The Quick Read: Usually yes, up to a limit. FHA sets no separate cap on financed closing costs for a cash-out refinance. The whole new loan has to fit under the program’s 80% loan-to-value ceiling, and financed costs, including the upfront mortgage insurance premium, count against that ceiling. What you can finance is the room left under the cap, so a lower appraisal means less room for costs and for cash. Confirm the exact premium and cost figures for your loan with a qualified local professional.
What Does “Financing Closing Costs” Actually Mean Here?
Financing closing costs means the new loan balance is large enough to cover them, so you bring less cash to the table. That is different from having them deducted from your proceeds, and different again from a lender credit.
Three terms get blurred, so here is the split:
- Financed into the loan: the costs are added to the new balance. Your cash at closing drops, but the balance and the interest you pay over time both rise.
- Deducted from proceeds: the costs are taken out of the cash you would otherwise receive. The balance stays the same, but the check is smaller.
- Lender credit: someone else covers part of the costs in exchange for a trade-off built into the loan’s pricing. It is a different decision, covered below.
On a cash-out refinance, the first two often blur together at the closing table. Both come out of the same pool of equity. The pool is bounded by the ceiling, which is the real answer to the question in the title.
How the 80% Ceiling Limits What You Can Finance
The ceiling is the controlling rule. The FHA cash-out refinance reaches 80% LTV on a home you have owned and lived in for 12 months before the case number is assigned. HUD’s Mortgagee Letter 2019-11 cut the maximum LTV and combined LTV on cash-out refinances to 80% of the adjusted value, down from 85%. The change was written into the Handbook through Handbook 4000.1 Update 7. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Think of the new loan as a stack, with 80% of the appraised value as the lid. In practice the stack builds in this order:
1. The payoff of your existing first mortgage, plus any other liens that must be paid.
2. Financed closing costs and prepaid items.
3. The financed upfront mortgage insurance premium.
4. Whatever cash is left for you.
Cash comes last. That is the point most borrowers miss. Every dollar of cost you finance is a dollar of cash you cannot take, once the stack touches the lid. If your equity is thick, you may never notice. If it is thin, the costs and the cash compete directly.
Exactly how the Handbook sequences each item in its formal calculation is a detail the lender’s underwriter works through on your file. The practical takeaway is simple: financed costs sit inside the cap, never on top of it.
Which Costs Can Go Into the Loan?
Most of the typical refinance costs can be rolled in, as long as the total stays under the ceiling. Across the wholesale programs Lendmire places files with, the usual pattern looks like this. Treat the table as a general guide, since every lender sets its own handling.
| Cost category | Usually financed? | What it does |
|---|---|---|
| Lender and origination charges | Yes, within the cap | Raises the balance |
| Third-party fees (appraisal, title) | Yes, within the cap | Raises the balance |
| Prepaid items and escrow set-up | Yes, within the cap | Raises the balance |
| Upfront mortgage insurance premium | Yes, it is typically financed | Raises the balance |
| Cost paid in cash outside closing | Not financed | Keeps balance lower |
The upfront premium deserves its own note. FHA charges an upfront premium of 1.75% of the base loan amount, and it is financed into the loan. HUD describes this structure on its FHA answers page, where it applies to purchase and refinance alike, with narrow exceptions. Because the premium is a percentage of the base loan, it grows as the base loan grows.
So “all” is a fair word only if the full list fits under the lid. When it does not, something gives: the cash to you shrinks, or part of the costs has to be paid out of pocket.
What Does Financing Costs Do to Your Balance and Cash?
Financing costs lowers the cash you need at closing and raises both the balance and the total interest over the life of the loan. The Consumer Financial Protection Bureau makes the same point: rolling closing costs into the loan cuts upfront costs but raises total cost because of added interest.
Consider a homeowner with plenty of equity, say a home that appraises well above what is owed. Financing every cost leaves a healthy cash check and a modestly larger balance. Now consider a homeowner whose payoff already uses most of the room under 80%. Financing costs there leaves little or no cash, which may defeat the reason for the refinance.
Two effects follow a bigger balance:
- Principal and interest rise with the balance, so the monthly payment is higher than it would be if you paid the costs in cash.
- Annual mortgage insurance is billed monthly and is based on the balance. A larger balance means a larger charge. The annual premium runs 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 for the term. At or below 90% LTV it ends after eleven years. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Note what the 80% cap does for that last point. A cash-out loan is capped at 80% LTV, so the annual premium on a thirty-year cash-out loan generally ends after eleven years rather than running the full term. That is a program mechanic, not a promise, and each file is reviewed on its own.
There is also a knock-on effect worth seeing plainly. The financed upfront premium becomes part of the balance. The annual premium is then figured on that balance. Financing the premium therefore nudges the annual charge up slightly, in exchange for a smaller bill at the table.
Financing, Paying Cash or Taking a Credit: Which Trade Fits?
There are four ways to handle costs, and each trades one thing for another. No single choice wins for everyone.
| Approach | Cash at closing | Balance | Best for |
|---|---|---|---|
| Pay from your own pocket | Highest need | Lowest | Borrowers with spare cash who want the smallest loan |
| Deduct from proceeds | Smaller check | Unchanged | Borrowers who want the cash net of costs |
| Finance into the loan | Lowest need | Higher | Borrowers short on cash with room under the cap |
| Lender credit | Lower need | Unchanged | Borrowers who accept a pricing trade-off |
Lender credits deserve a plain explanation. The CFPB notes that credits are typically offered in exchange for a higher interest rate. A “no-cost” refinance works the same way: the costs have not disappeared, they are built into the pricing or the balance. Whether that trade helps depends on how long you keep the loan.
Here is the flip point. If you expect to refinance or sell within a few years, financing or crediting costs can make sense, because you will not hold the extra interest long. If you plan to stay a decade or more, paying costs in cash, if you can, usually leaves you better off. Neither answer is right for every borrower. The question is how long you will hold the loan and how much cash you would rather keep.
What Can Go Wrong at Closing?
Three problems cause most of the surprises.
A low appraisal. The 80% cap applies to the appraised value, so a low number shrinks everything. Less cash, less room for costs. FHA appraisals are tied to the case number, and an older appraisal from another loan does not carry over. Cash-out does not use the appraisal waiver that streamline refinances can.
A second lien that stays. The 80% limit applies to combined debt. A home equity line or second mortgage that remains on the home uses up room under the cap. It does not add borrowing room.
Shifting numbers. Your Loan Estimate and Closing Disclosure show how much is financed. The Closing Disclosure line reads “Closing Costs Financed (Paid from your Loan Amount).” Compare the two forms line by line. If cash to you is smaller than expected, this is where the gap shows up.
If a low appraisal squeezes the cash-out amount, the fallback is often the FHA rate-and-term refinance. That program reaches 97.75% on a principal residence you have occupied for the previous twelve months. It pays no cash to you, so it fits the borrower who mainly wants a lower-cost structure, not equity. It is a different product from cash-out, and the rules differ.
Who Qualifies for an FHA Cash-Out Refinance?
The cap does not approve the loan. Qualifying rests on three things: the appraised value, the liens that remain on the home, and your credit and income.
Across the wholesale programs Lendmire works with, the practical picture looks like this:
- Occupancy. The home must be your principal residence. At least one borrower must have owned and lived in it for 12 months before the case number. The clock runs to the case number, not the note date. An investment property or second home does not fit an FHA cash-out, so occupancy decides the leverage.
- Credit. The programs the brokerage places FHA loans with start at a 580 decision score. Some lenders set a higher floor on cash-out. The network does not reach below 580.
- Ratios. The base pair is 31/43 for housing and total debt, with no compensating factors. Documented compensating factors can reach 40/50 at the top tier, and the automated finding governs most files.
- Credit events. HUD’s own waiting periods apply: two years from a chapter 7 discharge and three years from a foreclosure.
- Loan limits. County loan limits apply. They change every year.
A bigger financed balance can push your debt-to-income ratio up, since the payment rises. Lenders must evaluate that. It is one reason a borrower who finances everything sometimes finds the file tighter than expected.
All of this is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Key Terms Defined
Adjusted value: the appraised value, as FHA adjusts it, that sets the ceiling for the new loan.
Combined loan-to-value (CLTV): the total of all liens on the home divided by its value, which is why a second lien eats into the cap.
Upfront mortgage insurance premium (UFMIP): a one-time FHA premium of 1.75% of the base loan, typically financed into the balance.
Annual mortgage insurance premium: a yearly premium billed monthly and based on the loan balance.
Rate-and-term refinance: a refinance that changes your loan terms without paying you cash.
Case number: the FHA identifier assigned at the start of a loan, to which the appraisal and the 12-month occupancy test are tied.
Questions to Ask Your Loan Officer
Lender handling varies, so these questions shape the quote:
1. How much room is left under 80% after my payoff and costs?
2. Which costs are you financing, and which come out of my proceeds?
3. How does the financed premium change my annual premium?
4. What happens to my cash if the appraisal comes in low?
5. Does a lender credit change the pricing of the loan?
6. Will my second lien stay or be paid off?
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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. Start with the FHA cash-out refinance program page, or call 828-256-2183.
Frequently Asked Questions
Can I finance all of the closing costs and still get cash back?
Only if the total fits under the 80% ceiling. The payoff, financed costs and upfront premium all come first, and cash comes last. With plenty of equity, you may finance everything and still receive cash. With thin equity, costs and cash compete for the same room.
Will I get less cash if I finance the costs?
Yes, whenever the stack reaches the ceiling. Financed costs use room that would otherwise go to you. Deducting costs from proceeds has the same effect on your check, but the balance stays lower.
Does financing costs raise my mortgage insurance?
Yes, slightly. The upfront premium is 1.75% of the base loan, so a bigger base loan means a bigger premium. The annual premium is also figured on the balance. The annual premium on a thirty-year loan at or below 90% LTV ends after eleven years. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Can a second mortgage or HELOC help me borrow more?
No. The 80% limit applies to combined debt, so a second lien that stays on the home uses up room under the cap. It does not add any.
What if my appraisal comes in low?
The maximum loan shrinks, along with the cash and the room for costs. One fallback is an FHA rate-and-term refinance, which reaches 97.75% on a principal residence occupied for the previous twelve months but pays no cash to you.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing 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 the program’s current guidelines, see FHA loan programs.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD Handbook 4000.1 Update 7 transmittal
3. HUD FHA Answers: FHA mortgage insurance premium structure
4. CFPB: Closing Disclosure explainer
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: How Much a VA Cash-Out Funding Fee Costs After a Conventional or FHA Loan · How to Get Your First FHA Cash-Out After a Quitclaim Deed · FHA Cash-Out vs Conventional Cash-Out for a Declined Homeowner
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.