The Quick Read: The new loan is capped at 80% of the home’s appraised value, so at least 20% equity stays in the house. That is also about the equity a conventional loan wants before it drops mortgage insurance. Take the maximum cash and you start your next move right at the line, not past it. Take less cash, and you keep a cushion.
What an FHA Cash-Out Actually Does
An FHA cash-out refinance replaces your current mortgage with a new, larger loan and hands you the difference in cash. The new loan pays off the old one, covers any financed costs, and the remainder comes to you. This article focuses on one narrow question: what equity is left when the loan closes.
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.
The ceiling is 80% of the home’s value. Everything has to fit under that line: the payoff of your current loan, any second mortgage you keep, and the costs that get rolled in.
This ceiling surprises people who remember older numbers. FHA used to allow more. The cap sat higher for years, then dropped. Today the rule is simple: leave at least one-fifth of the value untouched.
The cash-out also has entry rules. It requires that you have owned the home and lived in it as your main residence for 12 months before the case number is assigned. Your mortgage payments over that stretch need to have been made on time. The program also starts at a 580 decision score, though some lenders set a higher floor for cash-out. All of this is subject to lender guidelines and full file review, and none of it is a commitment to lend.
How the Equity Math Works, Step by Step
Equity left equals the home’s value minus your new loan. Cash to you is whatever the new loan holds after the payoff and costs. Work it in five steps.
1. Start with the appraised value. Call it 100%. A lower appraisal shrinks everything below it.
2. Cap the loan at 80%. That is the most the new mortgage can be.
3. Subtract your current payoff. If you owe 50% of the value, you have room for up to 30% more.
4. Subtract financed costs. Closing costs and any financed mortgage insurance premium raise the balance you owe, so they shrink your cash. The lender confirms exactly how the financed premium is counted in the 80% test on your file, so ask for that before you plan around a specific cash figure, and defer to a qualified local insurance or tax professional for questions about premiums themselves.
5. What remains is your cash. Equity left is 100% minus the loan you actually take.
Notice the direction of the math. To keep a certain amount of equity, work backward to the loan size: the new loan is 100% minus the equity you want to keep. A result above 80% is more than FHA allows.
Three situations show how it plays out. These are modeled as percentages of value, not real files.
| Current balance | New loan taken | Equity left | Later no-PMI conventional? |
|---|---|---|---|
| 50% of value | 80% (maximum) | 20% | Borderline: right at the line |
| 50% of value | 65% | 35% | Yes, with cushion |
| 75% of value | 80% (maximum) | 20% | Borderline; little cash after costs |
The third row is a quiet trap. With a balance already at 75%, the room under the cap is about 5% of value. The loan still resets to a larger balance, and you may carry a new insurance schedule for very little gain.
Why Your Equity Ends Up Lower Than You Expect
The 20% figure is a best case, not a guarantee. The FHA cash-out caps the new loan at 80% of the home’s appraised value, and three things push your real cushion below that line.
Costs ride the loan. Financed premium and closing costs raise the balance you owe. Every point they add to the loan is a point of equity you no longer have. The cash you hold is smaller than the gap between your old balance and the cap.
The appraisal can come in low. The 80% test runs against the appraised figure. A home you value at one number and an appraiser values lower shrinks both the loan ceiling and your cash. Plan for that before you count on a specific amount.
Prices move after closing. Equity is a snapshot. A modest dip in value after you close turns 20% equity into something less. A conventional lender will measure you against the value at that later date, not the value you had when you took the cash.
The practical read: if you take the maximum, treat 20% as the ceiling on your equity, not the floor.
The Conventional Side of the Move
This is where “before a conventional move” matters. Conventional loans generally require mortgage insurance when the loan is above 80% of the home’s value. Cross below that line and the insurance is gone, which is the reason many FHA borrowers plan an eventual switch.
FHA mortgage insurance does not end the way conventional insurance does. Under the Homeowners Protection Act, as the CFPB explains, you can ask your servicer to cancel private mortgage insurance once your balance is scheduled to reach 80% of the home’s original value. You must also certify there are no junior liens and may need an appraisal showing the value hasn’t fallen. The CFPB’s examination manual for that law notes it does not apply to insurance made available under the National Housing Act, which is the FHA’s authority. So FHA premiums don’t fall off through that route.
On a thirty-year FHA loan, the annual premium ends after eleven years when the loan is at or below 90% LTV. Above 90%, it lasts the full term. An FHA cash-out at 80% falls in the shorter bucket, per the program parameters. For many borrowers, though, the practical exit is a refinance. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
That makes the equity left after the cash-out the key number. At 20%, you sit at the edge of the no-PMI zone. One caution: a conventional move that is also a cash-out has its own equity ceiling. Fannie Mae publishes conventional cash-out limits by occupancy and unit count in its Eligibility Matrix. For a one-unit primary home, the ceiling sits close to FHA’s, so FHA gives you little extra leverage. Confirm the current figure on that page before you plan around it. A conventional rate-and-term refinance, with no cash taken, can go higher than that, though PMI would apply above the line.
A cash-out also starts a brand-new FHA loan. That means a new mortgage insurance schedule, not a continuation of the old one.
Why the Rule Is 80% (and What It Was)
Understanding the cap helps you plan around it. Per HUD Mortgagee Letter 2019-11, the maximum loan-to-value and combined loan-to-value on a cash-out refinance is 80% of the adjusted value. The earlier cap was 85%. HUD’s announcement of the change, in its archived press release, explained that cash-out refinances had grown to 64% of all FHA-insured refinance transactions. Lowering the cap was a risk-control move.
Combined loan-to-value matters if you keep a second mortgage. The cap applies to the first and second together. A subordinate lien does not let you borrow past 80%.
Where the General Rule Breaks
The label of the loan controls the leverage. An FHA rate-and-term refinance, which only pays off your existing debt and costs, reaches 97.75% on a principal residence you have occupied for the previous twelve months. A cash-out stops at 80%. If you don’t need cash, the rate-and-term label leaves far less equity in play and far more debt on the house. Neither is better in the abstract.
The FHA Streamline pulls no cash. It refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit, and the premium continues. It is a different tool for a different goal.
Inherited homes. If you inherited a property and rented it out, you generally can’t take FHA cash-out until you have lived there as your principal residence for 12 months. The occupancy clock decides.
Free-and-clear homes. A home with no mortgage can still go through a cash-out. The loan is treated as an equity withdrawal, with the same 80% ceiling.
Recent payment trouble. Late payments in the past 12 months can block the standard cash-out. A short mortgage history is handled by looking at the payments since you took the loan.
Credit events. HUD sets its own waiting periods after major events. Two years from a chapter 7 discharge and three years from a foreclosure are HUD’s rules, not a promise of any particular lender’s outcome.
County loan limits apply. FHA limits vary by county and change every year. The new loan can’t exceed the limit for your county and unit count, even if 80% of your value is higher.
Narrow program exceptions. A few special FHA programs, such as Hawaiian Home Lands loans, follow their own rules. If your home falls under one, the general cap and insurance discussion may not apply the same way.
Second homes and rentals. Occupancy decides leverage. The standard FHA cash-out is for the home you live in, so a second home or rental falls outside this article.
FHA First, or Go Straight to Conventional?
This is the decision most readers are actually weighing. It is a genuine tradeoff, and the answer depends on your credit and your equity.
Go straight to a conventional cash-out when your credit is strong and your equity clears the conventional ceiling. You skip the FHA premium schedule and avoid a second refinance. One loan, one set of closing costs.
FHA cash-out first makes sense when credit or ratios are the obstacle. FHA starts at a 580 decision score through the wholesale programs Lendmire works with, and the base ratios are 31/43 for housing and total debt, stretching to 40/50 with documented compensating factors at the top tier. Conventional underwriting can be less forgiving on both. If FHA is the only route that works now, you can take the cash, rebuild your profile, and refinance later.
FHA then conventional works against you when you take the maximum cash. You pay FHA’s upfront premium and close two loans. A conventional refinance that needs a 20% cushion then finds you with no margin at all, since the first dip in value can erase what you have.
Taking a smaller loan than the maximum leaves some equity in reserve and gives the later move room. Comparing the two paths on cost comes down to those same pieces: the FHA upfront premium, the second set of closing costs, and the cushion you keep.
Your Checklist Before a Conventional Move
If you plan to leave FHA later, work through this list.
- Check your current equity. Estimate value and subtract your balance. Treat the estimate as a range, not a number.
- Decide how much cash you need. Cash you don’t need is equity you give up.
- Account for costs. Remember the 1.75% upfront premium on the base loan and closing costs, and ask the lender how the financed premium counts in the 80% test.
- Stress the value. Ask what happens to your equity if the appraisal or the market comes in lower.
- Check the payment record. Late payments in the past 12 months can block the cash-out itself.
- Know the conventional exit. The later loan is measured against value at that time, and any junior lien counts.
Key Terms Defined
Loan-to-value (LTV): The loan balance divided by the home’s appraised value, shown as a percentage.
Combined loan-to-value (CLTV): All mortgage balances on the home, first and second together, divided by its value.
Adjusted value: The appraisal-based value FHA uses for its limits. It is not the contract price.
Cash-out refinance: A refinance where proceeds are not limited to paying off the old loan and costs, so you receive money from your equity.
Upfront mortgage insurance premium: A one-time FHA charge of 1.75% of the base loan, which can be financed into the loan.
Annual mortgage insurance premium: The ongoing FHA insurance charge, between 0.15% and 0.75% of the balance depending on term, amount and LTV.
Frequently Asked Questions
How much equity do I keep if I take the maximum FHA cash-out?
At least 20% of the home’s appraised value. The new loan can’t exceed 80%, so the most you can borrow leaves one-fifth of the value untouched. Financed costs raise the balance you owe, so they reduce your cash, and the lender confirms how a financed premium counts in the 80% test. A drop in value after closing can cut the equity below that figure.
Can I take cash out of an FHA loan I just closed?
Not right away. The standard FHA cash-out requires that you have owned and lived in the home as your principal residence for 12 months before the case number is assigned. Your payments over that period must have been made on time. Inherited homes that were rented follow the same occupancy clock.
Does FHA mortgage insurance fall off at 80% LTV like PMI?
No. The law that lets you cancel private mortgage insurance does not cover FHA insurance. On a thirty-year FHA loan at or below 90% LTV, the annual premium ends after eleven years. Above 90%, it lasts the term. For many borrowers the earlier exit is a refinance into a conventional loan. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Will a second mortgage let me borrow more than 80%?
No. The cap applies to combined loan-to-value, so the first mortgage and any second lien together must stay at or below 80% of the adjusted value. A second lien you keep uses up part of the room instead of adding to it.
Is an FHA cash-out better than a conventional cash-out?
Not on leverage. For a one-unit primary home the published ceilings are close, so FHA’s advantage is flexibility on credit and ratios, not extra cash. FHA also carries its own insurance premiums. If your credit and equity support conventional, compare both before choosing.
Weighing It Against Keeping Your Loan
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. Reach the team at 828-256-2183 or request a quote. Lendmire is a mortgage broker, not a lender, and program details are subject to lender guidelines and full file review.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan
2. CFPB Homeowners Protection Act examination manual
3. Fannie Mae Eligibility Matrix
4. HUD Mortgagee Letter 2019-11
5. HUD Archives press release on cash-out risk
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: FHA Cash-Out vs Conventional Cash-Out for a Borrower Leaving FHA · FHA Cash-Out vs Conventional Cash-Out on a Condo Not FHA-Approved · How Much an FHA Cash-Out Lends When Conventional Is Costly
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.