The Quick Read: An FHA cash-out refinance can carry closing costs inside the new loan, but only if the base loan still fits under the 80% loan-to-value ceiling. Across the wholesale programs we place files with, that ceiling applies to a home you have owned and lived in for 12 months. Rolled-in costs shrink the cash you receive or raise your balance. The real question is how much room the 80% cap leaves, not whether costs can be rolled in at all.
How Does an FHA Cash-Out Refinance Work?
A cash-out refinance replaces your current mortgage with a new, larger FHA loan. The new loan pays off the old one, pays the transaction costs, and sends you the difference as cash.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.24% as of October 29, 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.
You do not need an existing FHA loan. A conventional or other mortgage can be refinanced into an FHA cash-out. You do need to live in the home. Standard cash-out is limited to your principal residence, so second homes and rentals fall outside it. Occupancy decides the leverage, and that settles the question.
The program’s rules sit in HUD’s Handbook 4000.1, which HUD calls the single source of FHA single-family policy. Lendmire’s FHA cash-out refinance program page covers how the brokerage arranges these loans.
Key Takeaways
- The FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number.
- Lender and third-party fees have to fit inside the base loan under that cap. The upfront premium is financed on top of the base loan and is not counted against the 80% test.
- Rolling costs in does not make them free. They become part of the balance and accrue interest.
- At or below 90% LTV, the annual mortgage insurance premium ends after eleven years.
- 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 new loan amount divided by the appraised value of the home.
Base loan amount: The loan before the financed upfront premium is added. The 80% test and the annual premium are measured against it.
Upfront mortgage insurance premium (UFMIP): A one-time FHA premium of 1.75% of the base loan, financed on top of it.
Annual mortgage insurance premium (MIP): A yearly FHA premium, charged as a percentage of the balance and collected inside the monthly payment.
Net cash: What reaches you after the old loan is paid off and costs are settled.
Seasoning: The length of time you must have owned and occupied the home before applying.
How Is the Loan Built, Step by Step?
Step 1: Eligibility screen. The lender confirms the home is your principal residence and that you have owned and occupied it for 12 months. You should be current on your existing mortgage, and a payoff statement is needed.
Step 2: Appraisal sets the ceiling. The 80% cap applies to appraised value. Maximum base loan is value times 80%. County loan limits also apply, and in a market where values have jumped, the limit rather than the 80% cap can be the number that binds.
Step 3: Costs go inside the base loan. Lender fees and third-party fees are part of the new base loan, so they must fit beneath the 80% ceiling. Whatever they consume is cash you do not receive. The financed UFMIP is then added on top of the base loan. It raises your total balance but is not counted against the 80% test.
Step 4: Full underwriting. A cash-out is a new loan, so credit, income, assets and the property are all reviewed. Ratios start at 31/43 (housing to total) with no compensating factors. Documented compensating factors can reach 40/50 at the top tier, and the automated finding governs most files. Across the wholesale programs we place FHA loans with, the credit floor starts at a decision score of 580. Some lenders set a higher minimum.
Step 5: Closing. The old lien is paid, costs are settled, and you receive what is left. Because this is a consumer mortgage, you get a Loan Estimate and a Closing Disclosure.
The formula in plain words: base loan, minus the payoff of your existing mortgage and liens, minus any costs paid from proceeds, equals estimated net cash. The appraisal, the payoff balance, and the size of costs relative to remaining room under the cap decide the outcome. Credit and ratios decide whether the loan is approved at all.
What Are Your Three Ways to Handle Closing Costs?
You have three realistic choices. Which one fits depends on how much cash you need and how much you want to keep the balance down.
| Factor | Pay in cash | Roll into the loan | Deduct from proceeds |
|---|---|---|---|
| Loan balance | Stays lowest | Rises | Stays about the same |
| Net cash to you | Full amount | Can be reduced, since rolled-in costs use up room under the cap | Reduced |
| Cash needed at closing | Yes | None | None |
| Interest impact | Lowest | Costs accrue interest | Lower than rolling in |
| Cap pressure | Least | Most | Moderate |
Paying out of pocket keeps the balance smallest and leaves the most room under the 80% cap. It suits a borrower with savings who wants the lowest long-run cost.
Rolling costs in works when you want to bring no cash to the table. The tradeoff is real: you pay interest on those costs for the life of the loan, and because annual MIP is a percentage of the balance, a bigger balance also means a bigger insurance charge. HUD describes annual MIP as a percentage of the outstanding balance, collected monthly inside the payment.
Deducting from proceeds is the simplest in practice. The costs come out of your check. You borrow no more than you would otherwise, but you receive less.
Rolling in is not a “no-cost” refinance. The costs are still there. They have only moved into the balance.
What Does a Worked Example Look Like?
Run it in percentages. Say a home appraises at 100% of its value, and your existing mortgage balance is 50% of that value. The 80% cap lets the base loan reach 80%.
- Gross room above payoff: 30% of value.
- Costs of a few percent of the loan amount: if you roll them in or deduct them from proceeds, they come out of that 30%.
- Net cash: whatever remains.
Now compare the approaches. If you pay costs in cash, the full 30% reaches you, but you spent savings. If you roll them in or deduct them, net cash falls by the amount of the costs. Either way the cap has not moved.
Now push the balance up. If your payoff is 75% of value, only 5% of room remains. A few percentage points of costs would consume most of it, and the refinance may not leave you meaningful cash. That is the situation where this program stops making sense.
One mechanical point keeps the example honest. The base loan drives the 80% test and the annual premium. The upfront premium is financed on top of the base loan, so it raises your total balance without using up room under the cap. Your Loan Estimate shows the exact amounts for your file.
How Does This Compare With Other FHA Refinance Options?
| Option | Cash out? | Appraisal? | Ceiling |
|---|---|---|---|
| FHA cash-out | Yes | Yes | 80% LTV |
| FHA rate-and-term | No | Yes | 97.75% on a principal residence occupied the prior twelve months |
| FHA Streamline | No | None | Existing FHA loan only, net tangible benefit |
The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It requires a net tangible benefit, and the mortgage insurance premium continues. It is not a cash-out tool, and whether costs can be rolled into a streamline is a question to settle with your lender rather than assume.
The rate-and-term refinance replaces your loan without taking equity out. It reaches much higher leverage than cash-out because you are not extracting cash. If your goal is to change the loan, not take cash, it is often the better fit.
Where Does the General Rule Break?
A home owned free and clear. A paid-off home can still be refinanced as a cash-out. There is no old loan to pay off, so the whole base loan, less costs, can become cash.
Owned less than 12 months. The standard program requires 12 months of ownership and occupancy. Historically, HUD limited owners under that mark to the lesser of value or the original sales price, and HUD’s earlier mortgagee letter on this rule also made an exception for inherited homes that become the principal residence. Treat that as history and ask your lender what applies now.
Refinancing from one FHA loan to another. A recently originated FHA loan may carry a partial upfront premium credit, and a payoff into a non-FHA loan does not. Ask whether it applies.
Older FHA loans. The 2023 annual premium cut had exceptions. HUD Mortgagee Letter 2023-05 lists certain refinances of loans endorsed on or before May 31, 2009, and Section 247 loans.
Manufactured homes. These carry additional restrictions. Confirm eligibility before paying for an appraisal.
A low appraisal. The 80% cap is applied to appraised value, so a low value shrinks the ceiling. If costs then push the base loan past it, your options are paying costs in cash, borrowing less, or waiting.
Investment or second homes. Standard FHA cash-out is for principal residences. Occupancy decides the leverage, and a non-owner-occupied property is outside this program.
What Does Mortgage Insurance Do to the Math?
The upfront premium is 1.75% of the base loan, financed on top of it. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. A cash-out sits at or below 90% LTV, so the annual premium ends after eleven years rather than lasting the full term. It does not cancel at 20% equity, and it should not be confused with conventional mortgage insurance. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
The premium is a program fact, not an advertised price. Your Loan Estimate shows what applies to your file.
Is It a Good Fit?
An FHA cash-out tends to make sense when a few things line up:
- Your credit or ratios fit FHA better than a conventional cash-out.
- You have enough equity that 80% LTV leaves real room after payoff and costs.
- You have a specific use for the cash.
- You plan to stay long enough that the cost of financing closing costs is worth it. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
It tends to fit poorly when your payoff already sits near 80%, when you only need a small amount of cash, or when you could qualify for a loan with cheaper mortgage insurance. A home equity loan or line of credit is also an alternative, since it leaves your existing first mortgage in place. A cash-out resets your loan terms and amortization, which matters if your current loan is one you want to keep.
In its cash-out refinance research, the CFPB found that borrowers’ credit scores rose sharply at first and then gradually worsened. Paying off cards helps only if the balances do not return.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What Should You Gather Before You Apply?
- A current payoff statement for your existing mortgage.
- Income and asset documentation.
- Proof the home is your principal residence and how long you have owned it.
- Homeowners insurance information and title details.
An appraisal and title work follow. Your lender will tell you if anything else is needed.
Frequently Asked Questions
Can I roll all my closing costs into an FHA cash-out refinance?
Usually, as long as the base loan still fits under the 80% LTV ceiling and the county loan limit. Whatever the costs consume comes out of the room you would otherwise receive as cash. Lender guidelines and file review decide what is permitted on your loan.
Do I need an existing FHA loan?
No. A conventional or other mortgage can be refinanced into an FHA cash-out, provided the home is your principal residence and you meet the 12-month ownership and occupancy requirement. An FHA Streamline, by contrast, applies only to existing FHA loans.
Is 80% the limit on my equity?
No, it is 80% of the home’s appraised value, not 80% of your equity. At least 20% of value must remain in the home, and the new loan must also stay within county loan limits.
How long do I pay FHA mortgage insurance on a cash-out?
Eleven years on the annual premium, since a cash-out sits at or below 90% LTV. The upfront premium of 1.75% of the base loan is financed on top of it at closing. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
What if my appraisal comes in low?
The ceiling drops with the value. You can pay costs in cash, borrow less, or wait and reappraise later. A lower ceiling may leave little or no cash after payoff.
Next Step
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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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Handbook 4000.1 Overview
2. HUD press release PR 23-041
3. HUD Mortgagee Letter 2009-08
4. HUD Mortgagee Letter 2023-05
5. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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: FHA Cash-Out Refinance Requirements and How Long It Takes to Break Even on Closing Costs · Can an FHA Cash-Out Refinance Pay Out an Ex After Divorce? · FHA Cash-Out Refinance Rules After a Title Change
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.