The Quick Read: An FHA cash-out is a brand-new loan, not an add-on to the one you have. It replaces your current mortgage with a larger one, capped at 80% of the home’s appraised value, and you keep the difference as cash. The price tag has four parts: a new upfront mortgage insurance premium of 1.75% of the base loan, an annual premium paid monthly, ordinary closing costs, and a bigger balance. If your current FHA loan is fairly recent, a shrinking credit may soften the new upfront premium. Program figures are subject to lender guidelines and full file review.
Key Takeaways
- The 80% cap covers all liens combined. A second mortgage or HELOC that stays in place uses up room under it.
- Cash in hand is equity minus your old payoff, minus closing costs, minus the upfront premium if you finance it.
- The old FHA premium is never paid back to you in cash. At most, a credit reduces the new upfront premium, and it fades over time.
- Your current rate, term and insurance schedule are replaced, not carried over.
- You do not need an existing FHA loan to use FHA cash-out. Having one changes the cost math, not the eligibility.
Key Terms Defined
LTV (loan-to-value): The loan balance divided by the home’s appraised value, shown as a percentage.
CLTV (combined loan-to-value): The same measure, but it adds every loan secured by the home, including a second mortgage or HELOC.
UFMIP (upfront mortgage insurance premium): A one-time FHA insurance charge of 1.75% of the base loan, usually financed into the balance.
Annual MIP (mortgage insurance premium): A yearly FHA insurance charge, collected in monthly pieces and added to your payment.
Base loan amount: The loan before the financed upfront premium is added on top.
Net tangible benefit: A test on FHA streamline refinances. The new loan has to leave the borrower measurably better off.
Seasoning: The time you must hold and live in the home, or hold the loan, before you can refinance with cash out.
Does Already Having an FHA Loan Change Anything?
It changes the cost math, not your eligibility. FHA cash-out is open to homeowners with any kind of current mortgage, or none. If you hold an FHA loan today, the cash-out pays it off and starts a new one. That swap is where your costs come from.
Plenty of search results mix up two different questions. One is “Can I get a second FHA loan to buy another house?” The other is “Can I pull cash from the home I already own with FHA financing?” This article answers the second. FHA purchase loans are for a principal residence, and limited exceptions exist for a second one. A lender has to review those case by case.
Cash-out is also a principal-residence program. Occupancy decides the leverage, and a second home or rental is a different conversation entirely.
Lendmire’s FHA cash-out refinance program reaches 80% LTV on a home you have owned and lived in for 12 months before the case number is assigned. Lendmire is a mortgage broker. It arranges these loans through wholesale lenders and does not lend itself. Qualifying depends on the lender’s guidelines and a full file review.
What Does the Cost Stack Look Like?
You pay for an FHA-to-FHA cash-out in four layers. Some are paid at closing. Some ride along in your balance. One lasts for years in your monthly payment.
| Cost layer | When you pay | Can it be rolled in? | What it means if you are already in FHA |
|---|---|---|---|
| Upfront premium (1.75%) | Closing | Yes, financed | A credit from the old loan may reduce it |
| Annual premium (0.15%-0.75%) | Monthly | Not applicable | Resets under the new loan’s term and LTV |
| Closing costs | Closing | Often | Same as any refinance; a meaningful share of the loan |
| Larger balance | Ongoing | Not applicable | More principal than the loan you replace |
The annual premium depends on loan term, loan amount and LTV. On a thirty-year loan at or below 90% LTV, it ends after eleven years. Above 90%, it lasts the whole term. Because cash-out stops at 80% LTV, the shorter schedule is the usual outcome, subject to lender review. Lendmire’s piece How Much FHA Cash-Out Insurance Costs Versus Conventional by Equity shows how the premium looks against the alternative.
Closing costs deserve one honest sentence. Appraisal, title, lender and recording charges add up to a real slice of the loan amount. They are not trivial. Your Loan Estimate lists them line by line, and the Closing Disclosure should match it when you reach the table.
How Is an FHA Cash-Out Underwritten, Step by Step?
The lender checks the property, the payment record and your finances, then sets the loan against the appraisal. Here is the sequence on a typical file.
1. Eligibility screen. The home must be your principal residence. You must have owned and occupied it for 12 months before the case number. Manufactured homes have a similar test: permanently installed on the site for more than 12 months.
2. Application and disclosure. You apply, and the lender issues a Loan Estimate. Compare it across lenders. It shows closing costs and whether any are financed.
3. Appraisal. The 80% test runs against the appraised value. The old FHA balance is not the base. The new loan must fit inside the cap and the county loan limit, which changes every year.
4. Full underwriting. This is not a streamline. Income, credit and assets are re-underwritten. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. The base ratio pair is 31/43 (housing over total debt), and documented compensating factors can stretch it to 40/50 at the top tier. The automated finding governs most files.
5. Premium credit. If the old loan is also FHA and recent enough, a credit reduces the new upfront premium. More on that below.
6. Closing. The old loan is paid off, costs are settled, and what remains is your cash. Review the Closing Disclosure against your Loan Estimate before you sign.
Lenders also read the payment history on the current loan. A missed payment in the last year can stop a cash-out cold. A forbearance in your past can still work. The lender looks for a completed plan followed by a stretch of on-time payments, and exact requirements sit in HUD’s current Handbook 4000.1. That Handbook controls, so confirm details with your loan officer.
A Worked Example: From Equity to Cash in Hand
Take a home whose appraised value we treat as 100%, with no dollar signs needed. Suppose the FHA balance you owe is 55% of that value. HUD’s Mortgagee Letter 2019-11 cut the cash-out ceiling to 80% of adjusted value. It did so to limit risk to the FHA insurance fund from rising balances on cash-out loans.
Here is how the numbers run on that modeled assumption:
- Ceiling: 80% of value.
- Old payoff: 55% of value.
- Gross room: 25 points of value.
- Upfront premium: 1.75% of an 80% base loan, or about 1.4% of value.
- Closing costs: a further slice, depending on the file.
Net cash lands a bit under 23.6% of value, before closing costs. Your actual figure depends on the appraisal, the payoff and the fees.
Now run it two ways.
Scenario one, costs rolled in. You finance the premium and closing costs. Your cash check is smaller, and your balance is higher. Rolling costs into the loan also uses up room under the 80% cap.
Scenario two, costs paid out of pocket. The cash you receive is larger, and the balance stays lower. You spend savings at the table.
Neither is wrong. (Plenty of borrowers prefer to keep their savings and accept the bigger balance.) Just see both versions on paper before you choose.
A second lien changes this picture. Say a HELOC stays in place at 10% of value. The 80% cap counts it, so your FHA first mortgage has only 70% of value to work with. A second lien never adds room. It only subtracts it.
What Do You Give Up, and What Carries Over?
You give up your existing loan’s terms. A cash-out is a new mortgage, so the rate, the term and the insurance schedule all reset. The CFPB’s guide to using home equity says a cash-out can lengthen your payoff time. It also notes the payment may rise because the new loan is larger. Cash-out loans are usually paid back over thirty years, so a loan that was ten years along starts over.
Two things partly carry over.
The premium credit. When an FHA loan is refinanced into another FHA loan, HUD’s upfront premium guidance says a refinance credit for upfront premium paid but not yet earned is applied to the new case. The credit shrinks each month and ends at 36 months. It lowers the new upfront premium. It does not arrive as cash. Move to a conventional loan instead and no credit applies, since conventional loans do not carry FHA premiums.
Your equity position. The principal you have paid down is what gives you room under the 80% cap. That part is real.
The old annual premium does not carry over. It ends when the old loan ends, and a new schedule starts based on the new term and LTV.
Where the General Rule Breaks
The 80% rule and the 1.75% premium cover most files. These edge cases change the picture.
- Streamline versus cash-out. A streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit test. The premium continues. It does not deliver cash. Do a cash-out inside the 36-month credit window and you may recover part of the old upfront premium.
- Older loans with a different schedule. A few FHA loans from the late 2000s and Hawaiian Home Lands (Section 247) loans fall under exceptions in HUD’s premium rules. Section 247 is also exempt from the 80% change.
- Non-occupant co-borrower. A non-occupant co-borrower can help on an FHA purchase. On a cash-out, HUD’s Handbook does not let that person’s income count toward qualifying. Rental income from an accessory dwelling unit on a one-unit home generally does not count either.
- Title and inheritance timing. Limited exceptions exist where a home was inherited or the occupancy period differs from the title period. Ask a lender early, because the Handbook text controls.
- Ineligible borrowers. Nonprofit agencies, state and local government agencies, and instrumentalities of government cannot use FHA cash-out.
- Second liens. A HELOC or second mortgage that stays on the home counts toward the 80% combined cap.
- Occupancy. Cash-out is for the home you live in. Second homes and rentals follow different rules.
Rules move. HUD updates the Handbook periodically, so confirm the current text before you rely on any one figure.
Cash-Out, Streamline or HELOC?
Which product fits depends on what you want. Do you want cash, a lower payment, or both?
| Option | Best when | Cost trade-off |
|---|---|---|
| FHA cash-out | You need a large sum and want one loan | New premiums and closing costs on the whole loan |
| FHA streamline | You want a better FHA loan, not cash | Lighter review; premium continues; no cash |
| HELOC (second lien) | You need a smaller or flexible sum | Keeps your first mortgage; uses room under the 80% cap |
The streamline asks the least of you and gives the least cash. The cash-out asks for full underwriting and an appraisal, and returns a lump sum. A HELOC leaves your first mortgage alone, which can matter if you like your current loan terms. Lendmire’s side-by-side of an FHA cash-out against a HELOC for the same sum works through that tradeoff.
Here is a genuine toss-up. If your goal is a modest sum and your current loan terms are good, a HELOC may cost less. If you need a large amount, or your current loan is expensive, the cash-out may win. Which side you land on is a function of your numbers.
How to Judge Whether the Cash Is Worth the Cost
Start with what the cash is for. In its report on cash-out borrowers, the CFPB found paying off other debts was the most common reason, with home repairs second. It also cautioned that paying non-mortgage debt with mortgage debt can raise the risk of foreclosure, because the debt is now secured by your home.
Use three tests.
1. Net cash. Subtract the payoff, premium and closing costs from your equity room. Is what is left big enough to justify the effort?
2. Total monthly impact. Add the annual premium and any term reset. Will the new payment fit your budget with some room to spare?
3. Break-even. Costs paid at closing take time to earn back through whatever the cash accomplishes. Paying off high-cost debt may repay them. A discretionary purchase will not.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
A short checklist before you apply:
- Principal residence, owned and lived in for 12 months.
- Recent mortgage payments made on time.
- At least 20% equity left after the new loan.
- Credit and income that meet the lender’s guidelines.
- No plan to count on a second lien to reach your cash target.
Frequently Asked Questions
Do I need an existing FHA loan to get an FHA cash-out refinance?
No. FHA cash-out is open to homeowners with a conventional loan, a VA loan, or no mortgage at all, if they meet the occupancy and seasoning rules. Holding an FHA loan only changes the cost math, since the old upfront premium may produce a credit.
Do I get my old FHA mortgage insurance back as cash?
No. A credit for the unearned part of the old upfront premium can reduce the new upfront premium. It is not paid to you. The credit shrinks as time passes and ends at 36 months, per HUD’s upfront-premium guidance.
Can a HELOC or second mortgage help me reach more cash?
No. The 80% limit applies to all liens combined, so any second lien that stays in place uses up room. If you want to keep one, the FHA first mortgage must be smaller by that amount. Paying it off in the refinance frees the room.
How does an FHA cash-out affect my monthly budget?
Usually the balance rises, the term resets, and the annual premium restarts under the new schedule. Those three changes push the payment up unless the term or other terms offset them. Your Loan Estimate shows the full monthly picture before you commit.
Is a streamline better if I do not need cash?
Often it is the lighter route, because it skips the appraisal and uses a limited credit review. It must show a net tangible benefit, and the premium continues. It cannot deliver cash, so it fits a borrower who only wants better loan terms.
Weighing Your Options
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 with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Single Family Handbook 4000.1
2. HUD Mortgagee Letter 2019-11
3. CFPB: Using Your Home Equity guide
4. HUD Upfront Premium Payments and Refunds
5. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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 Cash an FHA Cash-Out Releases at the LTV Cap · How Much FHA Cash-Out Insurance Costs Versus Conventional by Equity · Can a Texas Homeowner Get an FHA Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.