The Quick Read: The lender starts with the appraised value, multiplies it by 80%, and treats that as the ceiling on your new base loan. It then subtracts your payoff, any liens that stay, and financed costs. Whatever is left is your cash. The appraisal, not your own estimate, sets the starting number.
Key Takeaways
- The ceiling is 80% of the appraised value, so at least 20% equity stays in the home.
- The ceiling covers the whole new loan, not just the cash portion.
- A second mortgage or HELOC that stays in place uses up part of the 80%.
- The upfront mortgage insurance premium is financed on top and is not counted in the 80% test.
- Passing the value test does not mean approval. Credit, income, and payment history are reviewed too.
What an FHA Cash-Out Refinance Actually Does
An FHA cash-out refinance replaces your current mortgage with a larger one. You keep the difference as cash. The CFPB’s guide to using home equity describes it the same way, and it warns that your balance rises and your payoff timeline may stretch.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.32% as of October 22, 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.
It is an owner-occupant program. The home must be your principal residence. An investment property or second home does not fit here, because occupancy decides the leverage a program allows.
Across the wholesale programs Lendmire places FHA files with, the cash-out option reaches 80% loan-to-value on a home you have owned and lived in for 12 months before the case number is assigned. Details on how Lendmire arranges these loans are on the FHA cash-out refinance program page. Every figure here is subject to lender guidelines and full file review. Nothing is a commitment to lend.
Key Terms Defined
Loan-to-value (LTV): the base loan amount divided by the home’s adjusted value.
Combined loan-to-value (CLTV): the base loan plus any other mortgages that stay on the home, divided by the adjusted value.
Adjusted value: the value the lender sizes against. On a cash-out refinance, that is the appraised value.
Base loan amount: the loan before any financed upfront mortgage insurance premium.
Upfront mortgage insurance premium (UFMIP): a one-time FHA premium, 1.75% of the base loan, usually financed into the balance.
Total loan amount: the base loan plus the financed premium. This is the amount FHA insures.
How Is the Maximum Loan Calculated, Step by Step?
The sizing runs in a fixed order. Think of it as a short funnel.
1. Confirm eligibility. You must have owned and lived in the home for 12 months before the case number. Your payment history on the current mortgage gets reviewed too.
2. Order the appraisal. The lender gets an FHA case number and orders a full appraisal tied to it. An appraisal from an old loan does not carry over.
3. Set the adjusted value. For a cash-out loan, this is the appraised value.
4. Apply the ceiling. Adjusted value times 80% gives the maximum base loan.
5. Subtract what must be paid. That means your first mortgage payoff, any liens being cleared, and financed closing costs and prepaids.
6. Check what stays behind. Any second mortgage or HELOC that remains counts toward the 80% CLTV limit.
7. Read the remainder. What is left is the most cash you could receive.
8. Add the premium. The financed UFMIP goes on top. The insured total can sit above 80% of value even though the test was run on the base loan.
This is the 80% rule as HUD Mortgagee Letter 2019-11 set it. That letter capped both LTV and CLTV at 80% of adjusted value, replacing the old 85% limit.
A Worked Example
Say a home appraises at some value we will call 100 units. The cap is 80 units of base loan.
Now take out the payoff on your current mortgage. Suppose it is 50 units. Take out financed closing costs and prepaids, say 3 units. That leaves 27 units of cash.
Now run it as a cross-check. Equity is 100 minus the 50-unit payoff, or 50 units. The lender keeps a 20-unit cushion, since 80% is the cap. Cash is 50 minus 20 minus the 3 units of costs, or 27. Same answer, two routes.
The financed premium is 1.75% of the 80-unit base loan, added after the test. It raises your balance but does not shrink your cash.
These are modeled numbers for illustration, not market data.
What Happens If the Appraisal Comes In Low?
Your cash shrinks, and faster than you might expect. The 80% cap moves in lockstep with value. Take a payoff and costs that stay fixed. A small drop in appraised value cuts the ceiling, and because your payoff and costs don’t change, most of that drop comes straight out of your cash.
| Appraisal result | What happens to the cap | Your options |
|---|---|---|
| As expected | Cap matches your estimate | Proceed as planned |
| Lower | Cap and cash both shrink | Take less cash, wait, or ask about a review |
| Higher | Cap and cash both grow | Take the extra or borrow less |
If the cash no longer covers your goal, you can borrow less, add your own money, or pause. A cash-out refinance does not require you to take the maximum.
Why Cash Back Is Less Than Your Equity
Many homeowners assume they can borrow all of their equity. They cannot. The cap applies to the whole new loan, so a share of equity must stay in the home. The CFPB guide notes that lenders typically want you to keep 10% to 20% of your home value as equity. FHA’s cap keeps it at 20% or more.
Then costs and any remaining liens come out of what is left. That is why the check you receive is smaller than the equity number you had in mind.
What Breaks the General Rule
The 80% rule is clean. These cases bend it.
- A second lien that stays. It counts toward CLTV. A HELOC does not let you get past the cap.
- Owned fewer than 12 months. The ownership and occupancy test comes first. Some situations, such as an inherited home, have been treated differently in HUD guidance. Ask a loan officer to confirm the current rule for your case.
- Manufactured homes. Extra conditions apply, including how the home is installed on its site.
- Three- and four-unit homes. Added tests have applied to multi-unit cash-out loans. The details depend on current guidelines.
- County loan limits. The base loan also has to fit under the FHA limit for your county. Those limits change every year, so whichever of the two ceilings is lower is the one that binds.
- Lenders’ choices. Some lenders add their own credit overlays on top of FHA’s rules.
HUD also exempted Hawaiian Home Lands (Section 247) loans from the 80% cut. That is a narrow case, but it shows the rule is not universal.
Why Did FHA Cut the Cap to 80%?
HUD said the cut strengthens the equity position of cash-out loans and reduces losses if a borrower defaults. According to the HUD press release announcing the change, the move also lined FHA up with the maximum cash-out LTV that Fannie Mae and Freddie Mac allow. FHA had earlier cut the limit from 95% to 85%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
If you read an older article that says 85%, it is out of date.
FHA Cash-Out Versus Other FHA Refinances
The cash-out loan is the strictest FHA refinance on leverage. The comparison below uses the program figures Lendmire sees across its wholesale network.
| Feature | Cash-out | Rate-and-term | Streamline |
|---|---|---|---|
| Takes cash out | Yes | No | No |
| Maximum LTV | 80% | 97.75% | Existing FHA loan only |
| Appraisal | Required | Required | Not required |
| Occupancy | 12 months | 12 months | Existing FHA loan |
A streamline refinances an existing FHA loan with a limited credit review and a net tangible benefit. The cash-out loan does not work that way. It needs a full appraisal and a full file review.
Mortgage Insurance and the Sizing
FHA charges two premiums. The upfront premium is 1.75% of the base loan and is normally financed. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV.
On a thirty-year loan above 90% LTV, the annual premium lasts for the term. A cash-out loan sits at or below 80%, so the annual premium ends after eleven years. These are program mechanics, not a quote. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Your decision to cash out should account for both premiums. They add to the balance and to the monthly cost.
What the Lender Looks At After the Value Test
Hitting 80% does not guarantee anything. Underwriting still reviews:
- Your credit. Lenders place FHA files starting at a decision score of 580.
- Your income and debt ratios. The base pair is 31/43 with no compensating factors. Documented factors can reach 40/50 at the top tier, and the automated finding governs most files.
- Your payment history on the current mortgage.
- The new payment and the closing costs.
Waiting periods after credit events are HUD’s rules, not the network’s promise. HUD sets two years from a chapter 7 discharge and three years from a foreclosure.
Making the Decision in Practice
Start with the question, not the number. What will the cash do? If the answer is a project that adds value or replaces debt that costs more, the larger balance may make sense. If the answer is vague, the extra balance and the premium may not.
Then compare the structures. A cash-out refinance gives you one payment. A second mortgage or HELOC leaves your first loan alone and adds a second payment. The CFPB’s HELOC brochure notes that cash-out closing costs are generally higher than some alternatives, and those costs eat into your 80% room.
For a closer look at the same sizing logic on other loan types, see Lendmire’s piece How a Lender Sizes Your Cash-Out Refinance From Appraised Value.
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. Call 828-256-2183 or request a quote through Lendmire’s site.
Frequently Asked Questions
Can I borrow all of my equity with an FHA cash-out refinance?
No. The cap is 80% of appraised value on the whole new base loan, so at least 20% equity stays in the home. Your payoff, any remaining liens, and financed costs come out of that 80% before any cash reaches you.
Does the financed mortgage insurance premium use up my 80%?
No. The LTV test runs on the base loan, which excludes the financed upfront premium. The premium still raises your total balance, so it affects what you owe even though it does not shrink your cash.
Can a HELOC or second mortgage get me past the 80% limit?
No. CLTV is capped at 80% too, so any lien that stays on the home counts toward the limit. A second mortgage that remains uses up part of your room.
What if I owned the home for less than a year?
The 12-month ownership and occupancy test usually comes first, so you may need to wait even with plenty of equity. Special situations, such as an inherited home, have been treated differently in HUD guidance. A loan officer can confirm the current rule against your facts.
Does my own estimate or an online value set the loan size?
No. The lender’s FHA appraisal sets the adjusted value. An estimate is useful for planning, but the full appraisal governs the final number.
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. CFPB: Using home equity to meet financial needs
2. HUD Mortgagee Letter 2019-11
3. HUD Archives press release 19-114
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 You Qualify for an FHA Cash-Out Refinance With Thin Credit? · How to Use an FHA Loan When You Relocate for Work · How to Refinance an Existing FHA Loan Into Conventional
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.