How Much an FHA Cash-Out Lends in a Community-Property State

The Quick Read: The loan-to-value cap is the same in a community-property state as everywhere else: 80% of the home’s value on an owner-occupied principal residence. What changes is the debt review. Your spouse’s recurring debts can be counted in your ratios even when your spouse is not on the loan, and that can shrink the amount you are approved for before the 80% ceiling is ever reached. Everything here is subject to lender guidelines and full file review, and nothing is a commitment to lend.

What Is an FHA Cash-Out Refinance?

An FHA cash-out refinance replaces your current mortgage with a new, larger FHA-insured loan and pays you the difference in cash. It is only for a home you own and live in as your principal residence. Across the wholesale programs Lendmire places FHA files with, the cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

The 80% figure is not old news. HUD Mortgagee Letter 2019-11 cut the maximum LTV and combined LTV on FHA cash-out refinances from 85 to 80 percent of adjusted value. HUD’s stated reason was protecting the FHA insurance fund from growing balances on cash-out loans. An earlier HUD Mortgagee Letter 2009-08 had set an 85 percent cap as a temporary measure. If someone tells you FHA lets you borrow 85% or 95% on a cash-out, they are repeating old rules.

Key Terms Defined

• Community-property state: A state where most property and debts acquired during a marriage are treated as owned or owed by both spouses.
• Non-borrowing spouse: A spouse who is not on the note but may still affect the file.
• Adjusted value: The appraised value as FHA sets it for loan-to-value purposes.
• Combined LTV (CLTV): Your first loan plus any second lien, divided by the home’s value.
• DTI (debt-to-income ratio): Your monthly debts compared with your monthly income.
• Security instrument: The mortgage or deed of trust that places the lien on the home.

Which States Are Community-Property States?

The community-property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. That list comes from IRS Publication 555, which is used here only as a pointer to the states. The same publication does not address Alaska, Tennessee and South Dakota, which have opt-in arrangements and are not community-property states in the way these nine are.

Two details trip people up. First, the rule can be triggered by where you live or where the home sits. If you live in a community-property state and the house is elsewhere, or the reverse, the review can still apply. Second, state law decides which debts are excluded, so treatment is not identical from state to state.

How the Loan Is Underwritten, Step by Step

The 80% cap does not change in these states. The path to your approved amount does. Here is how a file moves.

1. Eligibility screen. The home must be your owner-occupied principal residence. Second homes and investment properties are not eligible for FHA cash-out. Non-profit and government borrowers are also ineligible.

2. Appraisal sets the base. The ceiling is 80% of adjusted value. Cash available is roughly that figure, minus the payoff of existing liens, minus closing costs and any financed costs. A home owned free and clear can be refinanced as a cash-out.

3. Spousal credit pull. If you or the property are in a community-property state, the lender pulls a credit report on your non-borrowing spouse. HUD’s longstanding guidance says that report is used to establish debts. The spouse’s credit history is not a reason for denial. It is not scored as yours.

4. Debts join your ratios. The spouse’s recurring debts, such as auto loans, student loans, revolving accounts and personal loans, are added to your DTI unless state law excludes them and the lender documents that. Across the wholesale programs Lendmire works with, the base ratio pair is 31/43 (housing and total) with no compensating factors. Documented compensating factors reach 40/50 at the top tier. The automated finding governs most files.

5. Collections and judgments. A non-borrowing spouse’s judgments generally have to be resolved unless state law excludes them. Collections get analyzed alongside yours.

6. Signatures and lien. Your spouse can hold an ownership interest without signing the note. But where state law requires it to create a valid first lien, the spouse may need to sign the security instrument or a document giving up rights in the property. Your loan officer confirms what applies in your state.

7. Cash-out conditions. Income from a non-occupant co-borrower cannot be used to qualify. Rental income from an accessory dwelling unit cannot be used either. At least 20% equity stays in the home after closing.

Which Limit Binds First: Value or Debt?

Think of two ceilings. One is the value ceiling: 80% of adjusted value. The other is the income ceiling: the most your DTI allows. Whichever is lower sets your loan.

Take a couple with plenty of equity. The 80% ceiling leaves room. But one spouse carries a car loan, a student loan and revolving balances, all in that spouse’s name, and the other is the sole borrower. Those payments now sit in the borrower’s ratios. If the ratios go over what the file can support, the approved amount drops or the file does not work, even though the value ceiling is far away.

Now flip it. A couple with little debt and modest equity. The DTI is fine, and the 80% cap is what limits the cash. Same state, same rule, different binding constraint.

For a married borrower, the practical question is rarely “what is the LTV cap?” It is “what does the household owe?”

Does the Spouse’s Debt Always Count?

In these states, a spouse’s debts are generally counted in the review, even when the spouse is not on the loan. Exceptions exist where state law excludes a particular obligation, and the lender has to document why. Do not assume a debt in your spouse’s name will count, and do not assume it will be excluded. It depends on the state and the debt.

How the debt changes your cash, mechanically:

1. Your spouse’s monthly debt payments are added to yours.

2. Your DTI rises.

3. The loan size your income can support falls.

4. The cash available at closing falls with it, because cash is what remains after the old loan, costs and financed items.

Higher balances also raise the mortgage insurance base. Across the programs Lendmire places FHA loans with, the upfront premium is 1.75% of the base loan, financed into the balance. The annual premium runs between 0.15% and 0.75% of the balance depending on term, loan amount and LTV. How long the annual premium lasts also depends on the term and LTV, and the lender confirms the duration for your file. These are program facts, not prices. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

Signature and Credit: What Each Spouse Does

If a spouse refuses to authorize the credit report, HUD’s longstanding guidance says the lender cannot establish your liabilities and the loan becomes uninsurable. Raise it early.

Where the General Rule Breaks

Texas. Texas adds a constitutional layer on top of FHA’s rules. A cash-out on a Texas homestead also has to meet Article XVI, section 50(a)(6) of the Texas Constitution. One piece is firm: that provision caps total liens at 80% of fair market value, as a Texas Attorney General opinion cites. The 80% figure matches FHA’s, but the Texas one cannot be waived and counts every lien. Texas also layers on other closing rules for these loans. How an FHA cash-out fits within them is a question for the loan officer, so a Texas homeowner should ask directly rather than assume.

Mixed locations. Either residence or property location can trigger the spousal review.

State-excluded debts. Some obligations are excluded by state law. Treatment differs, and the file needs documentation for each exclusion.

Cash proceeds as marital property. Cash received during the marriage is generally treated as shared property in these states. That is a state-law and family-law question, not an FHA one. Ask an attorney.

Divorce. A buyout of a spouse’s share can be handled in different ways, and whether a given file counts as cash-out depends on the facts and lender guidelines. Raise it up front.

What About Credit Scores and Down Payment?

For cash-out, the leverage rule is the 80% cap above. On purchases, the programs Lendmire places FHA files with allow 96.5% financing with a 3.5% minimum investment from a 580 decision score. HUD itself has a 500-579 tier with a 10% minimum investment, but the wholesale network does not reach below 580. County loan limits apply and change every year.

Myths vs. Reality

• “Community property means a higher LTV.” No. The cap is 80% everywhere.
• “My spouse’s debts don’t count if I’m the only borrower.” In these states they usually do.
• “My spouse’s credit score will hurt my approval.” The report finds debts. The score is not used against you.
• “Leaving my spouse off the loan avoids spousal review.” It does not in these states.
• “Alaska, Tennessee and South Dakota work like the other nine.” They are opt-in, not community-property states.

Documents to Gather Before You Apply

• Proof you have owned and occupied the home as your principal residence for the required period
• Your payoff information on all liens
• Your spouse’s debt statements: auto, student, revolving, personal loans
• Any divorce decree or court order that assigns a debt
• Documentation of any debt you believe state law excludes
• Willingness from your spouse to authorize the credit report and, where required, sign lien documents

What Your Decision Looks Like

Start with the household’s total monthly debts, not just yours. Then compare the 80% value ceiling with what your DTI supports. If the spouse’s debts are the problem, the options are paying one or more off at closing, adding the spouse as a co-borrower, or choosing a different path. Each has trade-offs that a loan officer can lay out. 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.

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.

References

1. HUD Mortgagee Letter 2019-11

2. HUD Mortgagee Letter 2009-08

3. IRS Publication 555

4. Texas Attorney General Opinion KP-0183