How Much Cash Comes Out of an FHA Cash-Out Refinance to Consolidate Debt?

The Quick Read: It depends on the gap between 80% of your home’s appraised value and what the new loan must pay off. Closing costs and the financed insurance premium come out of that same gap. If your mortgage balance already sits near 80% of value, little or nothing may be left for your cards and loans. Everything here is subject to lender guidelines and full file review.

The Formula Behind the Number

The 80% figure is the cap on the whole new loan, not the cash you receive. HUD Mortgagee Letter 2019-11 cut the maximum loan-to-value on FHA cash-out refinances from 85% to 80% of adjusted value. Before that, FHA had moved the limit from 95% to 85% in 2009. HUD’s own press release on the change says cash-out loans made up 64% of FHA-insured refinances, which is part of why HUD tightened the limit.

Here is the math, step by step:

1. Take the appraised value, as adjusted under FHA rules, and multiply by 80%. That is the ceiling on the new loan.

2. Subtract the payoff on your current first mortgage, plus any second lien being paid off.

3. Subtract closing costs and the upfront mortgage insurance premium if they are rolled into the loan.

4. What remains is the cash available for debt payoff.

The FHA cash-out program is built around 80% LTV on a home you have owned and occupied for 12 months before the case number. Every figure here varies by lender and program, and guidelines, property type, leverage, and credit profile all apply.

Two misreads are worth avoiding. First, people hear “80%” and think they get 80% of the home’s value in cash. They don’t. The payoff comes out first. Second, people confuse this ceiling with the FHA rate-and-term refinance, which reaches 97.75% on a principal residence. That product pays off your loan and gives no cash. Different tool.

What Eats Into Your Cash

Three items shrink the check before you see it.

The old mortgage payoff. This is the biggest line. A home with a low balance leaves a large gap. A home bought recently with a small down payment leaves almost none.

The upfront premium. FHA charges an upfront mortgage insurance premium of 1.75% of the base loan, and it is usually financed into the balance. That raises the loan amount, and because the 80% cap covers the financed premium too, it reduces the cash left over.

Closing costs. These vary by file and are itemized on your Loan Estimate. Whatever gets rolled into the loan counts against the same ceiling.

The appraisal also sets the ceiling. A lower appraisal means a lower cap and less cash, and every dollar of shortfall comes out of your debt-payoff budget. If the appraisal comes in light, the options are to pay fewer debts, bring cash to closing, or reconsider whether the refinance still makes sense.

Working Backward From Your Debt Total

Most borrowers start with a number: “I owe this much on cards and loans.” Run the formula in reverse.

Add up the debts you want gone. Add your mortgage payoff. Add an allowance for closing costs and the financed premium. That total is the loan you need. Divide it by 80% and you get the minimum appraised value required for the numbers to work.

Say you own a home valued well above your mortgage balance, with moderate card debt. The 80% ceiling likely leaves room. Now say you bought three years ago with a small down payment and little principal paid down. The same debts may not fit under the cap at all.

When the cash falls short, there are a few paths. Pay off the highest-interest balances first and leave the rest. Pay down what you can and tackle the remainder separately. Or look at a different product altogether. A partial consolidation that clears your worst debts can still be worth doing. A full one that doesn’t fit under the cap will not work as planned, so size it to what the cap allows.

Do the Debts Get Paid at Closing?

FHA does not require you to prove the money went to debt. The handbook defines a cash-out refinance as one where proceeds are not limited to specific purposes. “Consolidation loan” is how the product gets described, not a restriction.

Who Qualifies

Eligibility is the second gate after the math. Across the programs Lendmire works with, the picture looks like this:

• The home must be your owner-occupied principal residence. Free-and-clear homes can qualify as cash-out.
• You generally must have owned and occupied the home for 12 months before the case number is assigned.
• The lender documents the previous 12 months of housing payment history. HUD’s handbook sets that expectation, and the language was later revised, so confirm current requirements with your loan officer.
• The wholesale programs Lendmire places FHA loans with start at a 580 decision score. Some lenders set a higher floor.
• The base debt-to-income pair is 31/43 (housing / total) with no compensating factors. Documented compensating factors can raise that to 40/50 at the top tier, and the automated underwriting finding is what the lender follows.
• County loan limits apply. Look up your county’s limit. For most homeowners, the 80% test binds first.

Debt-to-income is where consolidation helps. Paid-off cards and auto loans stop counting against you, but the new, larger mortgage payment replaces the old one. The lender runs the new total, not the old one.

Edge cases exist. A home inherited within the past 12 months may qualify if you occupy it as your principal residence, though that comes from an older HUD guide, so verify against the current handbook. Mortgages on Hawaiian Home Lands under Section 247 are outside the 80% cut. The tribal Section 184 program has its own cash-out rules and should not be confused with standard FHA.

The Risk Side of Consolidating

The math can look great and the decision can still be wrong. Moving credit card debt into your mortgage turns unsecured debt into debt backed by your house. Miss payments on a card and your credit suffers. Miss payments on the mortgage and the house is at risk.

The CFPB’s guide to using home equity notes that a cash-out refinance may lengthen your payoff time and that the payment may rise because the new loan is larger. It also says lenders typically require you to keep 10% to 20% of your home value as equity. FHA’s cap leaves at least 20%.

The CFPB’s report on credit scores after cash-out refinances found scores improved sharply at first, then gradually worsened, though they generally stayed above pre-refinance levels. Card balances trended back toward their earlier levels within a year. That is the re-borrowing trap. Clearing the cards without changing the spending pattern puts you back where you started, with a bigger mortgage.

A lower monthly payment is not the same as a cheaper loan. A longer term and a larger balance can raise the total cost even when the monthly number drops. Compare the new payment against the old mortgage plus the debt payments combined, then look at how many years you are adding.

Annual mortgage insurance matters too. On a cash-out capped at 80% LTV, the annual premium ends after eleven years, and the amount depends on term, loan amount and LTV. HUD’s premium schedule covers that duration rule. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Key Terms Defined

Adjusted value: The appraised value after FHA’s adjustments. The 80% test applies to this figure.

Cash-out refinance: A new mortgage that pays off the old one and gives you the difference in cash.

Upfront premium: A one-time FHA mortgage insurance charge of 1.75% of the base loan, usually financed.

Annual premium: An ongoing FHA mortgage insurance charge based on term, loan amount and LTV.

Case number: The FHA identifier assigned to your file. Ownership and occupancy time is measured back from it.

Next Step

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. Lendmire is a mortgage broker, not a lender, and nothing here is a commitment to lend.

For your own numbers, request a scenario review with Lendmire.

For current guidelines and terms, see Lendmire’s FHA loan programs page.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Mortgagee Letter 2019-11

2. HUD press release PR 19-114

3. CFPB: Using home equity guide

4. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores

5. HUD Mortgagee Letter 2023-05