Quick Read: Three things decide which FHA path fits you: your credit tier, the fees stacked on the new loan, and how your name sits on the title. The cash-out version caps financing at 80% of your home’s value, so your equity sets the ceiling. Credit and cost decide whether it is worth using.
What Should You Know Before Comparing?
- The cap is the same for everyone. An FHA cash-out reaches 80% loan-to-value (LTV, the loan as a share of the home’s value). A higher credit score does not raise it.
- Credit changes eligibility and cost, not the cap. The wholesale programs Lendmire places FHA loans with start at a 580 decision score. Some lenders set higher floors.
- Fees come in layers. FHA mortgage insurance is fixed by the program. Lender charges and third-party services are where offers differ.
- Title matters. The occupancy clock ties to a borrower who owns and lives in the home. Changing who is on the deed can complicate that.
- Cash-out is not a streamline. It needs a full file review, an appraisal and twelve months of ownership and occupancy.
What Counts as an FHA Cash-Out Program?
An FHA cash-out is a new FHA loan that pays off your current mortgage and puts the extra equity in your pocket. Lendmire arranges it through wholesale lenders, and each lender sets its own overlays on top of FHA’s rules. An overlay is a lender’s added rule, such as a higher credit minimum. The FHA cash-out refinance program is one of three FHA refinance paths, and they are easy to mix up.
| Factor | Cash-out | Rate-and-term | Streamline |
|---|---|---|---|
| Max LTV | 80% | 97.75% | No appraisal-based cap |
| Cash to you | Yes | No | No |
| Appraisal | Yes | Yes | No |
| Occupancy clock | 12 months | 12 months | Existing FHA loan |
| Credit review | Full | Full | Limited |
The rate-and-term version reaches 97.75% on a principal residence you occupied for the previous twelve months. The streamline refinances an existing FHA loan with no appraisal and a limited credit review. It needs a net tangible benefit, meaning the new loan has to leave you better off in a measurable way. The mortgage insurance premium continues on a streamline.
If you want cash, only the first column applies. If you just want better terms on an FHA loan you already hold, the other two deserve a look first.
A second home or rental is not eligible for FHA financing. Occupancy decides leverage here: FHA is for your principal residence.
How Is an FHA Cash-Out Underwritten, Step by Step?
Underwriting follows a fixed order, and each step can stop the file. Here is how it runs across the wholesale programs we place files with.
Step 1: The ownership clock. You must have owned and lived in the home for 12 months before the case number is assigned. A case number is the FHA’s tracking number for the loan. The clock runs before that number exists, so start counting early.
Step 2: Occupancy proof. Lenders ask for documents that show the home was your principal residence. Think employment records or utility bills with your name and address.
Step 3: Payment history. The lender reviews your existing mortgage payments. Lenders differ on how they count a late payment, so ask for their exact test. Do not assume a single late payment is harmless.
Step 4: Appraisal. The appraiser sets the value. The 80% cap applies to what HUD calls adjusted value, per HUD Mortgagee Letter 2019-11. That letter cut the cash-out maximum from 85% to 80%. HUD said the change aimed to limit risk to the FHA insurance fund. If you recall 85%, that figure is out of date.
Step 5: Credit and income review. The lender looks at score, income, debt and payment history. Equity alone does not earn approval.
Step 6: Net proceeds. The new loan pays off the old mortgage and the closing costs. The upfront mortgage insurance premium can be financed on top. Whatever room is left under the 80% cap is your cash.
That last step surprises people. Equity is not the same as cash. It is the starting point.
How Do Credit Tiers Change the Comparison?
Credit tier changes whether you qualify and what the loan costs. It does not change the 80% cap. A 580 score and a 760 score face the same leverage limit on a cash-out. The difference shows up in overlays, ratios and pricing.
HUD runs a lower tier for purchase loans. The wholesale programs Lendmire works with do not reach below 580, so that tier is academic here.
| Credit band | What changes |
|---|---|
| Below 580 | Outside the programs Lendmire places |
| 580 and up | Eligible at the 80% cap; some lenders require more |
| Mid-range | Ratios usually need documented strengths |
| Stronger | More room on ratios; more lenders to choose from |
Ratios work like this. The base pair is 31/43. The first number is housing cost as a share of income, and the second is total debt as a share of income. With documented compensating factors, such as savings or a stable job history, the limits stretch to 40/50 at the top tier. An automated underwriting finding governs most files, so your actual limit can differ.
Ask each lender these questions:
- What is your minimum score for a cash-out, as opposed to a purchase?
- Do you add a higher floor for larger loans?
- How do you count late payments on my current mortgage?
- Do you allow a non-occupant co-borrower on a cash-out?
That last one matters. FHA purchase programs allow a non-occupant co-borrower, but many lenders bar one on a cash-out.
How Do You Compare Fees?
Compare fees by category, not by one total. Some charges are fixed by the program, some are set by the lender, and some you can shop for. Mix them up and two offers look alike when they are not.
| Fee | Who gets it | Can you shop it? | Financed? |
|---|---|---|---|
| Upfront premium | FHA insurance | No | Yes |
| Annual premium | FHA insurance | No | Paid monthly |
| Lender origination | The lender | Compare offers | Often rolled in |
| Appraisal | Appraiser | Usually not | No |
| Title and settlement | Title company | Often yes | Can be |
| Credit report | Bureau | No | No |
The FHA insurance layer is the same everywhere. The upfront premium is 1.75% of the base loan and can be financed. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. HUD Mortgagee Letter 2023-05 lays out the upfront premium and the annual schedule. If one lender’s offer looks cheaper on insurance, something else is different.
How long the annual premium lasts depends on LTV. On a thirty-year loan above 90% LTV, it lasts the whole term. At or below 90%, it ends after eleven years. A cash-out sits at 80% or less, so it falls in the shorter bucket. This corrects a common belief. The premium does not drop off when you reach 20% equity. It follows the rules set at origination. Confirm the details in the current letter, since HUD updates them. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The lender layer is where offers truly differ. Origination charges vary by lender. Compare them as line items on the Loan Estimate, the form that lists your costs. The CFPB’s guide to the Loan Estimate and Closing Disclosure explains how to read both. Your Closing Disclosure must reach you ahead of closing, so you can check it against the estimate.
Your old title policy does not carry over. A new lender needs a new lender’s title policy. Budget for it.
One more consideration sits outside the fee table. The new loan replaces your old one, so the terms on the entire balance reset. The CFPB has noted that a cash-out refinance may replace a lower-rate mortgage with a higher-rate one.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What Does Vesting Mean, and Why Does It Matter?
Vesting is how ownership is held on your deed. It names who owns the home and in what form. The FHA’s clock asks for a home “owned and occupied by at least one borrower.” So the person who has lived there for twelve months needs to be on title.
It helps to think in terms of common situations:
- Adding a spouse to the deed. The new owner may not have the occupancy history. Ask whether the clock stays with the original borrower.
- Removing a spouse after divorce. Who stays on the loan and who stays on title must line up.
- Moving the home into a trust. Some lenders treat this differently than others. Ask early.
- A spouse on title but not on the loan. This can be workable, but the lender will want to see how it is documented.
- A recent deed change. Do it before you start shopping, not mid-file.
The rule of thumb: do not change title between application and closing without asking first. Have your title company confirm how any deed change affects the clock and the borrower list.
Where Do the Rules Bend?
The general rule is 80% LTV, a 12-month clock, and a principal residence. These cases are where it shifts. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
- Inherited homes. The rules can treat an inherited home differently on the occupancy clock, but only if the home was never rented after you inherited it. If it was, the twelve-month test applies. Confirm the specifics with the lender.
- Hawaiian Homelands (Section 247). These loans are exempt from the 80% cap, as HUD Mortgagee Letter 2019-11 states. HUD Mortgagee Letter 2023-05 separately notes there is no annual premium on these loans.
- Indian Lands (Section 248). There is no upfront premium on these loans, per the same 2023 letter.
- Homes listed for sale. Some lenders will not refinance a home that is currently listed.
- Manufactured homes. These carry their own installation and occupancy tests. Ask the lender before you spend on an appraisal.
- Non-occupant co-borrowers. Covered above: allowed on purchase, often barred on cash-out.
These are rare, but they are the files that fall apart late. If any of them describe you, say so on the first call.
What Does Each Profile Look Like in Practice?
Picture three homeowners. The numbers below are shares of home value, not dollars.
Profile one: strong equity, solid credit. A homeowner owes 55% of the home’s value. The 80% cap leaves roughly 25 points of value to work with. Closing costs and the financed upfront premium take a slice. The rest is cash. This borrower has room, so the question is whether the new terms on the whole balance are worth it.
Profile two: modest equity, mid-tier credit. This homeowner owes 75%. The gap to 80% is only five points. Costs and the financed premium may eat nearly all of it. The cash is thin, and the reset terms on the full balance are a heavy price. This is the file where a smaller alternative often wins.
Profile three: current FHA loan, no cash needed. The homeowner wants better terms, not cash. Here the cash-out is the wrong tool. The streamline skips the appraisal and the limited credit review, and the equity cap never comes up.
The pattern holds in most files. Cash-out works when equity is large relative to costs and when the cash does real work, such as retiring debt with a worse cost or funding a repair. A cash-out is a poor fit when you are borrowing against the home for something that will not outlast the loan. The CFPB’s research notes that turning non-mortgage debt into mortgage debt can put the home at risk if payments become unsustainable. Read the CFPB’s analysis of cash-out refinances before you roll credit cards into your mortgage.
How Do You Pick Your Path?
Run these in order, and stop at the first no that rules out a path.
1. Do you need cash? If no, compare the streamline or rate-and-term. If yes, continue.
2. Have you owned and lived in the home for twelve months? If no, a cash-out is not available yet.
3. Will at least 20% equity remain after the new loan, costs and financed premium? If no, the cap stops you.
4. Does your score clear a lender’s floor, not just the program’s? If no, ask another lender.
5. Does your title match your borrower list? If no, sort that out first.
6. Does the offer still make sense after fees and the reset terms? If yes, move ahead.
If you hold a VA-eligible background, compare it too. Lendmire’s piece How to Shop VA Cash-Out Lenders by Credit Floor and LTV Overlay covers that side. Other alternatives include a home equity loan or line of credit, which leave your first mortgage alone. Whether that fits depends on what your current loan costs you.
Key Terms Defined
LTV (loan-to-value): The loan balance divided by the home’s value, shown as a percentage.
Overlay: A lender’s own rule, added on top of the program’s minimum. A common example is a higher credit score floor.
Upfront mortgage insurance premium: A one-time FHA insurance charge of 1.75% of the base loan, which can be financed into the loan.
Annual mortgage insurance premium: FHA insurance paid monthly, set by term, loan amount and LTV.
Vesting: How ownership is recorded on your deed, including who is named as owner.
Case number: The tracking number FHA assigns to a loan. The twelve-month ownership clock is measured back from it.
Net tangible benefit: The test that a streamline must leave you measurably better off.
What Is the Practical Next Step?
Bring four things to your first conversation: your current mortgage statement, proof you live in the home, a copy of your deed, and the reason you want the cash. 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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does a higher credit score let me take out more cash?
No. The FHA cash-out cap is 80% LTV at every score. A stronger score can widen your lender choices and ease ratio limits. It does not raise the ceiling. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Can I do an FHA cash-out on a rental or second home?
No. FHA financing is for your principal residence. Occupancy decides the leverage, so a rental or second home needs a different loan type.
Can a non-occupant co-borrower help me qualify on a cash-out?
Often not. FHA purchase programs allow one, but many lenders bar them on a cash-out. Ask each lender before you apply.
If I add my spouse to the deed, does my twelve-month clock restart?
It depends on the lender and the file. The clock ties to a borrower who owned and occupied the home. Have your title company confirm how the deed change affects the borrower list before you apply.
Does the annual mortgage insurance end when I reach 20% equity?
Not automatically. How long it lasts depends on your LTV and term when the loan starts. On a thirty-year loan at or below 90% LTV, it ends after eleven years. Check the current HUD letters for changes. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD Mortgagee Letter 2023-05
3. CFPB Guide to Loan Estimate and Closing Disclosure
4. CFPB: Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: FHA Cash-Out Credit Requirements and When a File Goes Manual · Can You Refinance Out of FHA With a Conventional Cash-Out Refinance? · FHA Cash-Out Credit Tiers and Maximum Draw by Score
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.