The Quick Read: You qualify by owning and living in the home for 12 months, showing 12 months of on-time mortgage payments, and leaving at least 20% equity after the new loan pays off your old one. You apply by choosing a lender, getting a full appraisal, and passing credit and income review. Owing on the mortgage is not a barrier. The new loan replaces what you owe, and you keep whatever is left under the cap.
Key Takeaways
- A cash-out refinance replaces your current mortgage with a new, larger FHA loan. You receive the difference in cash.
- Maximum financing is 80% of the home’s adjusted value. Your old payoff, financed costs, and your cash all fit under that number.
- The home must have been your principal residence for the 12 months before the FHA case number is assigned.
- Your current loan does not have to be an FHA loan. Conventional, VA, and other first mortgages can be paid off.
- Documented compensating factors can stretch debt ratios, but the lender’s own overlays can be stricter than FHA’s.
What Is an FHA Cash-Out Refinance, and What Happens to the Loan You Still Owe?
An FHA cash-out refinance pays off your existing mortgage and any liens that must be cleared, then hands you the leftover equity as cash. You end up with one new FHA-insured first mortgage. Your old loan is gone.
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.
That distinction trips people up. A home equity loan or HELOC (a line of credit secured by your home) sits on top of your first mortgage. A cash-out refinance does not. It replaces the first mortgage entirely, and the term starts over.
So the phrase “while still owing on the mortgage” describes the normal case. At closing, the new lender sends a payoff to your old servicer. What remains after the payoff, financed costs, and any required lien payoffs is yours.
The FHA product is built for borrowers who want broad credit flexibility. Across the wholesale programs Lendmire places FHA loans with, the decision score starts at 580. Some lenders set a higher floor, which is called an overlay.
One boundary matters up front. FHA cash-out is for a home you live in. Occupancy decides the leverage, so a second home or rental does not follow these rules.
Who Qualifies?
Qualifying comes down to five checks: ownership and occupancy, payment history, credit, income against debt, and equity. Miss one and the file stalls, so it helps to know how each is verified before you apply.
| Requirement | What the lender checks | How it’s verified |
|---|---|---|
| Ownership and occupancy | 12 months as your principal residence | Records, bills, tax and ID addresses |
| Payment history | 12 months of on-time payments | Mortgage statements, credit report |
| Credit | Decision score, recent credit events | Credit report, automated finding |
| Debt ratios | Housing and total debt vs. income | Pay records, liabilities |
| Equity | At least 20% left after payoff | Full appraisal |
Occupancy clock. At least one borrower must have owned and lived in the home for the 12 months before the FHA case number is assigned. The clock runs to the case number, not to closing. A buyer who bought recently cannot take a standard cash-out, however much the home has gained.
Payment history. The lender verifies 12 months of mortgage payments, typically through a verification of mortgage or the credit report. Any forbearance or loan modification needs its own paperwork. Think of it as a separate test from ownership. You can pass one and fail the other.
Credit. The wholesale programs Lendmire places FHA loans with start at a decision score of 580. Past credit events carry HUD waiting periods: two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise from any one lender.
Debt ratios. Lenders compare your housing payment to income, then your total monthly debts to income. The base pair is 31/43 (housing and total) with no compensating factors. Documented compensating factors, such as strong reserves or a proven record of paying more housing cost than you will owe now, can reach 40/50 at the top tier. An automated underwriting finding governs most files, so these limits are the exception.
Equity. Because financing stops at 80%, you must keep at least 20% equity. Anything less and there is nothing left to cash out.
How Is the Cash Amount Calculated?
Start with the adjusted value, multiply by 80%, then subtract your payoff and financed costs. What is left is your cash. A low appraisal hurts more than it looks, because the payoff comes out first and does not shrink.
HUD Mortgagee Letter 2019-11 set the 80% cap on both loan-to-value and combined loan-to-value. HUD said it wanted a stronger equity cushion on cash-out loans. The cap is measured against “adjusted value,” which is the appraised value after HUD’s adjustments. HUD’s press release says the cap fell from 85% to 80%, after an earlier cut from 95% to 85%. It also says the new limit lines up with the cash-out maximum Fannie Mae and Freddie Mac allow.
So any page promising 85% or 95% is out of date. Here is a modeled example, using percentages of value only:
| Line | Share of adjusted value |
|---|---|
| Adjusted value | 100% |
| Maximum new loan | 80% |
| Existing mortgage and liens paid off | 60% (assumed) |
| Room under the cap | 20% |
| Less financed costs and premium | Shown on your Loan Estimate |
| Cash to you | What remains |
Now watch what a weak appraisal does. Say the home appraises 5% below what you expected. Measured against that lower value, the 80% cap shrinks the maximum loan by about 5%, so the new loan limit falls by roughly four points of your expected value. Your payoff still sits at 60% of the original value. The room under the cap shrinks from 20 points to about 16, so a 5% value miss cuts your cash by about a fifth.
The new loan also cannot exceed the FHA mortgage limit for your county and unit count. County loan limits apply, and they change every year. Your lender can tell you the limit for your county.
Mortgage insurance. FHA charges an upfront premium of 1.75% of the base loan, which is usually financed. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV. On a thirty-year loan at or below 90% LTV, the annual premium ends after eleven years. Cash-out tops out at 80%, so that is the bucket you land in. Your lender confirms the exact tier.
How Do You Apply, Step by Step?
You apply by working through six stages in order: pick a lender, complete the application, receive the Loan Estimate, order the appraisal, go through underwriting, then review the Closing Disclosure. Here is what happens at each stage.
1. Choose a lender or broker. A broker like Lendmire arranges the loan through wholesale lenders. It does not lend. Ask whether the lender applies overlays beyond FHA’s published rules.
2. Complete the application. You list income, debts, assets, and your current mortgage. You also authorize a credit pull.
3. Review the Loan Estimate. Within the form’s Costs at Closing table, you will see estimated closing costs and estimated cash to close. A separate line shows costs financed from the loan amount. Cash to close and total closing costs are different numbers.
4. Get the appraisal. A full appraisal sets the value. It drives the 80% cap, so it is the single largest swing factor in your cash.
5. Go through underwriting. FHA files typically run through an automated scorecard that returns an Accept or a Refer. A Refer means manual review of the file, usually with tighter limits.
6. Review the Closing Disclosure. Compare it line by line against the Loan Estimate before you sign. At closing, your old loan is paid off and the remaining proceeds are yours.
Costs can be paid out of pocket, deducted from your proceeds, or financed. Financed costs sit inside the capped loan and reduce your cash. That choice is yours.
What Documents Should You Gather?
For everyone:
- Government ID and Social Security number
- Your latest mortgage statement, plus statements for any second loan or line of credit
- Homeowners insurance declarations page
- Two months of bank statements
- Proof you have lived in the home, such as utility bills in your name
If you are an employee: recent pay records and W-2s.
If you are self-employed: personal and business income documentation, typically for two years, plus a year-to-date profit-and-loss statement if the lender asks.
If you have a forbearance, modification, or past credit event: the paperwork that documents it, including the date it ended or was discharged.
Where Does the General Rule Break?
The 12-month, 80%, and primary-residence rules cover most files. A few situations bend them, and knowing which one you are in saves you a wasted application.
Inherited property you rented out. A borrower who inherits a home and rents it cannot take a cash-out until they have lived in it as a principal residence for at least 12 months. The rule is found in the HUD Single Family Housing Policy Handbook 4000.1, which is the policy source lenders work from.
Owned the home for less than 12 months. A standard cash-out is generally off the table. The FHA rate-and-term refinance is a different path. It reaches 97.75% on a principal residence occupied for the previous twelve months, but it allows only incidental cash back.
Current loan is not FHA. This one surprises people. A conventional, VA, or other first mortgage can be paid off with an FHA cash-out, as can a home with no mortgage. Only the FHA Streamline requires an existing FHA loan, and it is a no-cash-out product with no appraisal and a limited credit review.
A second mortgage or HELOC. Lenders treat second liens case by case. Ask early whether yours must be paid from the new loan, because that payoff comes out of your cash.
Buying out a co-owner. Any cash the borrower keeps beyond the payoff makes the loan a cash-out. That includes a divorce buyout or a sibling’s share of a home.
Hawaiian Home Lands (Section 247). The 80% change did not apply to these mortgages. They also carry no annual mortgage insurance premium. It is a narrow carve-out, but it exists.
If you served in the military, VA has its own cash-out path with different rules.
How Does It Compare With the Alternatives?
FHA cash-out replaces your whole mortgage, while a home equity loan or HELOC adds a second loan on top of it. Which one fits depends on whether your current loan is worth keeping and how much equity you can reach.
| Option | Your current mortgage | Cash back | Existing FHA loan needed? |
|---|---|---|---|
| FHA cash-out | Replaced | Yes, up to 80% LTV | No |
| FHA Streamline | Replaced | No | Yes |
| FHA rate-and-term | Replaced | Incidental only | No |
| Home equity loan or HELOC | Stays in place | Yes, via second loan | No |
The federal consumer agency’s guide, Using home equity to meet financial needs, lays out the same split between the three equity products. It also warns that turning equity into cash creates a debt you must repay. A cash-out can extend how long it takes to pay off the mortgage, since the term resets.
Why Do Applications Stall or Come In Short?
Most trouble traces back to a handful of causes, and each has a fix. Check this list before you apply, not after.
- The appraisal comes in low. Your cap shrinks and your payoff does not. Fix it by asking what comparable sales the appraiser used and, if warranted, requesting a review through your lender.
- You fall short of 12 months. The case-number clock has not run.
- A late payment appears in the 12-month window. The payment-history test fails. A lender can explain what is and is not allowed in your case.
- Debt ratios run too high. Paying off a small balance before applying can bring the total ratio down, though the new loan’s payment still counts.
- A second lien eats the cash. Learn the payoff before you count on the proceeds.
- Costs are larger than you planned. Financed costs reduce cash dollar for dollar. Read the Loan Estimate’s financed-costs line before you commit.
- A recent bankruptcy or foreclosure. HUD’s waiting periods apply, and some lenders add time.
Is It Worth It for You?
It is worth it when the cash solves a real problem and you are comfortable with a bigger balance on a reset term. It is a poor fit when the only draw is borrowing power you do not need.
A cash-out resets the term and raises the balance by the cash you take and the costs you finance, which can raise the monthly payment. The house is the collateral, so falling behind can lead to foreclosure. The federal consumer agency’s research on cash-out borrowers found they had lower credit scores, lower incomes, and smaller loans than people refinancing without cash. Serious delinquencies were rare among higher-score borrowers (see the agency’s research blog).
The choice depends on your current loan. If it has a structure you like, a second loan may preserve it, though it brings its own terms. If you need to replace the loan anyway, the cash-out is the cleaner single step.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Adjusted value: the appraised value after HUD’s adjustments, which is the number the 80% cap is measured against.
Case number: the identifier FHA assigns when a lender orders an appraisal. The 12-month occupancy clock counts back from it.
Overlay: a lender rule stricter than FHA’s own, such as a higher minimum credit score.
Compensating factor: a documented strength, like savings or a steady payment history, that lets a lender approve ratios above the base limits.
Upfront and annual premium: the two forms of FHA mortgage insurance. The upfront one is usually financed. The annual one is billed within the monthly payment.
Loan Estimate: the standard form that shows your loan terms, costs, and estimated cash to close.
Frequently Asked Questions
Do I need to already have an FHA loan to do an FHA cash-out refinance?
No. Conventional, VA, and other first mortgages can be paid off with an FHA cash-out, and so can a home with no mortgage. Only the FHA Streamline requires an existing FHA loan, and it does not provide cash back.
How much cash can I actually take out?
Up to the point where the new loan reaches 80% of the home’s adjusted value, after subtracting your payoff, any required lien payoffs, and costs you finance. A low appraisal or a large existing balance shrinks the cash. Subject to lender guidelines, county loan limits also cap the loan.
Can a higher credit score raise how much I can borrow?
No. The 80% cap is a value limit, so a better score does not lift it. Credit affects whether you are approved and on what terms. Across the programs Lendmire places loans with, 580 is the starting score, and some lenders require more.
Can I keep my second mortgage or HELOC?
It depends on the lender’s guidelines and the lien’s terms. Many files require the second lien to be paid off from the new loan, which reduces your cash. Raise it with your loan officer at the start so the numbers on the Loan Estimate hold up.
Can I take cash out on a home I bought less than a year ago?
Not through a standard cash-out. FHA requires 12 months of ownership and occupancy before the case number is assigned. The rate-and-term refinance is open to a home occupied for the previous twelve months, but it allows only incidental cash back.
Your 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. Every figure here is subject to lender guidelines and a full file review, and nothing here is a commitment to lend. Check your county’s FHA limit and your 12-month history first, because those two facts decide the most.
For your own numbers, request a scenario review with Lendmire.
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.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD press release PR 19-114
3. HUD Single Family Housing Policy Handbook 4000.1
4. CFPB, Using home equity to meet financial needs
5. CFPB Office of Research blog on cash-out refinances
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 Refinance Requirements to Go Fixed · Best FHA Cash-Out Refinance Program Without Bringing Cash · FHA Cash-Out Refinance Rules After a Title Change
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.