The Quick Read: An FHA cash-out refinance swaps your current mortgage for a larger one and hands you the difference as cash. You can use that cash on a medical bill, and the lender does not need to confirm where it goes. The new loan tops out at 80% of your home’s value, and it turns an unsecured bill into debt tied to your house. That tradeoff is the whole decision.
Medical bills arrive without a plan attached, so build one before you borrow. This guide walks through what the loan is, how it gets underwritten, the variations, the places where the rules bend, and how to decide whether it fits your bill.
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 Is an FHA Cash-Out Refinance?
It is a new FHA-insured mortgage that pays off your existing loan and puts the leftover equity in your hands as cash. FHA insures the loan. A lender funds it. You get one new payment instead of your old one.
The core mechanics are simple. Across the wholesale programs we place files with, the FHA cash-out reaches up to 80% loan-to-value (LTV, the new loan as a share of the home’s appraised value) on a home you have owned and lived in for 12 months before the case number is assigned. A case number is the ID FHA assigns when the loan file opens.
That 80% limit is not new. HUD Mortgagee Letter 2019-11 cut the cap from 85% to 80% of adjusted value. HUD’s own announcement said cash-out volume had grown and a bigger equity cushion would reduce losses in a default. Older articles that promise 85% or 90% are describing a rule that no longer exists.
One point matters for your situation. A cash-out refinance does not restrict what you spend the money on. A medical bill is a perfectly good use. The lender may choose to pay a creditor directly at closing, but that is the lender’s call, not a requirement.
Should You Borrow Against Your Home for This Bill?
Maybe, but only after you try the cheaper fixes first. Medical debt is usually unsecured, often carries little or no interest, and providers frequently offer payment plans. Turning it into mortgage debt gives up that flexibility and ties the bill to your home for many years.
Work through this order before you start an application:
1. Ask for an itemized bill. Billing errors and duplicate charges are common enough to check for.
2. Ask about financial assistance. Many hospitals have assistance programs. Ask before you pay anything.
3. Ask for a payment plan or a lump-sum discount. Providers sometimes accept less for cash up front, so find out what they would take before you borrow.
4. Compare other funding. A home-equity product, a personal loan, or a plan with the provider each cost differently. None is best for everyone.
5. Then price the refinance. Count what you give up as well as what you get.
Here is the honest tradeoff. The bill was unsecured. After the refinance, it is part of your mortgage. Fall behind on a medical payment plan and you face collections. Fall behind on your mortgage and you face foreclosure. That risk is the biggest cost of this strategy, and no payment number captures it.
How Is the Loan Underwritten, Step by Step?
Underwriting follows a set order, and the early steps decide whether you can continue. Here is how a file moves.
Step 1: Check ownership and occupancy. You generally must have owned the home and lived in it as your principal residence for 12 months before the case number. The clock runs back from the case number, not from closing day. Own it for less than a year and the standard cash-out is usually unavailable.
Step 2: Size the need. The new loan covers four things: the payoff of your current mortgage, closing costs, the upfront mortgage insurance premium, and your cash. Everything except the premium must fit under the 80% cap; the premium is financed on top of the capped base loan. If you have a second lien, it counts against the same limit. County loan limits also apply, so check them for your area.
Step 3: Get the case number and appraisal. The case number starts the 12-month lookback. A full FHA appraisal sets the value. The 80% cap applies to adjusted value, which is not always the raw appraised number.
Step 4: Underwriting review. The lender reviews credit, income, and your debt-to-income ratio (DTI, your monthly debts divided by gross monthly income). The wholesale programs we place FHA loans with start at a 580 decision score. The base ratio pair is 31/43, meaning housing costs may take up to 31% of income and total debts up to 43%, with no compensating factors. Documented compensating factors, such as strong savings or low payment shock, can raise the limits to as high as 40/50, a ceiling reserved for borrowers at the strongest credit-score tier. An automated finding governs most files.
Step 5: Closing and funds. Cash proceeds go to you. You then pay the provider yourself. Because this refinances your principal residence, federal rules give you a right-of-rescission period after signing, and the money is not released during it. Plan around that. If the bill has a hard deadline, ask the provider for a short extension in writing now, not later.
Every figure here is subject to lender guidelines and full file review. Nothing is a commitment to lend.
Will Medical Debt Hurt Your Approval?
Usually less than you fear. In its 2024 proposed rule on medical debt, the CFPB noted that FHA and the two big mortgage-investor agencies generally do not weigh medical debt in their automated credit-risk assessments. In practice, an unpaid medical collection does not automatically sink an FHA file.
Two cautions apply. First, individual lenders can add stricter overlays, and some want a collection paid before they proceed. Second, don’t assume federal law hides the debt from your credit report. A federal court in Texas vacated the CFPB’s rule that would have kept medical debt off reports, as Congress’ research service confirms. Medical debt can still appear on your report.
A bill in collections is a fact, not a verdict. Tell your loan officer about it at the start so there are no surprises mid-file.
What Does the Mortgage Insurance Do to the Loan?
It adds cost on top of the loan balance, and you should expect it. FHA loans carry two premiums.
- Upfront premium: 1.75% of the base loan, typically financed into the new balance. Per HUD Mortgagee Letter 2023-05, this applies to the base loan amount.
- Annual premium: a recurring charge between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV.
Duration matters. On a thirty-year loan with higher leverage, the annual premium lasts for the full term. With lower leverage, it ends after eleven years. Because the cash-out cap is 80%, many cash-out loans fall in the shorter category, though your actual terms depend on the final loan structure. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Since the upfront premium is financed, it comes out of the room under the 80% cap. A bigger premium means slightly less cash for you. These are program facts, not prices, and your Loan Estimate shows what applies to your file.
What Variations and Structures Exist?
You have three FHA refinance paths, and picking the wrong one is a common mistake.
| Option | Cash back? | Appraisal? | Best when |
|---|---|---|---|
| FHA Streamline | No | No | You have an FHA loan and want a net benefit |
| FHA rate-and-term | Minimal | Yes | You need to change the loan, not take cash |
| FHA cash-out | Yes | Yes | You need cash and have enough equity |
The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review, and a net tangible benefit. It does not give cash back, which is why it is the wrong tool for a medical bill. The FHA rate-and-term reaches 97.75% LTV on a principal residence you have occupied for the previous twelve months. If your bill is small and you mainly need a better loan structure, that higher leverage may fit. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
One more detail for people who already hold an FHA loan. If you refinance FHA into FHA within three years, a credit against the new upfront premium may apply. It reduces the new premium. It is not paid out as cash.
Where Do the Rules Break?
The general rules above hold for most owner-occupants, but several situations bend or break them.
- You own the home less than 12 months. The standard cash-out is generally unavailable. Other loan programs may have different seasoning, so ask.
- You inherited the home and rented it out. Occupancy for 12 months is typically required before cash-out is allowed. Older HUD guidance had a different rule for inherited property, but it is archived and outdated.
- The home is a rental or second home. Occupancy decides leverage. FHA cash-out is for your principal residence, so this program is not the path.
- A family member would help with income. A non-occupant co-borrower is allowed on FHA purchases. Cash-out refinances treat non-occupant co-borrower income differently, so confirm with your loan officer before you count on it.
- The bill is already in collections. FHA generally does not require payment as a condition of approval. A lender overlay might.
- You hold a Section 247 loan on Hawaiian Home Lands. HUD exempted these loans from the 80% change, per a legal trade summary. It is a narrow case, but it exists.
- A past credit event. HUD sets waiting periods, including two years from a chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise from any lender.
What Does the Decision Look Like in Practice?
Run a scenario in percentages, not dollars. Say you own a home worth a certain amount and owe about 55% of that value. The 80% cap leaves a gap of roughly 25 points of value to work with. Subtract closing costs and the financed upfront premium, and what remains is your usable cash.
Now compare that cash to your bill. Three outcomes are common.
The bill fits comfortably. Cash covers the bill with room left over. The question becomes whether the interest and insurance you pay over the loan’s life beat the cost of a payment plan. For a bill a provider will spread out interest-free, the refinance often costs more in total.
The bill barely fits. Closing costs and the premium eat most of the cash. Borrowing a large amount against your home to cover a small bill rarely makes sense.
The bill exceeds your usable equity. The 80% cap is on the whole new loan against value, not on a share of your equity. When the bill is bigger than the room, you need another funding source or a negotiated reduction.
The refinance tends to make the most sense when three things line up: the bill is large, the provider will not offer an affordable plan, and you can comfortably carry the larger mortgage payment. It tends to make the least sense when interest-free time payments exist.
Also consider the loan you have today. A cash-out refinance replaces it entirely. If your current mortgage has terms you value, a second-lien or equity product may keep that loan in place. Lendmire’s piece Best Jumbo Cash-Out Refinance Program to Cover a Medical Bill covers the larger-balance version of this decision.
Common Misconceptions
- “The lender will check that the cash went to the bill.” Cash-out proceeds are not limited to specific purposes.
- “I have to pay medical collections first.” FHA generally does not require it, though a lender may.
- “The 12 months run from closing.” They run back from case number assignment.
- “FHA cash-out goes to 85% or 90%.” That was the old rule. It is 80% now.
- “An FHA Streamline gives cash back.” It does not.
- “The 80% cap means I can borrow 80% of my equity.” The cap applies to the whole new loan against value.
Key Terms Defined
Cash-out refinance: A new mortgage larger than your old one, with the difference paid to you as cash.
Loan-to-value (LTV): The loan amount divided by the home’s appraised value, shown as a percentage.
Adjusted value: The value FHA uses to apply its limits, which is not always the raw appraisal.
Upfront mortgage insurance premium: A one-time FHA charge of 1.75% of the base loan, usually financed into the balance.
Debt-to-income ratio (DTI): Your monthly debt payments divided by your gross monthly income.
Case number: The FHA ID that opens your loan file and starts the 12-month ownership clock.
Frequently Asked Questions
Do I have to prove the money went to my medical bill?
No. Cash-out proceeds are not restricted to specific purposes, so the lender does not verify your spending. The lender may choose to pay a creditor directly at closing, but that is its decision. Keep your own records if you plan to claim anything on your taxes.
Can I get an FHA cash-out if I already owe on medical collections?
Often yes. FHA generally does not require medical collections to be paid for approval, and its automated underwriting generally does not weigh medical debt. A particular lender may require payment anyway, so raise it early.
Do I need an existing FHA loan?
No. You can refinance a conventional or other mortgage into an FHA cash-out loan if you meet the ownership, occupancy, equity, and credit tests. An existing FHA loan only matters for the Streamline and the premium credit.
Will the cash reach me before my bill is due?
Not immediately. The appraisal, underwriting, and the rescission period after signing all come first. If the deadline is tight, ask the provider for a written extension or a short payment plan while the loan is in process.
What credit score do I need?
The wholesale programs Lendmire places FHA loans with start at a 580 decision score. Some lenders set a higher floor. Eligibility depends on lender guidelines and a full review of your file.
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. Call 828-256-2183 or request a quote.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD press release on cash-out risk
3. CFPB proposed rule on medical debt
4. Congressional Research Service, medical debt overview
5. HUD Mortgagee Letter 2023-05
6. Consumer Finance Monitor, ML 2019-11 summary
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: Best FHA Cash-Out Refinance Program Without Bringing Cash · FHA Cash-Out Refinance Rules After a Title Change · FHA Cash-Out Refinance Requirements for a Private Note
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.