The Quick Read: An FHA cash-out counts the income your tax returns document after adjustments, not the income your business actually brings in. For self-employed borrowers, low net profit on the returns means low qualifying income. The underwriter looks at the two-year trend, then tests that income against the new, larger payment.
That is the whole mechanism. The rest of this page shows how each step works, where it breaks, and what a borrower can do about it.
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.
What Does “Counted Income” Mean on an FHA Cash-Out?
Counted income is the monthly figure an underwriter derives from your documented returns. It is not your gross sales and not your bank deposits. It starts at net profit, takes certain non-cash adjustments, and ends as a monthly number.
The equity can be there. The home can be paid down well. If the returns show thin net income, the ratios fail anyway.
Across the wholesale programs Lendmire places, FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number, subject to lender guidelines and full file review.
Key Terms Defined
Effective income: the monthly income an underwriter is willing to use after reviewing your documents.
Add-back: a deduction on your return that did not cost you cash, such as depreciation, which some lenders add back to net profit.
Debt-to-income (DTI): your monthly debts, including the new mortgage payment, divided by your monthly qualifying income.
Schedule C net: the profit line on a sole proprietor’s return, after business expenses are subtracted from receipts.
Adjusted value: the appraised value figure the 80% cash-out cap is applied to. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
How Is the Loan Underwritten, Step by Step?
The deal works through six checks, and income is only one of them.
1. Eligibility gate. Cash-out is for your owner-occupied principal residence only. The home must have been owned and occupied for the 12 months before the case number. Second homes and rentals do not fit this program.
2. Case number and automated finding. The file runs through FHA’s TOTAL Scorecard, which returns Accept or Refer. A Refer goes to an underwriter for manual review. HUD says a lender cannot approve or deny on the scorecard alone.
3. Income analysis. The underwriter reviews your returns and builds a monthly figure. Low or falling net profit lowers it here.
4. Ratios. The base pair is 31/43 (housing payment over income, then total debts over income) with no compensating factors. Documented compensating factors can reach 40/50 at the top tier. The automated finding carries heavy weight in which ratios apply.
5. Appraisal. The 80% cap applies to adjusted value. A low appraisal shrinks the loan and the cash available. Strong income cannot change that cap.
6. Final reconciliation. The underwriter ties the returns, credit, appraisal and ratios together. Under federal ability-to-repay rules, the file has to show how income was considered and verified.
The score matters too. The wholesale programs Lendmire works with start at a 580 decision score, subject to lender guidelines.
What Documents Does FHA Require From a Self-Employed Borrower?
FHA wants two years of complete individual federal returns with all schedules. Per HUD’s knowledge base, business returns for two years are also required unless three conditions are all met: self-employment income is increasing, closing funds are not coming from business accounts, and the loan is not a cash-out refinance.
Read that last condition again. A cash-out always triggers the business-return requirement. The shortcut some self-employed borrowers use on a purchase is not available here.
HUD’s Mortgagee Letter 2022-09 restates the structure: individual and business returns, plus a minimum self-employment history. Two years is the standard. With one to two years, the income counts only if you worked in the same line of work, or a related one, for at least two years before.
- You provide a year-to-date profit and loss statement when more than a calendar quarter has passed since the latest return year-end. Schedule C filers do not need a balance sheet.
- You sign an authorization so the lender can pull your tax transcripts directly from the IRS.
Missing schedules and late filings are gaps you can prevent. Assemble the full returns, every page, before the file goes in.
What Gets Counted and What Doesn’t?
Net income counts. Gross sales do not. Some non-cash deductions, such as depreciation, may be added back. Cash expenses such as advertising, contractors and inventory are not added back, because that money left the business.
| Item on the return | Typical treatment | Why |
|---|---|---|
| Net profit | Counted as the base | Documented earnings |
| Depreciation | May be added back | Not a cash cost |
| Advertising, contractors | Not added back | Real cash outflow |
| Business loss | Reduces other income | Documented loss |
| Gross receipts | Not counted | Expenses came out of it |
| Cash-out proceeds | Not income | Borrowed money |
Add-back handling varies by lender and by how the underwriter reads the return. Treat the table as the general pattern, not a promise for any one file.
How Does a Two-Year Average Work When Income Dropped?
Stable or rising income is favored. Falling income draws extra scrutiny, and the lender may use a more conservative figure than the average.
Run the numbers on a simple pattern, in words. Say a borrower’s net profit in the older year was higher than in the newer year. A straight two-year average blends them, but an underwriter looking at the decline may weight toward the lower, newer year. Current treatment can differ, so expect a decline to be questioned and be ready to explain it with a profit and loss statement and a plain written reason.
If the income used to qualify is above the two-year average, HUD’s knowledge base calls for an audited P&L or a signed quarterly return obtained from the IRS. A rosy P&L alone does not replace the returns. It supplements them.
How Does the New Payment Change the Ratios?
A cash-out replaces your current loan with a larger one, so the payment generally rises. That bigger payment, including the mortgage insurance, is what gets measured against the income your returns show.
On FHA, the mortgage insurance is an upfront premium of 1.75% of the base loan, which can be financed, plus an annual premium between 0.15% and 0.75% of the balance. The annual figure depends on term, loan amount and LTV. On a thirty-year loan above ninety percent LTV, the annual premium lasts for the term. At or below ninety percent it ends after eleven years. These are program facts, not prices, and they sit inside the payment the ratios test.
This is why low net income hurts twice. The income number is small, and the payment you divide it into is larger than today’s.
Where the General Rule Breaks
Five edge cases change the answer.
Under two years self-employed. The same-field exception in a 2022 HUD mortgagee letter may apply if you worked in the same or a related occupation for at least two years before. Without that history, expect the income not to count.
A relative’s income. On an FHA purchase, a non-occupant co-borrower is allowed. On a cash-out, it is not. HUD’s legacy handbook bars non-occupant co-borrowers on cash-out, and current wording is read the same way for income. A parent’s paycheck cannot rescue a low-income cash-out.
Inherited homes. A borrower who inherits a home may not have to meet the 12-month occupancy test, unless the property was treated as an investment. If it was rented, the 12 months of occupancy apply.
Other FHA refinance paths. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. The FHA rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months. Neither pays you cash, and documentation differs. Eligibility for either depends on your current loan and file.
Occupancy. Second homes and rentals are not eligible for standard FHA cash-out. The program reaches 80% LTV only on a principal residence you have owned and occupied for 12 months.
Can Bank Statements, a Co-Signer or Unreported Income Fix It?
No to the last, and mostly no to the first two on this program. Federal ability-to-repay rules require the lender to consider and verify income. Income that is not documented cannot be counted. The same guide notes the general standard sets no single DTI threshold, so FHA’s own handbook ratios do the work.
Bank statements do not replace returns on FHA. A P&L supplements them. A non-occupant co-borrower cannot add income on a cash-out.
What Does the Decision Look Like in Practice?
Three realistic paths, with trade-offs.
- Qualify as is. If net income on two years of returns supports the new payment under the ratios, the file proceeds on the strength of the returns. Check the math before you apply.
- Reduce the payment you are testing. Paying off monthly debts before applying lowers total DTI. It also uses cash you might have wanted. Taking less cash out lowers the new loan size and payment.
- Wait a filing cycle. If the newest return shows a temporary dip, another year of stronger net income may change the average. The cost is time and a possible change in your equity position.
Deductions that cut your tax bill can also cut mortgage qualifying income. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit. The IRS is the place for filing questions.
If returns understate real earnings and FHA cash-out is not workable, other programs read income differently.
Document Checklist
- Two years of individual federal returns, all schedules
- Two years of business returns, where required (always on cash-out for business owners)
- Year-to-date profit and loss statement if the latest return is more than a calendar quarter old
- Signed IRS transcript authorization
- Mortgage statement and proof of 12 months’ ownership and occupancy
- Explanation letter for any year-over-year income decline
Frequently Asked Questions
Does FHA use gross or net income for a self-employed cash-out?
FHA uses net income. The lender starts from the returns and works down to documented profit, adding back only certain non-cash items. Gross receipts include money already spent on expenses, so they are not the basis.
Can I skip the business returns if my income is rising?
Not on a cash-out. HUD allows that shortcut only when income is increasing, closing funds are personal, and the loan is not a cash-out refinance. Cash-out fails the third condition.
What if I have been self-employed less than two years?
It can still work with one to two years if you held the same or a related line of work for at least two years before. Less than one year generally does not count. Subject to lender guidelines.
Can a family member co-sign to raise my qualifying income?
Not on a cash-out. A non-occupant co-borrower is allowed on an FHA purchase, but their income cannot be used to qualify for a cash-out refinance.
Is the cash I take out counted as income?
No. Cash-out proceeds are borrowed money. They increase the loan and the payment, which raises the bar your income has to clear.
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
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.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
2. CFPB: What Is a Qualified Mortgage
3. HUD Mortgagee Letter 2022-09
5. CFPB ATR/QM Small Entity Compliance Guide
6. IRS
For current guidelines and terms, see Lendmire’s FHA loan programs page.
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: How Much an FHA Cash-Out Lends on a Condo Without Project Approval · How Much an FHA Cash-Out Lends to Pay Off a Partner or Relative · How to Verify Income for an FHA Cash-Out With Low Tax Returns
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- 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.