The Quick Read: It depends on what the cash replaces and what you give up to get it. An FHA cash-out is usually worth it when the money pays off costlier debt or raises the home’s value, and when conventional financing is out of reach. It is a weaker choice when your current first mortgage is already inexpensive and a second loan would do the job. Judge it on total cost, not on the monthly payment alone.
What Is an FHA Cash-Out Refinance, in Plain Words?
An FHA cash-out refinance replaces your current first mortgage with a new, larger FHA loan. You keep the difference between the new balance and what you owed, after costs. That cash is yours to use.
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.
Because it replaces the loan, everything about your old mortgage resets: the balance, the term, and the insurance. That is the part many homeowners miss. You are not just borrowing against equity. You are starting a new loan.
The program has a hard ceiling on leverage. Across the wholesale programs Lendmire places FHA files with, an FHA cash-out reaches 80% of the home’s value, on a home you have owned and lived in for 12 months before the case number is assigned. That leaves at least 20% equity in the house. Details of the FHA cash-out refinance program are subject to lender guidelines and full file review.
Only a primary residence qualifies for the standard cash-out. A second home or a rental does not. Occupancy decides the leverage, and this loan is built for the home you live in.
What Does the Insurance Actually Cost?
FHA mortgage insurance has two parts, and both apply to a cash-out. The first is a one-time upfront premium of 1.75% of the base loan, which can be financed into the balance. The second is an annual premium, collected monthly, that runs between 0.15% and 0.75% of the balance depending on the loan’s term, amount, and LTV.
HUD sets the upfront figure at 175 basis points of the base loan amount, and a later HUD letter lowered the annual rates without touching it. So the common belief that a premium cut “eliminated” the insurance is wrong. The upfront piece remains.
Here is how the two parts differ:
| Feature | Upfront premium | Annual premium |
|---|---|---|
| Amount | 1.75% of base loan | 0.15%–0.75% of balance |
| When paid | At closing, or financed | Monthly, with the payment |
| Can it be financed? | Yes | Built into the payment |
| Depends on | Base loan only | Term, amount, LTV |
Financing the upfront premium is convenient, but it enlarges the balance. A larger balance accrues interest for as long as you hold the loan. Paying it in cash avoids that, though it also cuts into the cash you walk away with.
How Long Does the Annual Insurance Last?
On a thirty-year loan above 90% LTV, the annual premium lasts for the full term. At or below 90% LTV, it ends after eleven years. HUD’s own letter says that for a mortgage at or below 90 percent LTV, annual premium is charged until the end of the term or for the first 11 years, whichever comes first. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
A cash-out tops out at 80% LTV. On the program figures Lendmire works with, that should place it in the shorter tier. Confirm the exact duration for your loan with the lender, because it depends on how the loan is set up. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Now the misconception worth killing. Many borrowers assume the insurance drops off once they reach 20% equity. For loans with case numbers assigned on or after June 3, 2013, it does not. No equity milestone cancels it, and prepaying principal does not change the schedule. Only the term or eleven-year rule ends it.
Older loans followed different rules. HUD says automatic cancellation applied to older loans at 78% LTV after five years of premiums. If you hold one of those and refinance into a new cash-out, you give up that older schedule and take the current one. That is a real cost of refinancing, and it is easy to overlook. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
How Do You Count the Insurance Honestly?
Count it three ways: what you pay at the start, what you pay each month, and how long you pay it. Then compare that total with the alternative.
Work through it step by step:
1. Start with the new loan size. Add the financed upfront premium to the base loan. That is your real starting balance.
2. Subtract what you owe and the closing costs. What remains is your net cash. Closing costs come out of the cash you expected. A financed upfront premium does not reduce the cash, but it enlarges the balance you repay. If you pay the premium in cash instead, it comes out of what you take home.
3. Add the annual premium over your likely hold period. Multiply the annual percentage by your balance, then by the number of years you will keep the loan, up to the term or eleven-year limit.
4. Compare against the alternative. That could be a home equity loan, a line of credit, or a conventional refinance if you qualify.
The usual refinance break-even test does not work here. That test divides closing costs by monthly savings. In a cash-out, your payment usually rises, so there are no savings to divide. Compare total cost instead.
Picture a homeowner with a modest first mortgage who wants cash for a kitchen. A cash-out replaces that whole loan, including the cheaper balance, with a new, bigger one carrying fresh insurance. A second loan would leave the first mortgage alone and borrow only the amount needed. The kitchen budget is the same. The cost of getting there is not.
The CFPB’s guide to using home equity makes the same point: a cash-out may stretch out how long it takes to pay off your mortgage, and your monthly payment may rise because you are replacing your current loan with a larger one.
When Is an FHA Cash-Out Worth It?
It is most often worth it in four situations. Each one has a flip point, the condition under which the answer reverses.
You cannot qualify conventionally. FHA starts at a 580 decision score across the wholesale programs Lendmire works with, and its ratio limits are generous when compensating factors are documented. If a conventional cash-out is not available to you, the insurance is the price of access. The flip point: if your credit or income improves enough to qualify elsewhere, run both.
The cash retires costlier debt. Replacing high-cost balances with a single secured loan can lower your total monthly obligations. The tradeoff is that unsecured debt becomes debt secured by your home. Missed payments could put you at risk of foreclosure, so this only works if the spending habits that created the balances have changed. The flip point: if the debts you would pay off are already modest, or if the longer term plus the insurance would cost more in total than the balances you are clearing, skip it. A smaller debt-payoff plan or a second loan may fit better.
The cash raises the home’s value or safety. A roof, a failing furnace, or a structural repair can protect the asset the loan sits on. The flip point: a purely cosmetic upgrade rarely earns back its financing cost.
You will keep the loan a long time. A long hold spreads the upfront premium thin. Yet a long hold also means more years of annual premium. The flip point: if you expect to sell or refinance within a few years, the upfront premium has little time to pay for itself. And if you qualify for a conventional loan whose insurance can come off at a set equity level, a long hold favors that loan over FHA. Run both over the number of years you realistically expect to stay.
When Is It a Poor Fit?
Skip it in these cases:
- Your current first mortgage is already inexpensive. Replacing it to pull out cash means giving up those terms on the whole balance, not just on the new money.
- You need only a small amount. The upfront premium and closing costs apply to the entire new loan, so a small cash-out carries the same fixed weight as a large one.
- You can qualify for conventional financing with strong equity. Conventional loans handle insurance differently, and it can come off at a set equity level. That alone can change the math.
- You plan to move soon. A short hold gives the upfront premium little time to pay for itself.
- You are borrowing for spending that does not build value. The CFPB warns against borrowing more than you need.
FHA Cash-Out vs. the Alternatives
| Factor | FHA cash-out | Home equity loan or HELOC | Conventional cash-out |
|---|---|---|---|
| First mortgage | Replaced | Left in place | Replaced |
| Insurance | Upfront plus annual | None from the program | Depends on equity |
| Credit access | Lower scores can qualify | Often stricter | Often stricter |
| Max leverage | 80% LTV | Varies by lender | Varies by program |
| Best fit | Hard-to-qualify, long hold | Keeping a cheap first loan | Strong credit, strong equity |
The honest read: FHA wins on access, not on cost. If you qualify for both, the insurance pushes FHA toward the more expensive side over time. If you qualify only for FHA, the question changes from “is it more affordable” to “is it worth doing at all?”.
What About Getting Out Later?
Many borrowers plan to refinance out of FHA once their credit or equity improves, hoping to drop the insurance. That can work, and the plan deserves a look before you sign.
Leaving costs money. A new loan brings new closing costs. The upfront premium you paid on the first loan is mostly gone, apart from limited refund treatment for a recent FHA-to-FHA refinance, which depends on the details and the lender. Confirm what applies to your file.
So a cash-out you intend to leave within a short window is expensive twice: once to get in, once to get out. The exit plan makes sense only if you expect to hold long enough for the later savings to outrun both rounds of costs.
What Do Lenders Check?
Four things decide the outcome.
Ownership and occupancy. The home must be your primary residence, owned and occupied by at least one borrower for 12 months before the case number is assigned. HUD’s handbook sets that rule, and an inheritance exception exists in some cases, so ask about your situation.
Payment history. HUD requires clean payments on the loan being refinanced for the previous twelve months. A 2014 HUD letter stated the requirement that way, and it has since been folded into the handbook, so confirm today’s wording with your lender.
Value and the 80% cap. The cap applies to the appraised, adjusted value. HUD Mortgagee Letter 2019-11 lowered the cash-out limit from 85 to 80 percent, citing risk to the insurance fund from rising insured balances. So the appraisal sets how much cash is possible. Some people still believe the cap is 85% or higher. It is not.
Credit, income, and the new payment. The base ratio pair is 31/43 for housing and total debt with no compensating factors. Documented factors can reach 40/50 at the top tier. The automated finding governs most files. The new payment includes the insurance, so it is the number that has to fit.
Lender overlays matter too. A lender can set a higher score floor than the program minimum, so meeting the 580 benchmark does not mean you will be approved. Every parameter here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
Key Terms Defined
Cash-out refinance: a refinance where the new loan is larger than what you owe, and you receive the difference.
Upfront premium: a one-time FHA insurance charge of 1.75% of the base loan, which can be financed.
Annual premium: a monthly FHA insurance charge based on the loan’s balance, term, and LTV.
LTV (loan-to-value): the loan balance divided by the home’s appraised value.
Adjusted value: the appraised value figure HUD applies its LTV cap to.
Overlay: a lender’s own requirement that is stricter than the program’s minimum.
Edge Cases Worth Knowing
A streamline or rate-and-term FHA refinance is not a cash-out. Both follow different rules. The FHA streamline refinances an existing FHA loan with no appraisal, a limited credit review, and a net tangible benefit, and the premium continues. An FHA rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months. If you only want a lower payment or a better term, not cash, those may fit better.
County loan limits apply and change every year. Check yours before assuming a figure.
Credit events carry HUD waiting periods, including 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.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Can the FHA insurance be rolled into the loan?
The upfront premium can be financed into the balance. That makes closing easier on your cash, but it raises the balance and the interest on it. The annual premium is built into the monthly payment instead.
Does the insurance go away once I reach 20% equity?
No, not on loans with case numbers assigned on or after June 3, 2013. Equity milestones and extra principal payments do not cancel it. It ends only under the term or eleven-year rule, depending on LTV at origination.
Is a small cash-out ever worth doing?
Rarely. The upfront premium and closing costs apply to the whole new loan, so a small amount of cash carries the same fixed weight as a large one. A home equity loan or line of credit that leaves your first mortgage alone often suits a small need better.
Can I use a cash-out on a second home or a rental?
No. The standard FHA cash-out is limited to your primary residence. Occupancy decides the leverage.
Is it better than a HELOC?
Not automatically. A HELOC or home equity loan leaves your first mortgage in place, which matters if that loan is inexpensive. FHA cash-out is stronger on access for borrowers with lower scores, and weaker on total cost when you could qualify for either.
If you are weighing a cash-out refinance against keeping the loan you have on the home you live in, Lendmire can help you compare the programs and the equity each one reaches.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing for primary residences in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For your own numbers, request a scenario review with Lendmire.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
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 Mortgagee Letter 2023-05
2. HUD Mortgagee Letter 2013-04 (FHFA-hosted copy)
3. HUD Answers: MIP duration for pre-June 2013 loans
4. CFPB, Using home equity to meet financial needs
6. HUD Mortgagee Letter 2019-11
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 to Apply for an FHA Cash-Out Refinance Step by Step · Can You Use FHA Cash-Out Money for Tuition or a Business? · Can You Get an FHA Cash-Out With One Unit Vacant in Your Triplex?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.