Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
The Quick Read: A 740 score clears the credit bar with room to spare. It does not raise how much equity you can pull out. The home still has to be your primary residence, and you still need to have owned and lived in it for 12 months. Equity, debt-to-income ratio, and the appraisal decide the rest. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Key Takeaways
- A 740 is far above the 580 decision score where FHA’s maximum financing starts. It makes approval smoother, but it adds no extra cash.
- An FHA cash-out refinance reaches 80% loan-to-value (LTV), so at least 20% equity stays in the home.
- You must have owned and occupied the home for 12 months before the case number is assigned.
- The upfront premium is 1.75% of the base loan. An annual premium applies too, and it depends on term, loan amount, and LTV.
- With strong credit, a conventional cash-out is worth pricing side by side. FHA wins in specific situations, covered below.
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.
What Is an FHA Cash-Out Refinance?
An FHA cash-out refinance replaces your current mortgage with a new FHA-insured loan that is larger than what you owe. You keep the difference in cash. The cash can go to anything: repairs, debt payoff, tuition, a down payment on something else.
It replaces the whole first mortgage. You don’t add a second loan on top. The new loan carries its own term, its own monthly payment, and its own mortgage insurance.
Do you need an FHA loan today? No. Any existing mortgage can be paid off, whether it is conventional, FHA, or something else. A home with no mortgage at all can also be cashed out. Federal housing officials have noted that a large share of FHA refinances in recent years paid off conventional loans, according to the Treasury/HUD Housing Finance Reform Plan.
If you want to keep an existing FHA loan and skip the cash, the FHA Streamline is a different path. It uses no appraisal and a limited credit review, and it needs a net tangible benefit. Cash-out is the version that taps equity. Lendmire’s FHA cash-out refinance program page lays out how the program fits alongside the other FHA refinance options.
What Does a 740 Score Change, and What Doesn’t It?
A 740 changes how comfortable the file is for the lender. It does not change the program’s rules. Leverage, occupancy, and mortgage insurance are set by FHA, not by your score. That is the most common misunderstanding on this topic.
Here is the practical split:
| Item | Does 740 change it? | Why |
|---|---|---|
| Maximum LTV (80%) | No | Same cap at every score |
| Credit floor | Clears it easily | Maximum financing starts at 580 |
| Mortgage insurance schedule | No | Based on term, amount, LTV |
| Automated underwriting result | Often helps | Strong credit tends to support an approval |
| Room on debt-to-income | Often helps | Strong profiles may carry higher ratios |
| Lender’s own extra rules | Rarely a problem | A 740 clears most added floors |
Two notes on that table.
First, FHA’s own credit tiers key off the “decision score.” That is the score the lender uses to underwrite the file. HUD allows lower scores in a lower tier. The wholesale programs Lendmire places FHA files with start at 580, so that is the real floor in this network. Some lenders set higher floors of their own. A 740 clears nearly all of them.
Second, “often helps” is not a promise. Strong credit improves your odds of an approval from the automated underwriting system. It does not overrule a high debt load or a low appraisal. Any approval is subject to lender guidelines and full file review.
The Full Requirements Checklist
Credit is one box out of several. The others are where strong-credit borrowers actually get stuck.
| Requirement | What the lender checks | Common snag |
|---|---|---|
| Occupancy | Primary residence | Home was rented out recently |
| Ownership | Owned and lived in for 12 months | Bought or moved in too recently |
| Payment history | Prior 12 months documented | A late payment on the current loan |
| Credit | Decision score of 580 or higher | Rarely an issue at 740 |
| Debt-to-income | 31/43 base, up to 40/50 with factors | Heavy car or card payments |
| Equity | 80% LTV maximum on appraised value | Appraisal comes in low |
| Loan size | County loan limits apply | Balance exceeds the county limit |
Let me walk through the less obvious ones.
Ownership and occupancy. The 12-month clock runs to the date the FHA case number is assigned, not to your application date. A borrower who moved in eleven months ago has to wait. Standard FHA cash-out is for a principal residence only. Second homes and rentals don’t qualify for this version, because occupancy decides the leverage.
Payment history. A brand-new mortgage generally can’t be cashed out. Lenders also document your recent payment history on the loan being refinanced. The HUD Handbook transmittal shows the cap on cash-out loan-to-value was folded into HUD’s policy handbook, and lenders apply the handbook’s payment-history review alongside it. A strong score with a recent late payment can still hit a wall. The score doesn’t erase the history.
Debt-to-income (DTI). DTI compares your monthly debts to your monthly income. FHA uses two numbers. The housing ratio looks at the new housing payment alone. The total ratio adds every other monthly debt. The base pair is 31/43, with no compensating factors. Documented compensating factors, such as strong reserves or a long job history, can reach 40/50 at the top tier. The automated finding governs most files. A 740 often earns a better automated finding. It doesn’t make the ratios disappear.
Income rules specific to cash-out. Income from a non-occupant co-borrower can’t be used to qualify on a cash-out refinance. That’s a change from the purchase side, where a non-occupant co-borrower is allowed. Rental income from an accessory dwelling unit on a one-unit home also can’t count as effective income. Both come from HUD Mortgagee Letter 2023-17. That letter also says the cash you take at closing doesn’t count toward your reserves.
County loan limits. FHA sets loan limits by county, and they change every year. The new loan has to fit under your county’s limit. A borrower with a big balance in a lower-cost county can run into it. Ask your loan officer to check the limit for your county before you pay for an appraisal.
Why Is the Cap 80%, and Why Does It Matter?
The 80% cap protects both of you. HUD lowered the maximum on cash-out refinances to 80% of adjusted value, according to Mortgagee Letter 2019-11. HUD said it wanted a stronger equity position on these loans and fewer losses on default. The HUD press release added that the new cap lines FHA up with the maximum cash-out LTV that Fannie Mae and Freddie Mac allow. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Old guides online still show higher caps. They are out of date. If you read a page that promises more than 80% on an FHA cash-out, check its age.
The cap has a practical effect. At least 20% of your home’s value stays as your equity after closing. You can’t strip the house to the studs.
How Much Cash Can You Actually Get?
Your cash is the room under the 80% cap after the old loan, any liens, and financed costs come out. The appraisal sets the cap. A lower appraisal shrinks the cash directly.
Here is the logic with percentages only. Suppose your home appraises at 100% of its value, and your current mortgage balance equals 60% of that value. The 80% cap leaves 20% of value as the maximum room. Out of that room come:
- the payoff of your old loan, which is already counted in that 60%
- any other liens on the home
- closing costs you choose to finance
- the upfront mortgage insurance premium, which is added to the loan
What remains is your cash. If your balance is 75% of value, only a small slice is left. If it is 50%, you have much more room. The math is simple, but the costs eat into it. Your loan officer can run the exact numbers on your file.
Run the appraisal question early. A borrower with a 740 and a house that appraises light can end up with little or no cash. The credit score is not the bottleneck in that case.
Mortgage Insurance: The Cost That Doesn’t Care About Your Score
FHA loans carry two mortgage insurance premiums, and neither one rewards high credit the way conventional pricing can.
Upfront premium. This is 1.75% of the base loan. It is usually financed into the loan balance, so you don’t pay it out of pocket at closing.
Annual premium. This runs between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV. It is paid monthly as part of your payment. HUD cut the annual premium by 30 basis points for case numbers endorsed on or after a March 2023 effective date, per Mortgagee Letter 2023-05.
How long it lasts. On a thirty-year loan above 90% LTV, the annual premium lasts the full term. At or below 90% LTV, it ends after eleven years. A cash-out loan tops out at 80% LTV, so the shorter schedule is the one that applies to a thirty-year cash-out. A shorter term can change the schedule, so ask for the exact one. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
These are program facts, not prices. Your Loan Estimate will show what your file costs.
FHA vs. Conventional Cash-Out for a Strong-Credit Borrower
With a 740, price both. This is where a broker earns a fee-free opinion.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Max cash-out LTV | 80% | Similar cap at many lenders |
| Credit sensitivity | Low impact on insurance | Pricing often tied to score |
| Mortgage insurance | Upfront plus annual | Generally none at 80% LTV or below |
| DTI flexibility | Up to 40/50 with factors | Often tighter |
| Past credit events | HUD waiting periods | Often longer waits |
| Loan limits | County FHA limits | Conforming or jumbo limits |
The pattern is simple. If your score is high, your DTI is modest, and your equity clears the cap, conventional often gets a close look. It skips the FHA premiums. FHA’s two premiums are a fixed part of the program, and they don’t shrink because your score is strong.
FHA makes more sense when something else in the file is the weak spot. A high DTI is the classic case. So is a past credit event, such as a bankruptcy or foreclosure. HUD’s own waiting periods apply there: two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise from any one lender. Strong credit and a rough history can coexist. That mix is where FHA earns its place.
Borrowers also ask what a cash-out does to their score, and the answer depends on the individual credit file, so it is worth raising with a loan officer before applying.
FHA Cash-Out vs. Other Ways to Tap Equity
| Option | What it does | Fits when |
|---|---|---|
| FHA cash-out | Replaces first mortgage, adds cash | Your DTI or history needs flexibility |
| Conventional cash-out | Replaces first mortgage, adds cash | Strong credit and low DTI |
| FHA Streamline | Refinances FHA loan, no cash | You want to keep the FHA loan only |
| FHA rate-and-term | Refinances with an appraisal, no cash | You want new terms, not cash |
| Home equity loan or HELOC | Second lien, first loan stays | Your current first mortgage is worth keeping |
That last row deserves a pause. If your current first mortgage has terms you like, a second lien keeps it intact. A cash-out replaces everything, terms included. That tradeoff is the heart of the decision.
The Step-by-Step Process
1. Screen the basics. Confirm the home is your primary residence, you have owned and lived in it for 12 months, and your payment history is clean.
2. Application and case number. Your lender assigns an FHA case number. The 12-month test is measured against that date.
3. Credit and automated underwriting. The lender pulls your credit, and the file runs through FHA’s automated scorecard. A “Refer” result means a person reviews the file by hand.
4. Income and asset documents. You document income, debts, and the home. Remember the co-borrower and accessory-unit rules above.
5. Appraisal. The appraised value sets the 80% cap. It is the single biggest swing factor on how much cash you get.
6. Underwriting and conditions. The lender reviews the full file and may ask for more documents.
7. Closing. You sign, the old loan is paid off, and the cash is disbursed under the terms on your Closing Disclosure.
One practical tip. Don’t open new credit or take on new debt while the file is moving. A 740 is solid, but a new car loan in the middle of underwriting can shift your DTI and your automated finding.
Mistakes That Sink Strong Applicants
- Assuming the score covers everything. Occupancy, seasoning, and the appraisal can stop a file no matter how good the credit is.
- Forgetting the 12-month clock. It runs to the case number date. Count it carefully.
- Counting income that can’t count. A non-occupant co-borrower’s income and accessory-unit rent are out on a cash-out.
- Treating the cash as reserves. Cash from closing doesn’t count toward reserves.
- Skipping the conventional comparison. At a 740, you may be paying for FHA flexibility you don’t need.
- Ignoring the downside. The CFPB’s guide to using home equity notes that a cash-out can raise your monthly payment, stretch your payoff period, and put the home at risk if you fall behind.
Debt consolidation deserves its own caution. Paying off cards with home equity can lower your monthly burden. But you are turning unsecured debt into debt secured by your house. The cards can fill back up while the mortgage stays.
Edge Cases Where the General Rule Bends
Free-and-clear homes. No mortgage? Taking equity out is still a cash-out refinance. The same 80% cap and occupancy tests apply.
Existing loan isn’t FHA. That’s fine. Conventional-to-FHA cash-out is common.
Inherited homes. Occupancy rules can be handled differently when you inherit a property. Rules vary by file, so have the lender confirm how your situation is treated.
Second homes and rentals. Standard FHA cash-out is for a primary residence only. Occupancy decides the leverage, so rentals follow a different path.
Existing FHA borrower with no need for cash. The Streamline or the rate-and-term refinance fits better. Rate-and-term with an appraisal reaches 97.75% on a primary residence occupied for the previous twelve months.
Key Terms Defined
Decision score: the credit score the lender uses to underwrite your file, often the middle of three bureau scores.
Loan-to-value (LTV): the new loan balance divided by the home’s appraised value, shown as a percentage.
Debt-to-income (DTI): your monthly debts divided by your monthly gross income.
Upfront mortgage insurance premium: a one-time FHA premium of 1.75% of the base loan, usually financed into the balance.
Annual mortgage insurance premium: an FHA premium paid monthly, set by term, loan amount, and LTV.
Case number: the FHA identifier assigned to your loan, which starts the 12-month ownership and occupancy test.
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. Every figure above is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Frequently Asked Questions
Does a 740 credit score get me a higher loan-to-value on an FHA cash-out?
Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
No. The cash-out cap is 80% LTV at every credit score. Your score affects approval odds and how smoothly the deal works, not how much equity FHA lets you reach. The appraisal and your existing balance decide the cash. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Is a 740 enough to qualify, or do lenders ask for more?
It clears the credit requirement comfortably. FHA’s maximum financing starts at a 580 decision score, and the wholesale programs Lendmire places FHA files with start there too. Some lenders add their own higher floors, and 740 sits above nearly all of them. Occupancy, payment history, DTI, and the appraisal still have to work.
Do I need an FHA loan already to do an FHA cash-out refinance?
No. Any existing mortgage can be refinanced into an FHA cash-out, and so can a home with no mortgage. What matters is that you have owned and lived in the home for 12 months and meet the other tests.
Will I pay mortgage insurance, and does good credit reduce it?
Yes, both premiums apply. The upfront premium is 1.75% of the base loan, and the annual premium depends on term, loan amount, and LTV. Credit score is not one of those factors. On a thirty-year loan at or below 90% LTV, the annual premium ends after eleven years. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
When should I choose conventional instead of FHA with a 740?
Choose conventional when your DTI is modest, your history is clean, and your equity clears the cap. That route generally avoids FHA’s mortgage insurance at 80% LTV or below. FHA fits better when DTI is stretched or a past credit event is still inside conventional waiting periods. Price both before you decide.
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. Treasury/HUD Housing Finance Reform Plan
2. HUD Handbook 4000.1 transmittal
4. HUD Mortgagee Letter 2023-17
5. HUD Mortgagee Letter 2019-11
6. HUD press release on cash-out refinance risk
7. HUD Mortgagee Letter 2023-05
8. CFPB guide to using home equity
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 Lenders to Remove an Ex-Spouse From the Mortgage After a Divorce · Best FHA Cash-Out Refinance Program With FHA Cash Reserve Requirements · Can an FHA Cash-Out Refinance Pay Off a Spouse in a Divorce?
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.