The Quick Read: The FHA cash-out cap is 80% of the home’s appraised value, and it applies to the base loan amount. The upfront mortgage insurance premium sits outside that test, so it can be financed on top of the base loan. The final note can land slightly above 80% of value. The financed premium raises the balance you owe without adding to your cash. Premium amounts and other insurance details should be confirmed with a qualified local professional. Everything here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
Key Takeaways
- The cap is 80% of the Adjusted Value (the appraised value, for most files) for FHA cash-out refinances.
- The 1.75% upfront premium is calculated on the base loan and can be added to it.
- Financing the premium raises your balance without raising your cash.
- The premium is financed entirely or paid in cash. It cannot be split.
- FHA cash-out is for a home you own and live in. Rentals and second homes do not qualify.
What Is the FHA Cash-Out LTV Cap?
The cap is 80% of the home’s Adjusted Value. HUD Mortgagee Letter 2019-11 cut the maximum loan-to-value and combined loan-to-value on FHA cash-out refinances from 85% to 80%. It applies to case numbers assigned on or after September 1, 2019. HUD’s letter says the change limits the risk to the FHA Insurance Fund from rising insured balances on cash-out loans.
LTV is simply the loan balance divided by the home’s value. At 80%, you must keep roughly 20% equity in the home after the refinance. The test covers the whole new loan, not just the cash you take out. That is the point people miss. If you owe a balance today, the new loan must pay off that balance first, and what’s left over is your cash.
Across the wholesale programs Lendmire places FHA files with, the cash-out ceiling is 80% LTV on a home you have owned and occupied for 12 months before the case number. That matches HUD’s rule. For comparison, the FHA rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months. Cash-out is the tighter product because you are pulling equity out, not just changing the loan. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
If you want the program overview, Lendmire’s FHA cash-out refinance program page covers who it fits and how the deal works.
How Does the Financed Upfront Premium Interact With the Cap?
The premium sits outside the LTV test. FHA charges an upfront mortgage insurance premium of 1.75% of the base loan amount, per HUD’s mortgage insurance structure page. A Federal Register notice states that LTV limits do not include the addition of the upfront premium. The same notice says the total insured first mortgage cannot exceed 100% of appraised value, so the premium must still fit inside that outer limit.
Here is the plain-English version. The 80% cap sets your maximum base loan. The 1.75% premium is figured on that base. If you finance it, it is added to the note. So the final note amount can sit a little above 80% of value.
A caveat on sourcing: the conclusion comes from the Federal Register notice, HUD’s premium rules, and how wholesale FHA pricing is built. Lender overlays can also be stricter than HUD’s rules, so the way a given lender in the network treats the premium is confirmed on your file.
Financed or Paid in Cash?
The premium is all-or-nothing. It is financed entirely into the loan or paid entirely in cash. There is no partial option.
| Choice | Effect on balance | Effect on cash |
|---|---|---|
| Finance the premium | Balance goes up | No added cash needed at closing |
| Pay it in cash | Balance stays at the base | Costs you cash at closing |
Financing avoids a cash outlay at closing, but you pay interest on that added balance for the life of the loan. That is basic arithmetic, not a pricing claim. Neither choice is wrong. It depends on whether you would rather keep cash in hand at closing or keep the balance smaller.
How Is the Loan Sized, Step by Step?
Sizing runs in a fixed order: value, cap, loan limit, then payoff and costs, with the premium added to the note on the side. Skip a step and the cash estimate comes out wrong.
1. Appraised value. The appraisal sets the value the 80% is applied to. Everything downstream depends on it.
2. Apply the cap. Multiply that value by 80%. That is the most the base loan can be.
3. Check the county loan limit. FHA limits are set by county and change every year. The base loan cannot exceed the limit for your county, and your first mortgage plus any other liens must stay inside HUD’s nationwide limits. Ask for your county’s current figure rather than relying on a number from memory.
4. Subtract your payoff. Your existing mortgage and any liens must be paid off from the base loan.
5. Subtract closing costs. Costs reduce your proceeds too, unless paid separately.
6. What remains is your net cash.
7. Add the premium to the note. Calculate 1.75% of the base loan. If financed, it is added on top, so the balance you owe rises while your cash stays where step 6 left it.
The Energy Efficient Mortgage option, if it applies, adds its amount after the maximum loan calculation. That is a niche case.
A Worked Example (Illustrative, Percentages Only)
Say a home appraises at a round figure, and the cap allows a base loan equal to 80% of that value. Subtract the payoff and closing costs from that base loan. What’s left is your cash. Now the premium: it is 1.75% of the base, financed on top. The note ends up a bit over 80% of value, which is fine because the premium sits outside the cap test. It raises the balance you owe. It does not add to your cash.
Run it two ways. In the first, the borrower owes about half the home’s value. The cap is the binding limit, and plenty of cash is left after payoff and costs. In the second, the borrower owes about 75% of value. The cap leaves only a thin slice above the payoff. After costs, there may be very little cash, or none. The same cap gives two very different outcomes, and in both the financed premium simply lifts the final balance.
When Does the Cap Bind, and When Does the Loan Limit?
Two ceilings apply at once, and whichever is lower wins. The LTV cap binds when the home is modestly priced relative to the county limit. The county loan limit binds when the home is expensive relative to its county. In that case 80% of value may be more than FHA will insure, and the base loan is held to the limit instead.
Most borrowers hit the cap first. But if your home is worth a lot for its county, check the limit before assuming your 80% math holds.
What If the Appraisal Comes in Low?
A lower appraisal shrinks everything. The cap is a percentage of value, so each dollar of value lost cuts the maximum base loan by 80 cents. Your payoff doesn’t change. Your closing costs barely change. So the lost value comes almost entirely out of your cash.
A borrower who planned on a certain amount of cash can end up with much less from a modest appraisal miss. Lendmire’s piece How a Low Appraisal Limits an FHA Cash-Out at the Cap walks through that in more detail. If it happens to you, the options are practical ones:
- Take a smaller cash-out amount.
- Pay down the existing balance first.
- Look at a different program, such as a conventional cash-out or a rate-and-term refinance.
- Wait until the home’s value or your balance moves in your favor.
Why is your cash lower than value times 80% minus your balance? Because that formula ignores closing costs, which come out of the same pool.
What Else Sits Beside the Cap?
The cap is one gate among several. Meeting 80% does not mean approval, and it does not set the cash amount. Each file is reviewed in full.
- Occupancy. FHA cash-out is for owner-occupants only. The home must have been owned and occupied as your principal residence for 12 months before the case number. Rentals and second homes are not eligible, so occupancy decides the leverage before anything else does.
- Payment history. Lenders look hard at recent mortgage payments, and late payments in the past year can make you ineligible for cash-out. Some lenders add their own seasoning rules on top of HUD’s.
- Credit and income. Ratios start at 31/43 (housing to total debt) with no compensating factors. Documented factors can reach 40/50 at the top tier, and the automated finding governs most files.
- Property type. Manufactured homes face a longer installation history before cash-out.
- Mortgage insurance. On top of the upfront premium, an 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, it lasts for the term. At or below 90%, it ends after eleven years. At an 80% cap, you are generally in the shorter-duration group, but the term and amount matter, so confirm it on your file. For the refund and premium mechanics in more depth, see Lendmire’s piece FHA Cash-Out Upfront Mortgage Insurance and Refund Rules.
Where Does the General Rule Break?
Several situations change how the cap and premium work. These are the named exceptions.
- Hawaiian Homelands (Section 247). The 2019 cap cut does not apply to these loans, per HUD’s letter. HUD’s answers page also says the upfront and annual premiums do not apply to Section 247 loans.
- FHA Streamline. A different product with different premium treatment. It refinances an existing FHA loan with no appraisal in its non-appraisal form, so there is no LTV calculation at all. The premium continues, and a net tangible benefit is required. It is not cash-out.
- Refund credit. If your current loan is FHA and you refinance into a new FHA loan within three years, a partial credit toward the new upfront premium may apply. It is a credit, not a cash refund, and it declines over time. The exact schedule is in HUD Handbook 4000.1, so verify it before counting on a number.
- Inherited homes. The handbook has treated inheritance differently from the 12-month ownership rule. Confirm current treatment before relying on it.
- A home with no mortgage. Borrowing against a free-and-clear home still counts as cash-out, and the same 80% cap applies.
- Non-FHA current loan. You do not need an existing FHA loan to use FHA cash-out.
- Recent purchase. If you’ve owned the home under 12 months, cash-out rules generally do not work as written.
What Does This Mean for Your Decision?
Think of the decision in three questions. How much equity will remain, what will the cash do for you, and what does it cost to carry?
On equity: an 80% cap leaves a cushion, and a financed premium raises your balance without touching that cushion’s 20% target, because the premium sits outside the cap test. On purpose: the CFPB found that paying off other bills or debts was the most common reason borrowers took cash out. That works for some. But the CFPB also warns that converting non-mortgage debt into mortgage debt secured by your home can put the home at risk of foreclosure if payments become unsustainable. Moving unsecured debt onto the house changes its risk, not just its payment.
On alternatives: a cash-out refinance replaces your original mortgage. A home equity loan or HELOC leaves the original first mortgage intact, per CFPB research. If your current first mortgage is one you’d rather keep, that difference matters.
Common mistakes to avoid:
- Confusing LTV with equity percentage.
- Forgetting that the financed premium raises your balance and carrying cost.
- Assuming 80% means you will be approved for 80%.
- Assuming an old 85% or 95% cap still applies. Those were older caps.
- Skipping the county loan limit check.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Adjusted Value: The appraised value, adjusted under HUD’s rules, that the cash-out cap is applied to.
Base loan amount: The loan before any financed upfront premium is added.
LTV (loan-to-value): The loan balance divided by the home’s value, shown as a percentage.
CLTV (combined loan-to-value): The first mortgage plus any other liens, divided by the home’s value.
UFMIP (upfront mortgage insurance premium): A one-time FHA premium of 1.75% of the base loan, financed or paid in cash.
Annual mortgage insurance premium: A yearly premium paid monthly, based on the base loan, term and LTV.
Net cash: What you receive from the base loan after paying off liens and closing costs.
Frequently Asked Questions
Does the upfront premium count toward the 80% cap?
No. HUD’s rules exclude the premium from the LTV test, so the cap applies to the base loan. The premium is calculated on that base and added to it, which means the final note can sit a little above 80% of value. The note must still stay within 100% of appraised value.
Can I pay part of the premium in cash and finance the rest?
No. The premium must be financed entirely or paid entirely in cash. If you pay it in cash, your balance stays at the base amount but the cash needed at closing goes up. If you finance it, your balance rises and your cash from the refinance stays the same.
Why is my cash lower than my equity?
Because the new loan has to pay off your current liens and cover closing costs, and the 80% cap keeps the top 20% of value out of reach. Equity is value minus what you owe. Cash is what remains of the base loan after the payoff and costs. The financed premium does not add to that cash. It only raises the balance you owe.
Can I use FHA cash-out on a rental or second home?
No. FHA cash-out is for a principal residence you have owned and occupied for 12 months. Occupancy decides the leverage, and rentals and second homes are outside this program.
Is the old 85% cap still in effect?
No. HUD cut it to 80% for case numbers assigned on or after September 1, 2019. Some older pages still show 85%, so rely on current HUD rules and ask your loan officer to confirm against the current handbook.
Weighing Your Options
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see FHA loan programs.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD FHA Answers: MIP structure for forward mortgage loans
3. Federal Register notice, Feb. 6, 2013
4. CFPB: cash-out refinance borrowers and credit scores
5. CFPB Office of Research blog on cash-out refinances
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 to Plan Your Exit From MIP After an FHA Cash-Out · How to Document a Manually Underwritten FHA Cash-Out Refinance · How a Low Appraisal Limits an FHA Cash-Out at the Cap
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.