The Quick Read: Keeping closing costs and upfront MIP from shrinking an FHA cash-out comes down to two different levers, because the two costs behave differently. Closing costs financed inside the loan use up the same 80% room your cash comes from, so every financed dollar is a dollar less cash. The upfront premium, when financed, sits on top of the capped loan and raises your balance instead. Shop the fees you can shop, size the cash request honestly, and decide on purpose whether to finance or pay the premium.
What an FHA Cash-Out Actually Gives You
An FHA cash-out refinance replaces your current mortgage with a new FHA loan that is larger than what you owe. The difference, after payoff and costs, comes to you as cash. This article covers the part people miss: how the costs eat into the cash.
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 FHA cash-out reaches 80% loan-to-value (LTV, the loan balance divided by the home’s appraised value). The home must be owned and occupied as your primary residence for 12 months before the case number is assigned, so a home owned for less time generally does not qualify for a standard cash-out. That is the ceiling, not a promise. Credit, income and the full file still have to qualify, subject to lender guidelines.
The 80% figure has not always been the rule. HUD Mortgagee Letter 2019-11 cut the cash-out limit from 85% to 80% of adjusted value, citing risk to the FHA insurance fund. Some older web pages still show 85%. Ignore them.
Key Terms Defined
Base loan amount: the mortgage amount before any financed upfront premium is added. The 80% cap applies to this number.
Upfront mortgage insurance premium (UFMIP): a one-time premium calculated as a percentage of the base loan. You can finance it or pay it in cash, and a qualified local professional or your lender can confirm the current amount for your loan.
Annual mortgage insurance premium (MIP): a yearly premium, paid in monthly pieces, between 0.15% and 0.75% of the balance depending on term, loan amount and LTV.
Adjusted value: the value HUD uses for the LTV test. On a home you have owned 12 months or more, it is the appraised value.
Combined LTV (CLTV): the base loan plus any other liens on the home, divided by adjusted value. The cap is also 80%.
Net proceeds: the cash that actually reaches you after the payoff, financed costs and any premium paid in cash.
How the Cash Gets Calculated, Step by Step
Think of the 80% cap as a bucket with a fixed size. The appraisal sets the size. A low appraisal shrinks the bucket directly, and that is the biggest swing factor in the whole deal.
1. Appraisal sets the ceiling. Adjusted value times 80% gives the maximum base loan.
2. The payoff comes out first. Your current mortgage balance, and any other liens you must clear, go in the bucket before anything else.
3. Financed closing costs and prepaids go in next. These share the same bucket. Roll in a dollar of fees and you have a dollar less cash.
4. What is left is your cash. That remainder is your net proceeds.
This is arithmetic of the cap, not a special HUD rule about fees. The bucket is only so big, and everything financed inside it competes for the room.
If you have a second lien that stays in place, the CLTV test counts it too. That leaves even less room.
Why Upfront MIP Behaves Differently
The upfront premium is the one cost that does not compete for your 80% room. The premium may be financed into the mortgage and is not counted in the LTV and area-limit tests. HUD’s own MIP appendix states the premium as 1.75% of the base loan.
So a financed premium sits on top of the capped base loan. Your cash from the bucket stays the same. What changes is the note balance, which grows by the premium. A bigger balance means more interest over time and a higher monthly payment.
Two points trip people up.
The premium is not a lender fee. HUD sets it as a percentage of the base loan. You cannot negotiate it down with a lender.
It is all or nothing. The premium is generally either fully financed or fully paid in cash. A partial split is not the usual path. Confirm the details against the current HUD handbook with your loan officer.
If you pay it in cash, it comes out of your savings or your cash at closing. You trade a smaller balance for less cash in hand. Neither choice is wrong. It depends on whether you need every dollar of cash now or would rather carry a smaller balance.
The Levers That Protect Your Cash
Here is where you can actually move the numbers. Some levers shrink costs. Others shift when you pay them.
| Lever | What it does | Trade-off |
|---|---|---|
| Shop Section C services | Lowers title and settlement costs | Takes comparison effort |
| Compare Loan Estimates | Exposes padded fees | Needs two or more estimates |
| Right-size the cash request | Shrinks base loan and UFMIP | Less cash in hand |
| Pay the UFMIP in cash | Keeps balance smaller | Needs cash at closing |
| Use the UFMIP refund credit | Offsets new premium | Only FHA-to-FHA, within window |
Shop what you are allowed to shop
Page 2 of your Loan Estimate lists services in Section C. The CFPB explains that you can shop for these, and title services are the largest cost in that group. Which services are shoppable varies by lender. The CFPB also warns against assuming the providers your lender suggests were picked for low prices or good service.
Shopping matters more on a cash-out than people expect, because every financed fee comes straight out of your cash.
Know which fees can move
The CFPB sorts closing costs into three groups: costs that cannot rise at all, costs that can rise up to 10% in total, and costs that can change by any amount. Prepaid interest, property insurance premiums and initial escrow deposits fall in the last group. Services you pick from the lender’s written list fall in the 10% group. Lender charges and affiliate charges fall in the group that cannot rise at all.
Practical takeaway: compare your Loan Estimate to your Closing Disclosure line by line. If a charge went past its limit, the lender must correct it. A change in circumstances can allow revised figures, so ask what changed.
Right-size the cash request
Do you need the maximum? A smaller cash request means a smaller base loan, and therefore a smaller upfront premium in dollar terms. It also means a smaller payment and less interest over the life of the loan.
Here is a thinking-out-loud example. Say your home appraises at a value where 80% leaves room for a payoff, costs, and a good chunk of cash. You need only about half that chunk for a roof. Taking the full amount adds premium, adds balance, and adds payment for cash you did not need. The stronger play is usually to take what the project requires plus a modest cushion, though someone with several debts to clear might reasonably decide otherwise.
Financing versus paying cash for costs
Rolling costs in feels painless. It is not free. You pay interest on every financed dollar for as long as you keep the loan. Paying costs from savings protects your cash from the 80% bucket and keeps your balance lower. But it drains savings, which matters if cash is the whole reason you are refinancing.
If you might sell or refinance again soon, financing preserves liquidity with less long-run penalty. Run both versions on the Loan Estimate before choosing.
FHA-to-FHA refinance and the UFMIP refund credit
If your current loan is FHA and you refinance into another FHA loan, part of your old upfront premium may come back as a credit. The credit shrinks each month and ends at 36 months.
Treat it as an offset against the new premium, not a check in your hand. Selling, or refinancing into a conventional, VA or USDA loan, produces no credit.
Annual MIP does not drop off like PMI
People assume FHA mortgage insurance falls off once they reach 80% equity. It does not. Duration follows your original LTV. On a thirty-year loan above 90% LTV, annual premium lasts the full term. At or below 90%, it ends after eleven years, as the HUD MIP appendix lays out. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
A cash-out is capped at 80%, which is below the 90% line, so the eleven-year tier applies. The practical effect: you carry annual premium for years, and the only way out earlier is a later refinance, which brings its own costs and qualifying.
Homes owned less than 12 months
Owned under 12 months generally means no standard cash-out. HUD also defines adjusted value differently for newer owners. If you are inside that window, the rate-and-term refinance or simply waiting may fit better.
Inherited homes and non-occupant co-borrowers
If you inherit a home and rent it out, you cannot do an FHA cash-out until you have lived there as a principal residence for 12 months. A non-occupant co-borrower’s income cannot be used to qualify for a cash-out. Confirm these details against the live HUD Handbook 4000.1 before relying on them.
Rental or second homes
Occupancy decides leverage, and a standard FHA cash-out applies only to your principal residence. Move on if the home is not yours to live in.
When the Streamline is the better tool
If you only want to change your loan and do not need cash, an FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. The premium continues. There is no cash-back purpose, so it avoids the cash-out cap entirely. It is a different product, not a cheaper version of cash-out.
Your Decision Order in Practice
Most people decide in the wrong order. They pick a cash target first, then discover the costs. Flip it.
1. Start with the appraisal. Your ceiling is value times 80%. Everything else fits under it.
2. List your payoffs. Existing mortgage, liens, any debts you plan to clear.
3. Pick the cash you truly need. Choose the amount your purpose requires, not the maximum.
4. Compare Loan Estimates. Get more than one. Check Section C.
5. Decide finance versus cash for the closing costs and for the upfront premium, separately.
6. Check the Closing Disclosure against the Loan Estimate for any charge that went past its limit.
If the numbers leave you short of your target, you have three honest options: ask for less, pay some costs from savings, or wait and revisit. A smaller cash-out is often better than the maximum when the cash covers a single purpose and the rest would sit unused.
Myths Worth Dropping
- “FHA cash-out goes up to 85%.” It was cut to 80%.
- “Financing the premium eats my 80%.” It raises your balance, not your cap usage. Financed closing costs do use the room.
- “I get my old premium back.” Only as a declining credit, and only FHA-to-FHA.
- “I must use the lender’s title company.” Not for Section C services.
- “The Loan Estimate is just a guess.” Costs fall in no-increase, 10% and no-limit groups.
Frequently Asked Questions
Does financing the upfront MIP reduce the cash I get?
Not from the 80% cap. HUD’s guidance excludes the financed premium from the LTV test, so it sits on top of your base loan. It does raise your balance, your interest over time and your payment. If you pay it in cash instead, that money comes from your savings or your proceeds.
Can I roll closing costs into an FHA cash-out?
Yes, within the cap, subject to lender guidelines. Financed costs share the same 80% room as your payoff and your cash, so each financed dollar is a dollar less in your pocket. Paying some costs from savings keeps more cash from the loan.
Which closing costs can I shop for?
Services listed in Section C of page 2 of the Loan Estimate, such as title and settlement services. Which ones are shoppable varies by lender. Lender charges and affiliate charges generally cannot be shopped or increased past their limits.
Do I get my old upfront premium back if I refinance FHA to FHA?
Partly, as a credit that shrinks each month and ends at 36 months. It offsets the new premium instead of arriving as cash. Moving into a conventional, VA or USDA loan produces no credit.
Is a smaller cash-out ever the better choice?
Often, yes. A smaller request shrinks the base loan, which shrinks the upfront premium, the balance and the payment. If the cash has one defined purpose, taking only that amount plus a cushion usually costs less than taking the maximum.
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 full file review, and none is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
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 Q&A: Calculating the FHA loan amount
3. HUD Appendix 1.0, Mortgage Insurance Premiums
4. CFPB: Shop for title insurance and closing services
5. CFPB: Can My Final Mortgage Costs Increase from What Was on My Loan Estimate
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 MIP an FHA Cash-Out Charges · FHA Cash-Out vs Conventional Cash-Out for a Homestead Spouse · How to Roll Closing Costs Into an FHA Cash-Out Without Cash to Close
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.