The Quick Read: On an FHA cash-out refinance, the upfront mortgage insurance premium is added on top of the loan amount the 80% limit applies to. The 80% test is run on the base loan, which is the loan before the premium. The premium is 1.75% of that base, so the final balance lands slightly above 80% of the home’s value. Financing it adds to your debt, while the cash you receive is set by the base loan, subject to lender guidelines and full file review.
Key Takeaways
- The premium is calculated from the base loan and added afterward, so it never counts toward the 80% limit.
- At a full 80% base, the note balance lands near 81.4% of appraised value. That is simple arithmetic: 80% times 1.0175.
- Your cash out is the base loan minus your payoff and any financed costs, so a financed premium adds to the debt without touching that subtraction.
- Financing the premium means you owe more and pay interest on it. Paying it in cash means less debt, but the money leaves your pocket at closing.
- A refund credit from an old FHA loan can reduce the new premium. It is never paid to you as cash. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
What the Upfront Premium Actually Is
The upfront premium is a one-time mortgage insurance charge on FHA cash-out refinance. It protects the lender against loss, and you pay for it. On the programs Lendmire arranges, it is 1.75% of the base loan. It can be financed, meaning it gets added to the loan balance instead of being paid at the table.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 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.
A second charge exists too: the annual premium. It is billed monthly, ranges from 0.15% to 0.75% of the balance, and depends on loan term, loan amount and LTV (loan-to-value, the loan as a percentage of the home’s value). Under the FHA program parameters, a thirty-year loan above 90% LTV carries the annual premium for the whole term. At or below 90% LTV, it ends after eleven years. A cash-out capped at 80% falls in the shorter tier. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
The two premiums do different jobs in your math. The annual one affects your monthly budget and your debt-to-income ratio. The upfront one affects the size of the loan. This article is about the second.
The Order of Operations: Base Loan First, Premium Second
The sizing runs in a fixed order. Each step feeds the next.
1. Appraisal sets the value. The appraiser’s figure becomes the “adjusted value” the limit is tested against.
2. Limit sets the base loan ceiling. An FHA cash-out is capped at 80% LTV, on a home you have owned and lived in for 12 months before the case number is assigned. County loan limits apply too, and the lower of the two ceilings governs. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
3. Payoff and costs come out. The base loan first pays off your existing mortgage and any other liens. Closing costs and prepaids you choose to finance come next.
4. What is left is your cash. That is the money you receive.
5. The premium is added last. The lender takes a percentage of the base loan and adds it to the balance. The result is your final note amount. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The last step trips people up. Many borrowers assume the premium fits inside the 80%. In the usual structure it does not. The base loan is tested against the limit, and the premium is calculated from that base. The exact treatment is set by HUD’s handbook and applied by each lender, so confirm it on your file.
Because the premium is a straight percentage of the base, there is no circular math. You find the base you need and multiply by 1.75% to get the premium.
A Worked Example, Without Dollar Signs
Think of the appraised value as 100%. Say the home appraises at 100, your payoff is 55% of value, and you finance closing costs equal to 2% of value. These are modeled assumptions, not program figures.
The 80% base loan covers three things:
- 55% pays off the old mortgage.
- 2% covers the financed costs.
- 23% is left as cash to you.
Now the premium. 1.75% of an 80% base is 1.4% of value. Add it on top and the note is 81.4% of value.
You received 23% of value in cash and owe 81.4% of value. The base never changed, so the premium did not eat into the cash. It only raised the debt.
What Happens If You Pay the Premium in Cash Instead
Lenders generally want the premium financed in full or paid in full, not split. Here is how the two choices compare on the same example, where the base loan stays at 80% of value and the premium is the only thing that changes.
| Item | Premium financed | Premium paid in cash |
|---|---|---|
| Premium added to balance | 1.4% of value | 0% |
| Final balance | 81.4% of value | 80% of value |
| Cash in hand after premium | 23% of value | 21.6% of value |
The cash row shows the 1.4% premium leaving your pocket at closing when you pay it yourself: 23% minus 1.4% leaves 21.6%. When the premium is financed, it is folded into the balance and your cash stays at 23%. Which fits better depends on what you need the cash for and how long you plan to hold the loan.
The CFPB’s closing disclosure explainer makes the same tradeoff point for any cost rolled into a loan. Rolling costs in lowers what you pay upfront but raises the total cost, because you pay interest on them.
How the Premium Scales With Your Cash-Out Size
The premium follows the base loan, not the cash. A smaller base means a smaller premium. This table holds the same assumptions and shows three base loan sizes as a share of value.
| Base loan (% of value) | Premium (% of value) | Final balance (% of value) |
|---|---|---|
| 60% | 1.05% | 61.05% |
| 70% | 1.225% | 71.225% |
| 80% | 1.4% | 81.4% |
Two lessons come out of that table. First, the premium is small next to the loan: 1.75 parts per 100 of the base at every size. Second, the final balance sits above the base at every level, by the same proportion each time.
Sizing backward works the same way. Say you want a certain cash amount. Add your payoff and financed costs to that figure to get the base loan you need. Multiply by 1.0175 to get the note. If the base lands above 80% of value, the cash target is too high for your equity.
Where the Rules Come From
Two HUD documents shape this math. HUD Mortgagee Letter 2019-11 cut the maximum LTV and combined LTV on FHA cash-out refinances from 85% to 80% of adjusted value. HUD’s stated reason was reducing risk to the FHA insurance fund. If you see a source quoting 85%, it is out of date.
HUD Mortgagee Letter 2023-05 sets the upfront premium at 1.75% of the base loan amount. That letter lowered the annual premium, not the upfront one. Many borrowers hear “HUD cut the premium” and assume the upfront charge fell. It did not.
The day-to-day rulebook is HUD’s Single Family Housing Policy Handbook 4000.1. It holds the cash-out section, and HUD updates it from time to time. Lenders may apply it with their own added requirements, so the numbers on your Loan Estimate matter more than any chart.
Credit and Ratio Rules That Come First
Sizing only matters if you qualify. Across the wholesale programs Lendmire places FHA files with, the starting point is a decision score of 580 or higher. HUD’s own rules reach lower, but the network does not.
Debt ratios compare your monthly obligations to your income. The base pair is 31/43: housing costs to income, and total debts to income. With documented compensating factors, such as reserves or a strong payment history, ratios can stretch up to 40/50 at the top tier.
The financed premium feeds both ratios. It raises the loan balance, and the annual premium joins your monthly housing cost. A cash-out that works at a 60% base can squeeze at 80%.
Lenders also check the mortgage you are paying off. They document 12 months of payment history on it. Each lender applies its own overlays, and nothing here is a commitment to lend.
The Refund Credit on an Existing FHA Loan
If your current mortgage is already FHA, part of the upfront premium you paid on it may come back as a credit. The credit shrinks as the old loan ages. HUD’s rule, as lenders apply it, gives a credit when you refinance an FHA loan into a new FHA loan within three years.
Two points matter here:
- The credit reduces the new loan’s upfront premium. It is not paid to you in cash.
- If your current loan is conventional, VA or any non-FHA type, there is nothing to refund.
Your lender calculates the exact credit from your loan’s closing date, so ask for the figure early.
Where the General Rule Bends
Paid-off home. Taking equity out of a free-and-clear home still counts as a cash-out. The same 80% test and the same premium apply. Since there is no payoff, a larger share of the base becomes cash.
Inherited or previously rented home. The 12-month ownership and occupancy clock must run first. If you inherited a home that was a rental, the clock starts when you move in as your principal residence.
High-cost counties. The county loan limit can cap the base loan below 80% of value. In that case the limit sets your ceiling, not the LTV. County loan limits apply and change every year, so confirm the one for your county.
Other occupancies. A standard FHA cash-out is for the home you live in. Occupancy decides the leverage, and second homes sit outside this product.
Older FHA loans. HUD’s letter lists exceptions for some very old FHA loans, which get special treatment on the premium. If your loan dates to the mid-2000s, ask your loan officer to check.
Policy updates. HUD revises Handbook 4000.1 periodically. A rule that applied last year may be stated differently today, so check against current guidance before you commit.
Cash-Out, Rate-and-Term and Streamline Compared
The premium touches every FHA refinance, but the sizing differs. Here is how the three FHA refinance types compare.
| Feature | Cash-out | Rate-and-term | Streamline |
|---|---|---|---|
| Takes cash out | Yes | No | No |
| Maximum LTV | 80% | 97.75%, principal residence | No LTV test, no appraisal |
| Occupancy history | 12 months owned and lived in | 12 months occupied | Existing FHA loan only |
| Credit review | Full | Full | Limited |
A rate-and-term loan reaches higher leverage because no cash leaves the home. A streamline needs an existing FHA loan, skips the appraisal, and must show a net tangible benefit, and the premium continues. For a cash-out, the 80% limit is the price of pulling equity out, so you keep at least 20% equity after the loan.
Key Terms Defined
Base loan: The loan amount before the upfront premium is added. The leverage limit is tested against this number.
Upfront premium: A one-time FHA mortgage insurance charge of 1.75% of the base loan. Most borrowers finance it into the balance.
Annual premium: A monthly mortgage insurance charge based on term, loan amount and LTV. It ranges from 0.15% to 0.75% of the balance per year.
Adjusted value: The appraised value used for the leverage test. For a cash-out, 80% of it is the base loan ceiling.
Note amount: The final loan balance you sign for, equal to the base loan plus the financed premium.
Net cash: What you receive after the old mortgage, financed costs and any premium paid in cash are taken out.
Common Misreadings
“The 80% limit includes the premium.” In the usual structure, it does not. The note can land above 80% of value by the amount of the financed premium.
“Financing the premium means I don’t pay for it.” You do. It becomes part of the principal, so it earns interest until the loan is repaid.
“HUD lowered the upfront premium.” The 2023 change cut the annual premium. The upfront figure stayed at 1.75%.
“I’ll get my old premium back.” At most, you get a credit toward the new premium on an FHA-to-FHA refinance. It is not a cash refund.
“The cap is still 85%.” It has been 80% since HUD’s 2019 change.
What Your Decision Looks Like in Practice
Start with your equity. Take the appraised value, apply 80%, and subtract your payoff. That is the room you have before costs. Then decide whether to finance or pay the premium.
Financing makes sense if you want maximum cash at closing and expect to move or refinance again before the extra interest adds up. Paying in cash makes sense if you have cash on hand and plan to keep the loan for many years. Ask your loan officer to show both on the Loan Estimate so you can compare cash to close and the loan amount side by side.
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.
Frequently Asked Questions
Does the upfront premium reduce the cash I receive on an FHA cash-out?
Not in the usual structure. The base loan covers your payoff, financed costs and cash. The premium is calculated from that base and added on top. It raises your balance but does not come out of your cash, subject to lender guidelines.
Can I pay the upfront premium in cash instead of financing it?
Yes. Lenders generally want it financed in full or paid in full, not split. Paying in cash lowers your balance and avoids interest on the premium, but it reduces the money you walk away with.
How much higher than 80% can the balance go?
At a full 80% base, the balance lands near 81.4% of value, because 1.75% of 80% is 1.4%. A smaller base gives a smaller overshoot. County loan limits can also cap the base lower than 80%.
Will my old FHA premium come back to me?
Only as a credit against the new premium, and only when you refinance an FHA loan into a new FHA loan within about three years. It is not paid out in cash, and a non-FHA loan gives you no credit.
Does the premium change my monthly budget?
Yes, in two ways. The financed premium adds to principal, which raises the payment. The annual premium is billed monthly and counts in your debt ratios. Ask your loan officer to show both on your Loan Estimate.
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.
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References
1. CFPB Closing Disclosure explainer
2. HUD Mortgagee Letter 2019-11
3. HUD Mortgagee Letter 2023-05
4. HUD Single Family Housing Policy Handbook 4000.1
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: Non-Occupant Co-Borrower on FHA Cash-Out vs Personal Loan for Card Debt · How to Close an FHA Cash-Out Before Your Divorce Is Final · FHA Cash-Out vs VA Cash-Out for a Veteran With a Co-Trustee
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.