The Quick Read: An FHA cash-out refinance replaces your current mortgage with a new, larger one and hands you the difference in cash. The new loan tops out at 80% of your home’s value. The new terms apply to the entire balance, not just the cash you take. If your current first mortgage is cheap, that last point decides most of the outcome.
The Short List
- The loan reaches 80% loan-to-value (LTV), so at least 20% equity stays in the home.
- You need to have owned and lived in the home for 12 months before the case number is assigned. Your payment history has to be clean.
- The new rate, term and mortgage insurance cover the whole new balance. They don’t just cover the cash portion.
- A cheap first mortgage disappears when it is paid off. A separate loan on the equity can leave it in place.
- Qualifying is subject to lender guidelines and a full file review. Nothing here is a commitment to lend.
What an FHA Cash-Out Refinance Actually Does
It is a swap. The lender pays off your existing first mortgage, whether or not that loan is FHA. You get a new FHA loan, and the leftover money comes to you as cash, which you can use for debt, repairs or other needs.
Lendmire’s FHA cash-out refinance program follows the same structure. Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders and does not lend itself.
Compare the other FHA refinance options:
- FHA Streamline. It refinances an existing FHA loan with no appraisal and a limited credit review. It needs a net tangible benefit, meaning the new loan must measurably help you. It pays no cash out.
- FHA rate-and-term. It reaches 97.75% on a principal residence you have occupied for the previous twelve months. It is built to change the rate or term, and it is not meant to pull equity out.
- FHA cash-out. It reaches 80% LTV on a home you have owned and lived in for 12 months before the case number. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
That 80% ceiling has a history. HUD Mortgagee Letter 2019-11 lowered the cap on cash-out loans to 80% of adjusted value. HUD’s stated reason was to protect the FHA insurance fund from rising insured balances on cash-out loans. The cap covers combined LTV, so any other liens on the home count toward the 80%.
One more point on occupancy. FHA is for the home you live in. Second homes and rentals do not qualify, and occupancy decides how much leverage a lender will allow.
The Guidelines at a Glance
| Item | What the guideline says |
|---|---|
| Occupancy | Principal residence, owned and lived in 12 months |
| Maximum LTV | 80% of adjusted value, counting all liens |
| Payment history | Clean record on the mortgage being paid off |
| Credit | Wholesale programs start at a 580 decision score |
| Ratios | 31/43 base; up to 40/50 with documented factors |
| Mortgage insurance | 1.75% upfront; annual premium varies |
A few notes on that table. Across the wholesale programs Lendmire places FHA files with, 580 is the starting point for FHA loans generally. Some lenders set a higher floor for cash-out, so the lender can decide more than the program does.
The ratios are housing cost over income, then total debt over income. Most files are decided by FHA’s automated finding. Strong compensating factors, such as savings or a low payment shock, move you up the ladder.
County loan limits apply too. They are set by county and change every year, so this article quotes no dollar figures. Check your county before you plan around a number.
How the Loan Is Underwritten, Step by Step
1. Eligibility screen. The lender confirms you have owned and lived in the home for 12 months before the case number. Missing this test ends the conversation, and no LTV adjustment fixes it.
2. Payment history. The lender documents that your mortgage payments were made on time for the prior 12 months. If the loan isn’t on your credit report, expect a mortgage verification or bank statements.
3. Appraisal. The appraised value sets the ceiling. The 80% is applied to adjusted value, so the appraisal decides how much cash is possible.
4. Credit and income review. The lender runs your credit, income, assets and the new payment through FHA’s automated underwriting. The finding, plus the ratios above, shapes the file.
5. Pricing the whole balance. The new rate, term and payment apply to the full new loan. The 1.75% upfront premium is charged on the base loan amount and is typically financed into the balance.
6. Closing. The lender pays off the old first mortgage and sends the remainder to you. Lenders must give you a Loan Estimate and a Closing Disclosure, so you can compare the numbers before you sign.
HUD’s Handbook 4000.1 is the rulebook behind all of this. Revisions are published regularly, so confirm current HUD guidance before leaning on any single detail.
Why a Cheap First Mortgage Changes the Math
A cash-out refinance does not add a loan next to your mortgage. It replaces your mortgage. The CFPB’s research on cash-out refinances makes this point: home equity loans and HELOCs leave the original first lien intact. A cash-out does not.
That research also warns that when the new loan’s rate is higher than the one paid off, borrowing costs can climb well above a HELOC or home equity loan. Higher rates have also been linked to delinquency and default.
Picture a homeowner who owes about 50% of the home’s value on a cheap first mortgage. They want cash to bring total borrowing to 75% of value. The cash-out route gives them one new loan at 75% of value, 1.5 times the old balance.
That whole loan carries:
- the new rate,
- the new term,
- the financed upfront premium,
- and the annual premium.
The alternative is keeping the old 50% loan as it is and adding a separate loan for the other 25%. Only the new money is priced at today’s cost.
Compare them by asking one question: what does it cost to hold the cash? On a cash-out, you are paying the new terms on the whole balance. On a separate loan, you pay the new terms only on the 25%. The larger the old balance and the wider the gap between old and new terms, the more the cash-out costs.
Mortgage insurance adds to this. If your current loan carries none, FHA’s premiums are a new cost. The annual premium falls 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 the full term. At or below 90% LTV it ends after eleven years, subject to program terms. A cash-out capped at 80% sits on the shorter side of that line, but you still pay the premium for years. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
HUD Mortgagee Letter 2023-05 sets the 1.75% upfront premium on the base loan amount, with narrow exceptions. Because it scales with the new loan, a bigger loan means a bigger premium.
Many homeowners with a low first mortgage find the numbers favor a second loan. The cash-out wins when you have a different reason to refinance, such as a high-cost first loan you are leaving anyway. Lendmire’s piece HELOC vs Cash-Out Refinance When You Have a Low First Mortgage walks through that trade-off.
Replace the First Mortgage or Keep It: Your Options Side by Side
| Option | What happens to your first loan |
|---|---|
| FHA cash-out | Paid off and replaced |
| Home equity loan | Stays in place; second lien added |
| HELOC | Stays in place; revolving second lien |
| Conventional cash-out | Paid off and replaced |
Two of these options replace your first mortgage. Two leave it alone. A home equity loan or HELOC is a separate loan from the lender who offers it, and its rules are its own. Nothing in the agency material says an FHA first mortgage can be paired with a new HELOC. Treat that as a question for the lender, not an assumption.
FHA cash-out is also the only item on this list built around FHA ratios and credit tiers. A conventional cash-out has its own credit and leverage rules. Some borrowers who struggle with conventional guidelines do better with FHA. Others do better the other way, and your credit profile decides that.
Where the General Rule Breaks
The rules above cover most files. These cases bend them.
Bought the home less than 12 months ago. The home is not eligible for cash-out. It is a hard stop and not an LTV haircut. A rate-and-term refinance may still fit, because that program is built for different goals.
Inherited property. Older HUD reference guidance treated an inherited home as eligible for cash-out when the borrower has lived in it since the inheritance and the lender can document it. That guidance sits in a HUD archive, so confirm it against the current handbook before relying on it.
Forbearance history. A borrower who was in forbearance has to complete the plan first. HUD Mortgagee Letter 2020-30 then requires 12 consecutive monthly payments before a cash-out is allowed.
Non-occupant co-borrower. On a purchase, FHA allows a non-occupant co-borrower. Older HUD reference guidance says a non-occupant co-borrower can’t be added to a refinance just to meet credit guidelines. Don’t build a cash-out plan around adding one.
Credit events. HUD sets waiting periods after a Chapter 7 discharge (two years) and after a foreclosure (three years). These are HUD’s rules. They do not come from the wholesale network, and a lender may add its own conditions.
Special programs. The 80% cap change did not apply to Section 247 Hawaiian Homelands loans. If you hold one of these, your rules differ.
What the Decision Looks Like in Practice
Start with the cash. What do you need it for, and how much? CFPB research found borrowers most often use cash-out funds to pay off other debts, with home repairs second. It also found the credit-score boost after a cash-out tends to fade over time, though scores stayed above their pre-refinance level.
The same research cautions that turning non-mortgage debt into mortgage debt can raise foreclosure risk. Unsecured debt can’t take your home. Mortgage debt can.
Run the checks in this order:
1. Do you pass the 12-month tests? Ownership, occupancy and payment history all have to line up.
2. Does 80% leave enough room? Count every lien on the home, then see if the cash you need fits.
3. Does the cash justify repricing everything? Compare the new terms on the whole balance against your current loan plus a loan on only the new money.
4. Can the new payment fit your ratios? The 31/43 base and the 40/50 ceiling with documented factors are the guideposts.
5. Can you hold the added cost? Add the financed upfront premium and the annual premium to your picture.
Here is a pattern a working broker sees often. Borrowers arrive focused on the cash amount, and the file gets decided on the old loan’s terms. When the existing first mortgage is much cheaper than today’s market, the extra cost of the cash-out tends to outweigh the convenience of one loan. When the first mortgage is already expensive, the numbers flip, and the cash-out becomes a way to reset a loan you’d want to leave anyway.
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
Cash-out refinance: a new mortgage that pays off your current one and gives you the difference in cash.
LTV (loan-to-value): your loan balance divided by your home’s appraised value.
Combined LTV: the same ratio, counting every loan secured by the home.
Adjusted value: the appraised value FHA uses to measure LTV, which sets your maximum loan.
Upfront mortgage insurance premium: a one-time FHA charge, 1.75% of the base loan, usually financed into the balance.
Annual mortgage insurance premium: an ongoing FHA charge that varies with term, loan amount and LTV.
Decision score: the credit score a lender uses to qualify the file.
Case number: the FHA tracking number assigned when the lender orders the appraisal and starts the loan.
Frequently Asked Questions
Can I keep my low rate and still take cash out with FHA?
Not on a cash-out refinance. That loan replaces your first mortgage, so the new terms apply to everything. To keep a low-cost first mortgage, you would need a separate loan on the equity, such as a home equity loan or HELOC. Each lender sets its own rules for those.
How much equity do I need to keep?
At least 20%. The cash-out loan reaches 80% LTV on adjusted value, and that counts every lien on the home. The appraisal decides how much cash fits under that ceiling. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Does my current loan have to be FHA?
No. The loan being paid off can be any type of mortgage. What matters is that you’ve owned and lived in the home for the required 12 months and that your payment history on that mortgage is clean.
Can I use an FHA cash-out on a rental or second home?
No. FHA is for a principal residence, and occupancy decides leverage. A home you rent out or use as a second home falls outside the program.
Is a streamline refinance a way to get cash?
No. A streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It doesn’t pay out cash. If you need cash from an FHA home, the cash-out program is the one built for it.
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
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
3. CFPB Office of Research blog: cash-out refinances
4. HUD Mortgagee Letter 2023-05
5. HUD archive
6. HUD Mortgagee Letter 2020-30
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: Should FHA Homeowners Use a Conventional Cash-Out Refinance for Debt? · Can You Refinance a Texas Homestead FHA Cash-Out Into Better Terms? · Can You Get an FHA Cash-Out Refinance and How Much Is Allowed?
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.