The Quick Read: In the District of Columbia, an FHA cash-out refinance usually does not trigger a sale-style transfer tax. The main government charges are a flat clerk’s fee to record the new deed of trust and a recordation tax on the debt. On a refinance, the recordation tax generally reaches only the new money above the old balance. A one-to-five-unit home with a Class 1 affidavit on file may owe the clerk’s fee and no tax. The details turn on paperwork, so they are worth understanding before you set a cash-out target.
Key Takeaways
- FHA cash-out tops out at 80% of appraised value on a home you have owned and lived in for 12 months before the case number.
- Washington DC treats a deed of trust differently from a sale. A sale draws transfer and recordation taxes. A refinance draws recordation tax, and often only on the added debt.
- The tax can show up on your Loan Estimate under “transfer taxes” even though DC does not call it that.
- Whatever these charges cost comes out of your net cash or your cash to close.
What Is an FHA Cash-Out Refinance?
An FHA cash-out refinance replaces your current mortgage with a new FHA loan that is larger than what you owe. The difference comes to you as cash. Across the wholesale programs Lendmire places FHA files with, the cash-out reaches 80% loan-to-value. That applies to a home you have owned and occupied as a principal residence for 12 months before the case number is assigned.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.40% as of October 15, 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 is lower than the FHA rate-and-term refinance, which reaches 97.75% on a principal residence occupied for the previous twelve months. The gap exists because cash-out takes equity out of the house. Cash-out also requires a new appraisal. The FHA Streamline skips the appraisal, but it cannot pay you cash.
Older web pages still show 85% for cash-out. That limit is out of date. HUD’s handbook update transmittal sets the maximum at 80% for cash-out refinances. If a page quotes 85%, it is old.
The full program outline is on Lendmire’s FHA cash-out refinance program page.
Where Do Recordation and Transfer Costs Fit in the Loan Math?
They sit in the closing cost stack, not in the loan terms. The 80% cap is measured on the appraised value, and the charges either come out of your proceeds or get paid at closing. Either way, they shrink what you walk away with.
The mortgage insurance works the same way. FHA charges an upfront premium of 1.75% of the base loan, which is normally financed. The base loan is the amount before that premium is added. A financed premium raises your balance, but the base loan is the figure tied to the leverage cap. The annual premium then runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. These are program mechanics, not prices, and every figure is subject to lender guidelines and full file review.
Government charges are different from lender charges. You cannot shop them. The clerk and the tax office set them. What you can control is the cash-out amount, because on a refinance the taxable base can move with it.
Recording Fee, Recordation Tax, Transfer Tax: Which Is Which?
Four terms get mixed up on DC files. This table separates them.
| Charge | What it is | What triggers it |
|---|---|---|
| Recording fee (clerk’s fee) | Flat fee to record the document | Each deed of trust or modification |
| Recordation tax | Percentage tax on the debt secured | Recording a security instrument |
| Transfer tax | Percentage tax on a sale | A deed changing hands |
| Closing disclosure line | Where the charges are listed | Government fees section |
A recording fee depends on the document, not on how much you borrow. The OTR’s Recorder of Deeds page lists a flat fee of roughly $150 for a deed of trust or modification, but that page is dated and title companies quote slightly different amounts. Treat it as a ballpark and ask the settlement agent for the current figure.
Transfer tax belongs to a sale. In DC a deed of trust bears recordation tax only, not transfer tax. On a cash-out refinance, nobody is buying the house, so there is no deed transfer to tax.
Purchase vs. Refinance in DC
On a purchase, DC charges both taxes on the deed. The OTR’s Recorder of Deeds FAQ gives each of the two taxes as 1.1% of the price for residential transfers under $400,000, and 1.45% at $400,000 or more. By custom the transfer tax falls on the seller. Those are sale rules.
A refinance in Washington DC is a different transaction. Here is the comparison.
| Factor | Purchase | Cash-out refinance |
|---|---|---|
| Deed transfers | Yes | No |
| Transfer tax | Applies | Not on a deed of trust |
| Recordation tax | On the deed and the loan | On the new deed of trust |
| Taxable base | Price or loan | Generally new debt over old principal |
| Possible exemption | Limited | Class 1 affidavit on 1–5 unit homes |
The DC Code is the source for the new-debt rule. D.C. Code § 42-1103 states that on a refinance the tax applies only to new debt above the existing principal balance. That holds when the old loan was a purchase money mortgage or was itself taxed. Purchase money loans recorded with the deed are exempt, which is why the later refinance reaches only new money.
How Does DC Treat a Cash-Out Refinance?
DC taxes the new money, not the whole balance, when the paper trail is clean. Put plainly, if the new loan is larger than what you owe, the added amount is what counts. A cash-out refinance has more added debt than a plain rate-and-term refinance. That is why cash-out is the transaction where these charges matter most.
Here is the sequence on a typical file.
1. Eligibility screen. The lender confirms 12 months of ownership and occupancy before the case number. It also checks the mortgage payment history, which most wholesale programs want clean over the prior 12 months. Confirm the exact payment test with your loan officer.
2. Appraisal. The new appraisal sets the 80% ceiling.
3. Title work. The settlement agent pulls the recorded loan history and the prior payoff figures.
4. Tax filing. A separate recordation form goes in for each deed of trust. It splits the total debt into exempt and taxable amounts.
5. Taxable base. The agent applies the new-debt rule. OTR’s tax notice on refinances and modifications says the rate applies to the modified debt’s principal in excess of the existing balance. It also counts amounts paid to the borrower on the existing instrument during the preceding 12 months.
6. Class 1 check. If the home has five or fewer dwelling units and a Security Affidavit – Class 1 is on file, the instrument may be fully exempt.
7. Disclosure. The charges appear on the Loan Estimate and Closing Disclosure.
That 12-month look-back matters. Say you drew cash on a prior loan within the past year and are refinancing again. DC can count those earlier advances as additional new debt. Tell your loan officer about any recent draw before the file goes in.
The rate itself depends on the property and price. The OTR’s notice gives 1.45% as the general rate and 1.1% for residential property transferred under $400,000, and the statute text shows 1.1%. Do not rely on a single number from an article. Ask the settlement agent which rate applies to your property, then confirm it against OTR.
The Class 1 Exemption: The Lever That Decides It
For many DC homeowners, the exemption decides the outcome. OTR’s notice says the refinance tax does not apply to residential property of five or fewer dwelling units when a Class 1 security affidavit is on file. A security instrument on that property is fully exempt. The borrower still pays the flat clerk’s fee.
A condo, a rowhouse or a small multifamily in which you live can all fit within five units. A larger building or a commercial property cannot. Title companies describe non-Class 1 refinances as taxed on the loan amount. Raise this with your settlement agent early, because the file changes shape if the affidavit is missing.
An FHA cash-out is owner-occupied only, so most FHA files in DC should fall into the residential category. Still, the affidavit has to be on file. It is a document, and documents go missing.
Where Does the General Rule Break?
Several edge cases change the math. These are the ones that come up.
Unsubstantiated credit. If you cannot document prior tax payment or an exemption, DC taxes the full outstanding balance of the old debt, not just the new money. This is the costliest gap. It is also preventable with a payoff letter and the earlier recorded documents.
Modifications. An amendment or modification of a security instrument can be treated as a refinance of the whole aggregate debt. A loan modification you did years ago can matter now.
Inherited homes. FHA waives the 12-month occupancy minimum for an heir, as long as the heir has not treated the home as an investment property since inheriting. If the heir rented it out, they must live in it for 12 months first. A home with no mortgage at all can still be a cash-out transaction. On the DC side, an heir has no earlier tax history on a mortgage, so the paper trail on a paid-off home is different. Ask the settlement agent what they need.
Two loan programs, two tax treatments of cash. FHA Streamline and rate-and-term refinances add little or no new debt. They look better on the recordation side than cash-out does. That is a result of the tax rule, not a special deal.
Other places. Some jurisdictions charge a loan-based mortgage recording tax of their own. New York is one. Neighboring Maryland has its own county-level costs, which Lendmire covers in its piece FHA Cash-Out Recordation Costs for a Montgomery County, Maryland Home. The disclosure rules treat these charges the same way, as described below. DC is the worked example here, not the typical case.
Where Do These Charges Appear on Your Disclosures?
They appear under “Taxes and Other Government Fees.” Under Regulation Z’s rule on the Loan Estimate, recording fees are listed first and transfer taxes second. Recording fees depend on the document, not the loan amount. A government charge that depends on the loan amount or sale price is disclosed as a transfer tax, whatever local law calls it.
That produces a quirk. DC’s loan-based recordation tax on a deed of trust would most likely appear on your Loan Estimate on the transfer tax line, with the flat clerk’s fee on the recording fee line. That is an inference from the federal rule, not a DC-specific ruling. Do not read the label as proof that you owe a sale-style transfer tax.
The Loan Estimate shows the charges as one total per line. The Closing Disclosure breaks transfer taxes out by tax and by government entity. Compare the two documents line by line before closing. If a figure moves, ask why.
A Worked Example With No Dollar Figures
Picture a DC homeowner in a two-unit rowhouse. She bought it five years ago with a purchase money loan, and she lives in one unit. She has not drawn any cash from the home in the last 12 months. The appraised value supports a new FHA cash-out at 80% loan-to-value, and her current balance sits well below that. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Here is how the charges stack up.
- The home has two units, so a Class 1 affidavit can go on file. The tax may drop out, leaving the flat clerk’s fee.
- If the affidavit is missing, the new money above her old balance is the taxable base. The old purchase money loan was exempt, so only the added debt counts.
- If she cannot document the old loan’s history, the base can grow to the full balance.
- Whatever she owes either gets paid at closing or reduces her net cash.
Now change one fact. She took a cash advance on a prior loan eight months ago. DC’s 12-month look-back counts that advance as additional new debt. Her taxable base is larger, even though the new loan is the same size.
The lesson is that two borrowers with the same appraisal can leave with different net cash. The paperwork, not the property value, makes the difference. Equity alone does not decide approval either. Ownership history, payment history, credit, income and the appraisal all count, and nothing here is a commitment to lend.
What Is Negotiable and What Isn’t?
| Cost | Can you shop it? | Why |
|---|---|---|
| Clerk’s recording fee | No | Set by the government |
| Recordation tax | No | Set by statute |
| Class 1 exemption | Yes, by filing | Needs the affidavit |
| Cash-out amount | Yes | Changes the taxable base |
| Title and settlement services | Often | Vary by provider |
You cannot negotiate the tax. You can reduce what it applies to by documenting credits, filing the affidavit and sizing the cash-out sensibly. If your goal is a specific amount of cash, build the closing charges into the target. A smaller draw can leave more net cash than a larger one when the extra debt is taxed.
Questions to Bring to Your Loan Officer and Settlement Agent
- Is my home within the five-unit residential class, and is the affidavit on file?
- Was my current loan a purchase money mortgage, and can you get the payoff letter and prior recorded documents?
- Did I take any cash on this home in the past 12 months?
- Which rate applies to my property, and does the Loan Estimate show it on the transfer tax line?
- How much of the charge comes out of proceeds versus cash to close?
- Has anything I recorded earlier been modified?
Key Terms Defined
Recordation tax: A DC tax charged on the debt secured by a deed of trust when it is submitted for recording.
Transfer tax: A tax on a sale, charged when a deed changes hands, usually paid by the seller in DC.
Base loan amount: The FHA mortgage amount before any financed upfront mortgage insurance premium is added.
Deed of trust: The security document that pledges your home for the loan, which DC uses in place of a mortgage in many closings.
Class 1 security affidavit: A filing that can exempt a one-to-five-unit residential property from the refinance tax.
Substantiation: The documents that prove earlier tax payment or an exemption on the old debt.
Frequently Asked Questions
Do I pay transfer tax on an FHA cash-out refinance in DC?
Not as a sale-style tax. A deed of trust bears recordation tax only, and the transfer tax belongs to a deed transfer. Your Loan Estimate may still list the loan-based recordation tax on the transfer tax line, because the federal disclosure rule sorts charges by how they are calculated.
Is the recordation tax charged on the whole new loan?
Usually not. When the old loan was a purchase money mortgage or was already taxed, DC applies the tax to new debt above the existing principal. The exception is a gap in documentation. If you cannot substantiate the credit, the tax can reach the full outstanding balance of the old debt.
Can I do an FHA cash-out on a home I inherited?
Often yes, with conditions. An heir does not have to meet the 12-month occupancy minimum if the home was not treated as an investment property after inheritance. If it was rented, the heir must live in it for 12 months first. The 80% loan-to-value cap and the owner-occupied rule still apply, and everything is subject to lender guidelines.
Will these charges reduce my cash out?
Yes, whether you pay them at closing or they come out of proceeds. The 80% cap limits the gross loan, and closing costs are paid from within that room. A financed upfront premium also raises the balance, so ask for a net-cash figure and not just a loan amount.
What if my lender asks for a payoff letter and old recorded documents?
Provide them. DC refinance filings typically use a lender letter stating the outstanding principal, a settlement statement and copies of earlier recorded instruments. Those papers prove the tax history and protect you from a tax on the full balance.
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. Veterans can also look at Lendmire’s piece VA Cash-Out Refinance Recordation Exemptions in the District of Columbia.
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. HUD Handbook 4000.1 update transmittal
2. D.C. Official Code § 42-1103
3. OTR tax notice, alternate copy
4. OTR tax notice on the taxation of refinances and modifications
5. CFPB Regulation Z § 1026.37
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 Closing Costs and Upfront MIP Change an FHA Cash-Out · FHA Cash-Out Closing Costs Financed on a Texas Homestead · Can You Get an FHA Cash-Out on a Condo in Litigation?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.