The Quick Read: Every closing cost on an FHA cash-out refinance comes out of the same pot of equity, and that pot has a ceiling. The loan can reach 80% of the home’s appraised value, and the lines on your closing paperwork decide how much of that room reaches you as cash. The old payoff comes first, fees and prepaids come next, and what remains is your check. Subject to lender guidelines and full file review.
How Does the 80% Cap Work With Closing Costs?
The base loan can reach 80% of the home’s adjusted value, and every cost is paid from that amount or from your own pocket. The financed upfront mortgage insurance premium sits on top of the base loan. It does not count against the 80% test, though it raises your final balance.
Across the wholesale programs Lendmire places files with, the FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned. LTV means loan-to-value: the loan balance divided by the appraised value. The cap also counts any second lien that stays in place. A second mortgage you keep eats into the same 80%. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
HUD set that ceiling in Mortgagee Letter 2019-11, which cut the limit from 85% to 80% to protect the FHA insurance fund. The change was later written into the Handbook, per the Handbook 4000.1 Update 7.5 transmittal. Handbooks get updated, so ask your loan officer which version applies to your file.
If you want the program overview first, start with Lendmire’s FHA cash-out refinance program page.
Key Terms Defined
Adjusted value: The appraised value, as the FHA defines it, used for the cap test. Homes owned under 12 months get special treatment, and a standard cash-out requires 12 months of ownership anyway.
Base loan: The loan amount before the financed upfront premium is added.
CLTV (combined loan-to-value): The first mortgage plus any subordinate liens, divided by adjusted value.
UFMIP (upfront mortgage insurance premium): A one-time FHA insurance charge of 1.75% of the base loan, normally financed into the balance.
Prepaids and escrows: Money you set aside at closing for interest, homeowners insurance and property taxes. They are not fees. They are your own bills, paid early.
Net cash: What remains after payoff, costs and prepaids come out of the loan.
The Order of Operations: Cap, Payoff, Costs, Cash
The sequence runs in four steps, and the order matters more than any single fee.
1. The appraisal sets the value. The cap is 80% of that figure.
2. The cap sets the maximum base loan. Subtract any second lien that stays in place.
3. The old mortgage gets paid. The payoff, plus interest accrued to the payoff date, comes out first.
4. Costs and prepaids come out next. What is left is your cash.
Notice what the cap does. It never grows to make room for fees. If your equity is thin, fees and payoff can leave very little. That is the heart of “under the cap.”
The Line-by-Line Table
Closing costs on a refinance fall into several categories. This table shows who controls each one and whether you can shop it. Fee levels vary by lender, location and loan size, so no figures appear here.
| Line item | What it pays for | Who controls it | Shoppable? |
|---|---|---|---|
| Origination / underwriting / processing | Lender’s work on the loan | Lender | Compare across Loan Estimates |
| Appraisal | Value opinion for the cap | Appraiser via lender | Usually assigned |
| Credit report | Pulling your credit | Lender | No |
| Title and settlement | Title search, lender’s policy, closing agent | Title company | Often, if you pick |
| Recording | County filing of the new lien | Government | No |
| Prepaids and escrows | Interest, insurance, taxes in advance | You and the servicer | Insurance carrier is your choice |
| UFMIP | FHA insurance, 1.75% of base loan | HUD | No |
| Payoff | Your old mortgage balance | Your old servicer | No |
Two items on that list are not fees at all. The payoff and the escrow deposits are your own money moving around. Pages that lump everything into one “closing costs” number mislead you on this point.
HUD stopped prescribing a fixed list of borrower charges years ago. Under Mortgagee Letter 2006-04, lenders may charge customary and reasonable costs at actual cost, and charges must respect FHA’s tiered pricing rules. That letter is old and partly superseded, so read it as the principle, not a current cap on any single fee.
Lender Charges: The Lines You Can Compare
Lender charges are origination, underwriting and processing. These are the lines that differ most between lenders, so they are the lines worth comparing. Your Loan Estimate shows them together in one section.
As a broker, Lendmire arranges these loans through wholesale lenders. Broker pay is disclosed on the Loan Estimate like any other lender charge. Ask which lines are the lender’s and which belong to a third party. Then compare the full page, not one number.
Watch for fees that do not belong on a refinance. Home inspection and pest inspection fees are purchase items. If you see one, ask why.
Third-Party and Government Lines
These cover the appraisal, credit report, title, settlement and recording. They are real costs paid to outside parties, and the lender does not keep them.
Title is the line with the most variation. Some states use attorneys to close, which changes the settlement charge. Other states use title companies. Ask whether you can choose your own title provider. If you can, that line becomes shoppable.
Recording is set by the county. Nobody negotiates it. If it looks unusually large, ask for the breakdown.
Prepaids and Escrows: Not a Fee, Still Cash Out the Door
Prepaids are the line that surprises people most. At closing, the lender collects interest for the days until your first payment. It also collects homeowners insurance and property tax deposits to start your escrow account.
Your old servicer holds an escrow balance too. That balance is typically refunded after the old loan is paid off. The refund is separate from your cash-out proceeds and arrives on its own schedule.
Because prepaids are your own recurring costs, they inflate the “total due” without being a charge for service. Read them as timing, not price.
The Mortgage Insurance Lines
Mortgage insurance is usually the largest single line. The upfront premium is 1.75% of the base loan, and the annual premium runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV. These are program facts, not advertised prices.
Per HUD’s FHA Resource Center, the upfront premium is collected at closing and the annual premium is collected in monthly installments. It applies to purchase and refinance loans alike.
Three practical points:
- Financing the upfront premium lifts your balance. It does not reduce the 80% test, but it raises what you owe.
- Duration depends on LTV and term. 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 the 80% cap generally falls in the second group, subject to lender guidelines.
- A new loan restarts the clock. The premium schedule starts over on the new FHA loan.
Pay Costs in Cash or Roll Them In?
Rolling costs into the loan lowers the cash you bring to closing, but every dollar financed carries interest for the life of the loan. The CFPB makes this same point in its Closing Disclosure explainer.
Under a cash-out, the choice is simpler than on a purchase, because you are already receiving proceeds. Costs paid from the loan simply shrink your net cash. Costs paid from savings leave the loan, and your check, intact.
| Method | Effect on net cash | Effect on balance |
|---|---|---|
| Paid from savings | Check stays larger | Balance stays lower |
| Rolled into the loan | Check shrinks | Balance higher |
| Lender credit | Offsets some costs | Priced into the loan terms |
The tradeoff with a lender credit is that the cost does not vanish. It moves into the loan terms. Treat any “no-cost” offer as a rearrangement, not a gift.
A Full Walk From Value to Check
Picture a home with a clean 12-month ownership history. Walk through the structure this way:
1. Appraised value: 100%. 2. Maximum base loan at the cap: 80% of that value. 3. Less: the existing first-mortgage payoff, say 50% of value. 4. Less: lender charges, third-party fees, recording and prepaids, together a modest slice of the loan that varies by lender, location and loan size. 5. The financed upfront premium is added on top of the base loan, so it raises the balance without touching the 80% test. 6. What remains is net cash, in the neighborhood of 30% of value before costs.
Costs paid in cash leave that remainder larger. Costs financed leave it smaller. Either way, your equity after closing sits at roughly 20% of value, plus whatever the financed premium adds to the balance.
Now add a second lien. If a 5% second mortgage stays in place, the base loan cap drops by 5 points of value. The cap is a combined test.
Reading the Loan Estimate and Closing Disclosure
Your Loan Estimate is the written preview of these costs. The Closing Disclosure is the final version. Compare them line by line.
- Check that lender charges have not risen without a stated reason.
- Look for fees that duplicate each other under different names.
- Confirm that no inspection or application fee slipped in from a purchase template.
- Ask what any increase pays for.
The CFPB’s TILA-RESPA FAQs explain that estimates must be made in good faith. Some charges can change within a tolerance, and some are not capped, such as prepaids and services you pick yourself.
Where the Rules Break: Edge Cases
- Occupancy. Cash-out is for owner-occupied principal residences only. Non-owner-occupied homes do not qualify.
- Ownership under 12 months. A standard cash-out needs 12 months of ownership and occupancy before the case number. A no-cash-out refinance is a different loan, with adjusted value limited to purchase price plus documented improvements.
- Inherited or gifted homes. HUD gives special adjusted-value treatment for homes acquired within 12 months by inheritance or gift from a family member. These files need an early conversation with a loan officer.
- Older case numbers. Files from before the 2019 change followed the old 85% limit. Check which rule your lender applies.
- Section 247 Hawaiian Home Lands. The 80% cut did not apply to these loans.
- Streamlines are not cash-out. An FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It pays no cash. Do not mix up the two.
- Non-occupant co-borrowers. They cannot help you qualify on a cash-out, though one is allowed on a purchase.
- Payment history. Lenders look hard at recent mortgage lates. Requirements vary by lender.
County loan limits apply to every FHA loan. They change every year and vary by county.
What the Decision Looks Like in Practice
Start with the equity math, not the fee list. Take 80% of the appraised value, subtract your payoff and any second lien, and see what is left before costs. If that number is small, fees will take a large bite of it.
Then ask three questions. How much cash do you need? Can you pay costs from savings? Does the new loan’s premium schedule suit you better than keeping your current loan?
Credit matters too. Across the wholesale programs Lendmire works with, FHA purchase files start at a 580 decision score. Ratios typically start at 31/43 for housing and total debt, and documented compensating factors can reach 40/50 at the top tier. The automated finding governs most files. Everything is subject to lender guidelines and full file review.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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. Reach the team at 828-256-2183 or request a quote.
Frequently Asked Questions
Can I roll all my closing costs into an FHA cash-out loan?
Costs can come out of your proceeds, but the cap still limits the base loan. The financed upfront premium sits outside the 80% test. Everything else sits inside it. Financing costs shrinks your check and adds interest over time.
Is the 80% limit just on the new FHA loan?
No. It is a combined test, and subordinate liens that stay in place count against it. A second mortgage you keep reduces the room for the new first mortgage.
Do I get the cash at the closing table?
No. A refinance on your primary residence carries a three-business-day right to cancel. Funds generally disburse after that window closes. The CFPB says you can waive it only for a bona fide personal financial emergency.
Is the upfront mortgage insurance premium a fee I can negotiate?
No. It is set by HUD at 1.75% of the base loan. Lender charges and some title lines are where comparison pays off.
How do I tell a real fee from a junk fee?
Ask what each line pays for and who receives it. Real lines map to a service: lender work, appraisal, title, recording. Question duplicates and purchase-only items like inspections.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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 Handbook 4000.1 Update 7.5 transmittal
3. HUD Mortgagee Letter 2006-04
4. HUD FHA Resource Center, MIP structure
5. CFPB Closing Disclosure explainer
7. CFPB Ask CFPB, waiving right to rescind
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: How Much a VA Cash-Out Funding Fee Costs After a Conventional or FHA Loan · Can an FHA Loan Owner Add a Second Lien Above the FHA Cash-Out Cap? · Texas FHA Cash-Out Fee Cap Rules for High-Cost Closing States
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
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.