The Quick Read: An FHA cash-out refinance is a new FHA-insured loan, so it carries its own upfront mortgage insurance premium (UFMIP) even when the loan it replaces is already FHA. The upfront premium is 1.75% of the base loan and is usually financed into the balance. A paid-off FHA loan can earn a declining credit against that new premium, but only when the old loan is recent. The credit is never a check.
What the Upfront Premium Is
The upfront premium is a one-time insurance charge on an FHA loan. It is separate from the annual premium, which is charged on the balance over time.
Here are the two side by side:
| Feature | Upfront premium (UFMIP) | Annual premium |
|---|---|---|
| Amount | 1.75% of the base loan | 0.15% to 0.75% of the balance |
| Charged | Once, at the start | Over the loan’s life |
| Financed? | Usually, into the loan | Paid monthly |
| Depends on | Base loan amount | Term, loan amount and LTV |
The upfront figure for FHA mortgages is 1.75%, as laid out in HUD Mortgagee Letter 2023-05. The premium cut announced in that same letter applied to the annual premium only. A common mistake is thinking the cut also reduced the upfront charge. It did not.
On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years. A cash-out tops out at 80% LTV, so the shorter schedule is the one that usually applies. That depends on the loan’s term and amount, so confirm it on the file.
How an FHA Cash-Out Is Built, Step by Step
Across the wholesale programs Lendmire places FHA files with, the build runs the same way every time. The order matters because the premium is tied to the base loan, not the final balance.
1. Eligibility. The home must be your principal residence. At least one borrower must have owned and occupied it for 12 months before the case number is assigned. Investment properties and second homes do not qualify for this program.
2. Case number and full appraisal. Unlike a Streamline, a cash-out cannot skip the appraisal. The appraised value sets the ceiling.
3. Maximum loan. The cash-out reaches 80% LTV of the appraised value. County loan limits also apply. HUD publishes them in its FHA county loan limit lookup, and they change every year. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
4. Base loan. The base loan covers the payoff of the existing mortgage, borrower-paid closing costs, any repairs the appraisal requires, and the cash you take out.
5. Upfront premium. It is 1.75% of that base loan. It can be financed or paid in cash. Cash paid at closing adds to the money you need to bring.
6. Credit, if any. If the old loan is FHA and recent enough, a credit reduces the new premium.
7. Cash to you. What remains after the payoff, costs and premium is your proceeds.
The financed premium adds to your loan balance. That raises the amount you owe, and with it the monthly principal and interest. Annual premium is figured on the balance without the financed upfront piece.
Does Your Existing FHA Loan Earn a Credit?
Sometimes. HUD’s refinance credit applies when you refinance an FHA loan into a new FHA loan within 36 months of the original. The credit shrinks as the old loan ages and ends at 36 months.
Whether the credit applies can depend on the type of refinance and the specifics of the loan, so ask the lender to confirm it on your file. The exact percentage schedule sits in HUD’s Handbook 4000.1, Appendix 1.0, on the Handbook 4000.1 information page. Check that table before relying on any number you see elsewhere. Pages that quote the schedule do not always match the current Handbook.
Three points hold on any file:
- The credit is applied against the new premium. It is not paid to you.
- It is lost if you refinance out of FHA into another loan type.
- It does not erase the premium by itself. You still owe the difference.
| Your existing loan | Credit on the new FHA premium |
|---|---|
| FHA, inside 36 months | Declining credit may apply |
| FHA, older than 36 months | None |
| Conventional, VA or other | None |
Where the Rule Breaks: Edge Cases
Most files follow the build above. These do not.
The existing loan is not FHA. There is no credit. The full premium applies to the new loan.
The old FHA loan is past 36 months. No credit. The new premium is the full 1.75% of the new base loan.
You move from FHA to conventional. The old premium is not credited. Conventional loans generally carry no upfront premium of this kind, though they have their own mortgage insurance rules.
Streamline versus cash-out. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. The premium continues. A cash-out requires the appraisal and the 12-month occupancy history. The credit logic is similar, but the loan you are buying is different.
Manufactured homes. The home must have been permanently installed on a site for more than 12 months before the case number.
Rental income from an accessory unit. It cannot be used as qualifying income on a cash-out.
Lenders’ overlays. Some lenders set a higher credit floor or other limits than HUD does. Programs there start at a 580 decision score, subject to lender guidelines and full file review.
What the Decision Looks Like
Picture a homeowner with an FHA loan that is about a year old who wants cash for a repair and to pay down a credit card. The new loan has a new base amount and a new 1.75% premium. A declining credit from the old premium may reduce it. The homeowner also resets the annual premium clock on the new balance.
Run through a few questions in order:
- How old is the FHA loan? Newer loans keep more of the credit. This is the main reason timing matters.
- How much equity is there? The 80% LTV cap leaves at least 20% equity in the home.
- Will you finance the premium or pay cash? Financing keeps cash in your pocket and adds to your balance.
- What is the cash for? The CFPB’s research on cash-out refinance borrowers looks at how borrowers use the cash, often to pay off debts. Paying unsecured debt with a mortgage turns it into debt secured by your home, so missed payments can put the home at risk.
- Is there a cheaper path? A Streamline or a rate-and-term refinance can lower the loan without taking cash. The FHA rate-and-term reaches 97.75% on a principal residence occupied for the previous twelve months. A home equity loan or HELOC leaves your first mortgage in place, so no new premium applies to the first lien. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Those paths trade differently. If you need cash, only the cash-out delivers it, and the premium is part of what you pay for it. If you do not need cash, ask whether a no-cash refinance gets you what you want with less cost. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The FHA cash-out refinance program page covers equity limits and requirements in more detail.
Key Terms Defined
Base loan amount: The loan before the upfront premium is added. The premium is figured on it.
UFMIP: The upfront mortgage insurance premium, a one-time charge of 1.75% of the base loan.
Annual MIP: The ongoing premium charged on the balance, which varies with term, amount and LTV.
Refund credit: A declining credit from an old FHA premium, applied to a new FHA premium within 36 months.
Case number: The FHA identifier assigned to a loan file. The 12-month ownership and occupancy test is measured from it.
LTV: Loan-to-value, the loan as a share of the appraised value.
Frequently Asked Questions
Do I pay upfront MIP again if my current loan is already FHA?
Yes. A cash-out is a new FHA loan with its own 1.75% premium. A credit from the old premium may reduce it if the old loan is inside the 36-month window.
Is the refund credit paid to me as cash?
No. It is a credit against the new upfront premium. It reduces what you owe on that line and does not come to you as a payment.
Can I roll the upfront premium into the loan?
Usually, yes. Financing it adds to the balance and to the monthly principal and interest. If you pay it in cash, it adds to your cash needed at closing.
Does the 2023 annual premium cut lower the upfront premium?
No. The change applied to the annual premium. The upfront figure stayed at 1.75%, per HUD’s letter.
How much cash can I take out?
The FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. What you actually receive depends on the appraisal, your payoff, costs, the county loan limit, and credit and income. Equity alone does not set the amount. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
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 brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2023-05
2. HUD FHA county loan limit lookup
3. HUD Handbook 4000.1 information page
4. CFPB’s research on cash-out refinance borrowers
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: Does an FHA Cash-Out Refund the Upfront Premium on the Old Loan? · Cash-out Refinance With An Existing FHA Loan: Stay FHA Or Switch To Conventional? · Texas Homestead Rules for an FHA Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.