The Quick Read: On an FHA cash-out refinance, financed closing costs raise the new loan balance, but they do not raise the ceiling on that balance. The ceiling is 80% of the home’s adjusted value, and every financed dollar of cost, prepaid and escrow sits under it. If you take the maximum cash, whatever you finance comes out of the cash you receive. If you take less than the maximum, financed costs raise the balance while your check stays the same. Sources disagree on whether the financed upfront mortgage insurance premium counts toward the ceiling, so the lender’s figures on the Loan Estimate settle it for your file.
What “Adding to the Balance” Actually Means
Closing costs on a cash-out refinance can be handled two ways. You pay them at the table out of pocket, or the lender folds them into the new loan. When they are folded in, the new balance is the old payoff, plus the cash you chose to take, plus those costs.
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.
That sounds like the balance simply grows by the amount of the costs. On a cash-out loan it doesn’t work that way, because the loan is capped. The HUD knowledge base sets the maximum loan-to-value on an FHA cash-out at 80% of adjusted value for case numbers assigned on or after September 1, 2019. Before that date the cap was 85%. Combined first and subordinate liens also have to stay within the statutory nationwide mortgage limits. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
So there are two moving parts:
- Balance added is the amount financed costs push the loan up.
- Cash reduced is the amount those same costs take out of your check when the loan is already near the cap.
If you ask for the most cash the equity allows, financed costs come straight out of your proceeds. If you ask for less than the maximum, financed costs raise the balance and your check stays the same.
Key Terms Defined
Adjusted value: The appraised value after HUD’s adjustments, which is the number the 80% test runs against.
Base loan: The loan amount before the financed upfront insurance premium is added.
Upfront mortgage insurance premium (UFMIP): A one-time FHA charge, 1.75% of the base loan, that most borrowers finance rather than pay in cash.
Annual mortgage insurance premium (MIP): A recurring FHA charge, billed monthly in the payment, that depends on term, loan amount and LTV.
Prepaids and escrows: Items collected at closing to start the new loan, such as the first insurance and tax deposits. They are not lender fees.
Cash to close: The money you must bring to the table, separate from the closing costs themselves.
How the Loan Is Built, Step by Step
Across the wholesale programs Lendmire places FHA files with, the build follows the same order every time.
1. Check eligibility. The FHA cash-out reaches 80% LTV on a home you have owned and occupied as your principal residence for 12 months before the case number. HUD’s ownership test traces back to Mortgagee Letter 2009-08, written when the cap was 85%. That letter is historic, and the current handbook governs. Payment history on the existing mortgage is also reviewed, and lenders may look harder at recent late payments. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
2. Set adjusted value from the appraisal. There is no purchase price to compete with the appraisal on a typical refinance. The appraisal drives the whole file. Everything below depends on it.
3. Find the maximum base loan. Multiply adjusted value by 80%. That is the most the base loan can be.
4. Subtract what must be paid. Take the existing payoff. Take out the closing costs, prepaids and escrows you plan to finance. What remains under the cap is the most cash you can receive.
5. Add the upfront premium. The 1.75% premium is figured on the base loan and then added to it, producing a higher total loan amount. Secondary sources say the financed premium is excluded from the LTV and loan-limit tests. Other sources treat it as counting toward the cap. The lender’s final figures on the Loan Estimate settle it for your file, so don’t plan around either reading until you see them.
6. Apply the county limit. FHA county loan limits apply, and they change every year. The loan has to fit under the limit for the county where the home sits.
7. Read the documents. The Loan Estimate lists closing costs and cash to close. The Closing Disclosure has to match it.
The formula, in words: maximum base loan equals 80% of adjusted value. If you take the maximum cash, cash to you equals that maximum, minus your payoff, minus financed costs, so each added dollar of cost lowers your cash by a dollar. If you take less than the maximum, the new balance is the old payoff, plus the cash you chose, plus the financed costs, so added costs raise the balance until it reaches the cap.
Where the Costs Land
Not every item behaves the same way. This table shows how each piece typically affects the balance and your check.
| Item | Can it be financed? | Effect |
|---|---|---|
| Lender and title fees | Yes, if under the cap | Lowers cash to you |
| Appraisal and other third-party fees | Yes, if under the cap | Lowers cash to you |
| Prepaids and escrow deposits | Yes, if under the cap | Lowers cash to you |
| Upfront premium (1.75%) | Yes, added to base loan | Raises total balance |
| Annual premium | No, billed monthly | Raises the payment, not the balance |
Those lines work through the cap, not around it. If your payoff is low compared with the home’s value, you have room, and financed costs barely change your check relative to what you’d have received otherwise. If your payoff is already close to 80%, there is little cash to take, and financed costs can shrink it to almost nothing.
Three Ways to Handle the Same Costs
Picture a homeowner with a mid-sized equity position who wants cash for a repair project. There are three ways to treat the costs.
| Approach | Balance | Your check |
|---|---|---|
| Pay costs in cash | Lowest | Full amount you chose |
| Roll costs in, below the cap | Higher | Same amount you chose |
| Roll costs in, at the cap | Same as cap | Smaller by the costs |
Paying cash keeps the balance smallest, but it takes money out of pocket that many cash-out borrowers would rather keep. Rolling in below the cap protects your cash and raises the balance, which means you pay interest on those costs for as long as you hold the loan. Rolling in at the cap holds the balance steady and takes the costs out of your proceeds.
The CFPB says that when your loan amount has increased on the Closing Disclosure, one possible reason is that closing costs were rolled in. It adds that this lowers upfront costs but raises the overall cost through added interest. That is the core tradeoff in one sentence.
What Financing the Costs Will Cost You Over Time
Financed costs are not free. Three effects stack up.
Interest on the costs. Every financed dollar accrues interest for the life of the loan. A homeowner who expects to keep the loan for many years pays more for financed costs than one who refinances or sells sooner.
A bigger base for the insurance charge. The annual premium is figured on the loan balance, not just the cash you pull out. A larger balance means a larger insurance charge in the payment. 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% typically falls in the second group, though the exact figures depend on your file.
A higher upfront premium. Because the 1.75% premium applies to the base loan, a bigger base loan means a bigger financed premium.
The annual premium schedule was reduced in a HUD Mortgagee Letter, effective for mortgages endorsed on or after March 20, 2023. That letter is now superseded by the handbook, so the handbook is the controlling text. The annual premium on your loan will generally fall between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV, subject to lender guidelines.
No official figure exists for what cash-out closing costs add up to. Think of them as a few percent of the loan, and let the Loan Estimate set the real number for your file.
Where the General Rule Breaks
Owned under 12 months. Standard FHA cash-out is generally unavailable. Short ownership links value to the purchase price, not the appraisal.
Inherited homes. Secondary sources report the occupancy test may be waived unless the home was rented. Treat that as something to confirm with the lender.
Free-and-clear homes. A cash-out can be made on a home with no mortgage. With no payoff to subtract, more of the 80% is available, and financed costs come out of a larger pool.
Second homes and rentals. Occupancy decides the leverage. Standard FHA cash-out is for a principal residence only.
Non-occupant co-borrowers. Their income is reported as not usable on a cash-out. If the file depends on a second earner who does not live in the home, ask early.
Refinancing an existing FHA loan. A partial upfront premium credit may apply within three years, but only for an FHA-to-FHA refinance. It is a credit toward the new premium, not cash. Confirm it against the handbook for your file.
Rate-and-term and streamline loans. These are different products. An FHA rate-and-term with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months, and it can pay closing costs, but no cash comes out. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It never puts cash in your hand.
Several points above come from secondary sources, such as the inherited-home occupancy waiver and the non-occupant co-borrower income rule. Confirm them with your lender before you rely on them, along with the payment-history rules for loans under a year old. Treat each as likely, but verify.
Lender Credits Versus Rolling In
Some borrowers ask whether a lender credit is a better way to cover costs than financing them. A credit reduces what you pay at closing, but the cost doesn’t vanish. It is typically built into the interest rate. The CFPB’s Loan Estimate explainer separates closing costs from cash to close, and page 3 of the Loan Estimate shows total cost over a time horizon such as five years. Use that page to compare the two routes side by side.
Same logic applies to anything marketed as “no closing costs.” Keep the term in quotes in your head. The costs are still there, built into the rate or the balance.
Quick rule of thumb. Short hold, lender credit or paying cash tends to look better. Long hold, the financed route builds more interest. Your own horizon decides it.
Common Misconceptions
“The premium is charged only on the cash I take out.” It applies to the whole base loan.
“A cash-out carries a higher upfront rate.” The upfront premium is the same across FHA mortgages. The annual premium schedule changed, and a trade summary reports no change to the upfront amount.
“Rolled-in costs are free.” They add interest.
“The cap is 85%.” That was the cap before September 2019.
“A streamline can pull cash out.” It cannot.
“A negative cash-to-close number means no costs.” Costs can be netted out of proceeds. The cash-to-close line and the closing cost line are separate.
“The premium refund is cash back.” It is only a credit on a new FHA loan.
What to Check on Your Loan Estimate and Closing Disclosure
Before you sign, run this list against both documents:
- The total loan amount, and whether it matches the maximum you expected.
- Whether closing costs show as paid in cash or financed.
- Cash to close, and whether it is a number you bring or a number you receive.
- The financed upfront premium line.
- The monthly payment, which includes the annual premium.
- Any item that changed between the two documents. The CFPB tells borrowers to ask the lender why if anything went up.
If the cash you receive is smaller than you planned, the appraised value, the payoff balance or the financed costs explain it. Those three numbers are the whole story.
Reading the Decision
For most homeowners the choice comes down to cash on hand and time horizon. If you have the cash and plan to stay a long time, paying costs at the table keeps the balance clean. If you need every dollar of proceeds and your equity has room under the cap, rolling in protects your cash at the price of added interest. If you are already close to the 80% line, financing costs and taking cash pull against each other, and you may need to take less. Taking more cash raises both the upfront and annual insurance charges, so the extra proceeds cost more than the headline amount.
Every FHA figure here is subject to lender guidelines and full file review.
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
Can closing costs be rolled into an FHA cash-out refinance?
Yes, within the cap. The new loan, including financed costs, prepaids and escrows, has to fit under 80% of adjusted value and the county loan limit. Financed costs reduce the cash you receive when the loan is near that ceiling.
Does rolling in costs always raise my balance?
Not always. If you take less than the maximum cash, financed costs raise the balance. If you take the maximum, the balance stays at the cap and the costs come out of your check. Your payoff, the appraisal and the cash you request decide which applies.
Is the upfront mortgage insurance premium part of the 80% limit?
Sources disagree. Some treat the financed premium as outside the LTV test, and some count it. Your Loan Estimate shows the lender’s treatment, and that is what governs your file.
How does the annual premium affect my balance?
It doesn’t. The annual premium is billed monthly in the payment, so it raises your payment, not your balance. It is figured on the loan balance, though, so a bigger balance means a bigger charge.
Why is my cash to close different from my closing costs?
Closing costs are the fees for the loan. Cash to close is what you must bring or receive after financing, credits and payoff are counted. The Loan Estimate lists them on separate lines, so read both.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s FHA loan programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2009-08
2. CFPB Closing Disclosure Explainer
3. HUD Mortgagee Letter 2023-05
4. CFPB Loan Estimate Explainer
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 to Get an FHA Cash-Out When Conventional Costs Too Much · How an FHA Cash-Out Limits How Much Home Equity You Can Take · How to Use the Inheritance Exception on an FHA Cash-Out
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.