The Quick Read: Debt an FHA cash-out can pay off is limited by your equity, not by a set dollar cap on debt. The new loan can reach 80% of your home’s appraised value. Whatever is left after the old mortgage, financed costs and the upfront insurance premium is your room for paying other debts or taking cash. Your debt-to-income ratio then decides whether the bigger loan fits.
The Formula: Three Subtractions
FHA sets no maximum amount of debt you can retire at closing. It sets a ceiling on the loan instead, and your debt-paying room is whatever sits under that ceiling.
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.
1. Start with 80% of the home’s appraised value. That is the most the new FHA cash-out loan can be.
2. Subtract the payoff of your current mortgage and any other liens on the home.
3. Subtract the costs rolled into the loan, including the financed upfront mortgage insurance premium. What remains is available for paying other debts or for cash in hand.
Here is a modeled example, in percentages only. Say the appraised value is 100%. The new loan can reach 80%. Your current mortgage payoff is 60% of value. Financed costs and the upfront premium take another 5%. That leaves 15% of the home’s value for credit cards, auto loans, collections or cash.
Those inputs are assumptions, not market data. A homeowner with 40% equity and a big card balance may fit the whole balance. A homeowner who bought recently and has 15% equity may fit none of it.
Different loans, same formula. Free-and-clear homes work too, because the full 80% is open before any payoff comes out.
What an FHA Cash-Out Actually Is
A cash-out refinance replaces your current mortgage with a new, larger one, and the difference comes to you or to your creditors. FHA’s version lets the proceeds go to purposes of your choosing. That is why paying off non-mortgage debt is allowed.
Two other FHA refinances do not work this way. 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 premium continues. The FHA rate-and-term refinance, which requires an appraisal, reaches 97.75% on a principal residence occupied for the previous twelve months. Neither one pays your cards. Their proceeds go to the old mortgage and the costs of the transaction, nothing else.
If you want a card paid off at closing, you need the cash-out version. It reaches 80% LTV on a home you have owned and occupied for 12 months before the case number. The rest of this piece covers how the debt-payoff math works.
How the Loan Is Underwritten, Step by Step
Step 1: Eligibility screen. The cash-out must be on your principal residence. The home must be owned and occupied for 12 months before the case number is assigned, and your mortgage payments should be clean over that stretch. The program also generally looks for a decision score of 580 or higher across the wholesale programs Lendmire places FHA loans with. Individual lenders may set stricter rules than the program minimum. Everything here is subject to lender guidelines and full file review.
Step 2: Appraisal. The appraisal sets the value that the 80% test runs against. The lender must follow FHA’s valuation rules, and a home bought within the past year can run into a lower value basis. A bigger appraisal means more room. A lower one shrinks it, and no amount of debt on your wish list changes that.
Step 3: Payoff list. The lender totals what the new loan has to clear. That is your first mortgage, any second lien or HELOC you are paying off, and any debts you want paid. Each creditor gets a payoff statement. A second lien that stays in place does not vanish. It counts against the 80% limit, so it eats room either way.
Step 4: Debt-to-income test. Underwriters compare your monthly obligations to your income. The base pair for FHA is 31/43. The first number is housing cost against income, and the second is all monthly debt against income. Documented compensating factors can raise those limits, and the automated finding governs most files. The new payment goes in, including principal, interest, taxes, insurance and FHA mortgage insurance. Accounts paid off at closing, with payoff documentation, generally leave the ratio. Debts you keep stay in it.
Step 5: Disbursement. The closing agent pays creditors directly from the loan proceeds. Anything left over goes to you. You do not get the money first and then pay the cards yourself.
The Rule Behind the 80%
The 80% cap is HUD policy. In a HUD mortgagee letter, the agency cut the maximum loan-to-value and combined loan-to-value on cash-out refinances from 85% to 80% of adjusted value. The same letter notes FHA had earlier moved the limit from 95% to 85%. Combined loan-to-value counts any second lien that stays on the home, as well as the new first loan.
HUD’s stated reason was risk. A HUD press release said cash-out refinances made up 64% of all FHA-insured refinances and 15% of all forward mortgage endorsements in the agency’s latest annual report to Congress.
Two practical points follow. First, if you read a page saying FHA still allows 85%, it is out of date. Second, county loan limits apply on top of the 80% test. They change every year, so ask a loan officer for the figure for your county rather than relying on an old number.
Which Debts Get Paid at Closing
Most debt types can go on the payoff list. How they are handled differs, and so does whether paying them is optional.
| Debt type | Can it be paid at closing? | What to know |
|---|---|---|
| Credit cards | Yes | Payoff statement needed; leaves DTI if paid |
| Auto loans | Yes | Moves a short debt onto a long mortgage |
| Personal loans | Yes | Same tradeoff as auto loans |
| Student loans | Yes | Review federal protections you would give up |
| Collections | Optional, usually | Often not required; lender rules vary |
| Judgments and liens | Usually required | Typically paid or covered by an agreement |
| Second mortgage or HELOC | Yes | Uses 80% room if paid; counts against it if kept |
Collections work differently. FHA generally does not require them paid for approval, but lenders may count a hypothetical payment toward your DTI for larger collection balances. Medical collections are generally treated more gently. The specifics vary by lender, so ask early.
One more point on student loans. Federal loans carry repayment options and protections that disappear when the balance is folded into a mortgage. Weigh those protections carefully before adding the loans to the list.
What Paying Off Debt Does to Your Ratio
Paying off a debt helps your ratio only because the payment leaves your monthly total. FHA gives no special break for “consolidation.” The same tests apply to every cash-out.
Picture a homeowner with a modest mortgage payment, two cards near their limits, and a car loan. After the refinance, the mortgage payment is larger. The payment on every debt retired at closing is gone from the calculation. If the three debts together carried a heavy monthly load, the net effect on the ratio can be positive. If the debts were small, a bigger mortgage payment with added mortgage insurance can push the ratio up.
| Scenario | Mortgage payment | Other monthly debts | Effect on DTI |
|---|---|---|---|
| Keep everything | Current | All remain | Baseline |
| Cash-out, pay big debts | Higher | Mostly gone | Often lower |
| Cash-out, pay small debts | Higher | Mostly remain | Often higher |
That table is directional, not a calculation. Your own numbers decide, and so do your credit history and the lender’s review.
Mortgage Insurance Takes a Slice
Cash-out loans carry FHA mortgage insurance. The upfront premium is 1.75% of the base loan, and it can be financed. A financed premium raises the loan balance, so it uses up room under the 80% ceiling. That is why the third subtraction in the formula matters.
The annual premium runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV. For a 30-year loan at or below the lower LTV threshold, it ends after eleven years, while a higher-LTV loan carries the premium for the full term. A cash-out at 80% sits in the shorter band, as the HUD mortgage insurance premium letter lays out. Your estimate will show the actual dollar charges. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Where the General Rule Breaks
The 80% test and the formula hold for nearly every file, but a few situations change the answer.
- Recent buyers and low-equity owners. The 12-month ownership and occupancy test plus the 80% cap often leave little or no payoff room. A new buyer who put down 3.5% is not in position for a cash-out.
- Non-FHA current loans. You do not need an FHA loan today. A conventional or VA mortgage can be paid off by an FHA cash-out.
- Judgments and liens. These often must be cleared, so they can take priority over the debts you would rather pay first.
- Remaining second liens. A HELOC you keep still counts toward the 80% limit.
- Lender overlays. A lender can set credit or payoff rules stricter than FHA’s. The same file can look different from one lender to the next.
If your payoff list is larger than your room, prioritize in this order. Pay required items first, such as judgments and liens. Then pay the highest-cost balances. Then leave the rest. Resist the urge to stretch the loan to the last point of equity. A thin cushion leaves you exposed if values dip.
Is It a Good Idea? Read This Before You Decide
Paying off debt with a cash-out is a trade. You swap high-cost short-term balances for a longer, secured one. Your monthly outflow can drop. The total interest you pay over the years can go up.
The CFPB’s consumer guidance on consolidating card debt warns that taking on new debt to pay old debt may just be “kicking the can down the road.” It also notes consolidation loans can cost more in fees and interest.
The security change is the part people underestimate. Credit card debt is unsecured, and missed payments lead to collections. Once the same balance sits inside your mortgage, missed payments can threaten the home.
Behavior matters too. A CFPB report on cash-out refinances found that paying off other bills or debts was the most common stated reason for cash-out refinancing. More than 50% of respondents gave it each year in the earlier period studied, and more than 40% in the later years. A later CFPB report on paydown behavior found that 57.2% of cash-out borrowers with card balances paid them down at refinance. It also found that card balances trended back up over the following year.
Paying the cards off is the easy half. Keeping them at zero is the half that decides whether the refinance helped. Consider closing or freezing the accounts you pay off.
Alternatives Worth Weighing
| Option | Pays other debts? | Main tradeoff |
|---|---|---|
| FHA cash-out | Yes | Caps at 80%; mortgage insurance applies |
| Conventional cash-out | Yes | Different credit and equity requirements |
| HELOC or second loan | Yes | Keeps your first mortgage, adds a lien |
| FHA Streamline | No | Needs an existing FHA loan; no debt payoff |
| Pay down debts on your own | Slowly | No new loan to arrange, but takes discipline |
Each path has its own equity limit and credit rules, and the right fit depends on your score, your equity and how much you owe.
What Your Decision Looks Like in Practice
Work in this order.
1. Estimate your home’s value and subtract your mortgage payoff to see your equity.
2. Take 80% of value and subtract the payoff and a cushion for costs and the financed premium.
3. List your debts and mark which ones are required to be paid, such as judgments and liens.
4. Compare the total to your room. If it fits, your next question is whether the new payment works with your income.
5. Ask for a Loan Estimate and compare the full terms against any alternative.
If your list is longer than your room, trim it. If your room is thin and your ratio is tight, a different loan type may serve you better.
Key Terms Defined
Adjusted value: The appraised value FHA uses to run its loan limits. The 80% cap applies to this figure.
Loan-to-value (LTV): The loan balance divided by the home’s value. An 80% LTV means the loan is 80% of what the home is worth. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Combined loan-to-value (CLTV): The total of your first loan and any second liens divided by the home’s value.
Debt-to-income ratio (DTI): Your monthly debt payments divided by your monthly income. Lenders use it to judge whether you can afford the new payment.
Payoff statement: A document from a creditor stating the exact amount needed to close an account on a given date.
Cash-out refinance: A new mortgage larger than your old one. The difference goes to you or to creditors you name.
Frequently Asked Questions
Is there a maximum dollar amount of debt an FHA cash-out can pay off?
No dollar cap applies to the debt itself. Your limit is 80% of the home’s appraised value, less your mortgage payoff and financed costs. County loan limits also apply to the total loan. A borrower with substantial equity can clear a large balance, and a borrower with little equity may clear none.
Do I have to pay off all my debts at closing?
No. You choose which debts go on the payoff list, apart from items the lender requires, such as judgments and liens. Collections are often optional but may still count against your ratio. Debts you keep stay in your DTI calculation, so leaving a large balance can limit how much the loan helps.
Can an FHA Streamline pay off my credit cards?
No. A Streamline refinances an existing FHA loan with no appraisal and cannot pay other debts. The FHA rate-and-term refinance also limits proceeds to the mortgage and transaction costs. Only a cash-out refinance can retire credit cards, auto loans or personal loans.
Will paying off debts at closing improve my chances of qualifying?
Often, but not by a special rule. FHA gives no break for consolidation. Paid-off accounts leave your ratio, while the larger mortgage payment goes in. If the retired payments outweigh the increase, your ratio improves. If they do not, it gets worse. Final decisions depend on your credit, income and the lender’s full review.
What happens if my payoffs exceed my available equity?
You will need to shorten the list. Required items such as judgments and liens come first, then your highest-cost debts. Some borrowers also consider a different loan type or waiting until their equity builds. Nothing here is a commitment to lend. Each file is subject to lender guidelines.
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
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.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD press release on cash-out refinance risk
3. HUD Mortgagee Letter 2023-05
4. CFPB: consolidating credit card debt
5. CFPB cash-out research press release
6. CFPB: CFPB Cash Out Refinances and Paydown Behavior of Non Mortgage Debt Balances
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 on a Condo Without Project Approval · How to Use the Inheritance Exception on an FHA Cash-Out · How Much Cash Comes Out of an FHA Cash-Out Refinance to Pay College Tuition?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.