An FHA cash-out refinance replaces your current mortgage with a larger FHA-insured loan and pays you the remaining proceeds after required payoffs and closing charges. Your existing loan does not have to be an FHA loan. Eligible homeowners with a mortgage-free property can also apply.
Key Takeaways
- The 80% limit applies to the base loan. Net cash depends on mortgage payoffs, other liens and costs paid from the proceeds.
- Ownership, occupancy and payment history are separate tests. The usual ownership and occupancy requirement is 12 months before FHA case number assignment.
- Include both upfront and annual mortgage insurance. A lower advertised interest rate does not establish a lower total borrowing cost.
- Compare the whole mortgage. A home equity loan or HELOC may preserve an existing first mortgage that you prefer to keep.
The maximum base loan is generally 80% of the property's adjusted value, subject to the applicable mortgage limit and underwriting. That is a loan-size limit, not the percentage of your equity you receive in cash. Financed upfront mortgage insurance is calculated separately.
Before replacing a mortgage, compare the cash you need with the cost of refinancing the entire balance. This guide explains eligibility, a worked cash-out example, mortgage insurance and alternatives for Florida homeowners.
How FHA Cash-Out Refinance Works
The Federal Housing Administration insures the new mortgage; an FHA-approved lender makes and underwrites it. We act as your mortgage broker. We help you compare available options and prepare the application. Final approval comes from the lender.
The new loan pays off the old mortgage and any other debts required by the transaction. You receive the remaining cash when the loan funds. Home improvements and debt consolidation are common uses, but borrowing against your home also increases the amount secured by it.
This is a fully documented refinance requiring credit, income and property review. It is different from an FHA streamline refinance, which is for eligible existing FHA mortgages and does not provide cash-out proceeds. For the broader program, see our Florida FHA financing overview.
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FHA Cash-Out Refinance Requirements and Available Cash
Start with the property, payment record and available equity. Passing one requirement does not replace the others. The HUD Handbook 4000.1 cash-out rules apply alongside the lender's own underwriting requirements.
Ownership, occupancy and the 12-month rule
At least one borrower generally must have owned and occupied the home as a principal residence for the 12 months before FHA case number assignment. A second home or an investment property you do not occupy is not eligible for this cash-out program.
An inheritance exception can remove the minimum occupancy period if you have not treated the inherited property as an investment property. If you rented it out after inheriting it, you must occupy it as your principal residence for at least 12 months before cash-out refinancing.
Mortgage payment history and seasoning
All mortgage payments must have been made within the month due. HUD looks back 12 months, or to when the mortgages were obtained if that period is shorter. This applies to automated and manually underwritten loans. Payments on mortgages secured by the subject home must also be current within the month due for the month before disbursement.
If the property has a mortgage, the current loan must have at least six months of mortgage payments. This does not shorten the separate 12-month ownership and occupancy requirement. A property owned free and clear can qualify without an existing mortgage payment record.
If you received mortgage payment forbearance, HUD requires a completed plan on the subject property and at least 12 consecutive mortgage payments made within the month due after the plan ended. Provide the lender with any modification or forbearance records early.
Credit score, income and debt-to-income ratio
HUD's minimum decision credit score floor is 500, but that is not a promise of cash-out approval at that score. An FHA lender can require a higher minimum credit score or impose other restrictions. Ask which requirements apply to your actual file rather than relying on a universal 580 or 620 cutoff.
The lender verifies qualifying income and compares monthly debts with gross monthly income to calculate your debt-to-income ratio, or DTI. Manual underwriting ordinarily starts with 31% housing and 43% total-debt ratios; higher ratios require HUD's specified conditions. Automated underwriting evaluates the full application, and lender overlays still apply. Our FHA requirements guide explains that distinction in more detail.
Income from a non-occupant co-borrower cannot be used to qualify for an FHA cash-out refinance. For a one-unit home with an accessory dwelling unit, the ADU's rental income also cannot be used as qualifying income for this transaction.
Maximum LTV, your appraisal and condo eligibility
Loan-to-value, or LTV, compares the mortgage amount with the value accepted for lending. HUD caps cash-out LTV and combined loan-to-value (CLTV) at 80% of adjusted value. For a home owned at least 12 months, adjusted value generally uses the appraised value. A retained second lien must fit within the combined limit; it is not extra borrowing capacity above 80%.
The lender orders an appraisal to establish value and review FHA property acceptability. A lower appraisal reduces potential proceeds, and required repairs can affect closing. The applicable county and unit-count mortgage limit can also restrict borrowing even when the home has enough equity. Check HUD's mortgage limits lookup for the property and applicable year.
For a condominium, the unit and project must satisfy FHA requirements. Eligibility may rely on an FHA-approved project or an eligible Single-Unit Approval; ask the lender to check the project early. Our FHA-approved condo guide explains those paths.
Retained second-lien example: With a $400,000 adjusted value and a $20,000 second lien remaining in place, the 80% combined limit leaves a maximum base first mortgage of $300,000: $320,000 minus $20,000. Subtract the existing first-mortgage payoff and transaction costs from that smaller new loan to estimate cash. Do not subtract the retained lien a second time; it already reduced the first-mortgage limit.
Calculate net cash after payoffs and costs
A useful starting calculation is: base loan − required mortgage and lien payoffs − costs paid from proceeds = estimated net cash. Use payoff statements, not just the principal balance on your monthly statement.
Hypothetical example: a $400,000 home
- Appraised value, assumed equal to adjusted value
- $400,000
- Base loan at 80% LTV
- $320,000
- Existing mortgage payoff
- − $240,000
- Other required lien payoffs
- $0
- Assumed closing charges paid from proceeds
- − $8,000
The $8,000 is an illustration, not a fee quote. It excludes upfront mortgage insurance, which this example finances separately. Actual charges, prepaid items and escrow deposits may differ. The example assumes the borrower, property and mortgage amount qualify.
At 1.75% of the $320,000 base loan, upfront mortgage insurance is $5,600. Financing it produces a total starting mortgage balance of $325,600. HUD generally measures the LTV cap before financed upfront MIP, so this added premium does not create another $5,600 of spendable cash. It also means your final debt exceeds the base-loan figure.
If the accepted value were $380,000 instead, an 80% base loan would be $304,000. With the same $240,000 payoff and assumed $8,000 charges, estimated net cash falls to $56,000. Use our cash-out refinance calculator to test value and payoff assumptions; set its LTV assumption to 80% and enter your own costs. Its general model does not separately calculate FHA mortgage insurance.
Pros and Cons of an FHA Cash-Out Refinance
Potential advantages
- A lump sum for a defined expense. Proceeds can fund a renovation or another planned need without a revolving draw schedule.
- An option for eligible credit profiles. FHA qualification may provide an alternative when conventional cash-out financing does not fit, subject to lender approval.
- No existing FHA loan required. Qualified homeowners can refinance another mortgage type or a property owned free and clear.
- A chance to restructure debt. Paying selected debts through the transaction may simplify payments. Compare the total cost and repayment period before doing so.
Costs and risks
- You replace the entire first mortgage. A higher new rate applies to the refinanced balance, not just the cash you receive.
- Mortgage insurance adds expense. Upfront MIP and monthly annual-MIP installments apply even though the base loan leaves at least 20% equity.
- Fees and a longer term can offset payment savings. Financing closing costs adds debt; restarting a long repayment term can increase total interest.
- Your home secures the borrowing. Moving credit card balances into a mortgage puts the home behind that debt. Missed payments can lead to foreclosure.
FHA Cash-Out Refinance Rates and Mortgage Insurance
There is no single FHA cash-out refinance rate for every homeowner. Pricing depends on the market, credit profile, loan amount, loan term, rate-lock period, discount points and lender. Refinancing does not guarantee lower interest rates or a lower mortgage payment.
Compare written Loan Estimates obtained close together using the same loan amount, term and points. Review the interest rate, APR, lender fees and credits. Compare total monthly mortgage payments, including principal and interest, mortgage insurance, taxes and homeowners insurance; account for association dues separately. A lower escrow estimate is not necessarily a saving created by refinancing.
Upfront and annual mortgage insurance premiums
The standard upfront mortgage insurance premium is 1.75% of the base loan. It may be financed into the mortgage or paid entirely in cash. For a term longer than 15 years, a base loan of $726,200 or less and LTV of 90% or less, the annual MIP rate is 0.50%. A larger base loan in that same term and LTV category has a 0.70% rate. Terms of 15 years or less have a different schedule.
Under the current schedule, annual MIP for these cash-out loans generally lasts 11 years, or until the mortgage is paid off if sooner. It does not disappear immediately because you have 20% equity. Annual MIP is collected through monthly installments; ask the lender for the actual payment schedule rather than treating an initial estimate as fixed for the whole term. See HUD's mortgage insurance premium schedule.
If you are refinancing an existing FHA loan into another FHA-insured mortgage within three years, a qualifying upfront-MIP refund credit may reduce the new upfront premium. Have the lender calculate the applicable credit; it is not a cash refund promised by this example.
Florida closing costs and the cost of keeping the loan
Request an itemized estimate for lender charges, appraisal, title and settlement services, recording charges and applicable Florida mortgage taxes. Separate those expenses from prepaid interest and new escrow deposits. The settlement agent should confirm which taxes or exemptions apply to your refinance; a flat percentage estimate cannot capture every transaction.
Compare the current mortgage and proposed loan over the period you expect to keep them, including remaining balances and interest. A simple payment break-even calculation can mislead when you also take cash out or extend the term. Our Florida mortgage refinance guide explains the broader cost comparison.
Compare FHA Refinance and Home Equity Options
Compare these options using the same cash requirement and expected repayment period.
Conventional cash-out refinance
Compare an eligible conventional loan if your credit and income support it. Conventional financing at 80% LTV or less generally does not require private mortgage insurance. That can avoid FHA's upfront and annual premiums, but eligibility and the offered interest rate still matter. See our conventional mortgage options. Ask for equivalent loan amounts and terms so a lower payment does not hide a larger balance or longer repayment period.
HELOC or home equity loan
A second mortgage can leave your current first mortgage in place. A home equity loan generally provides a lump sum; a home equity line of credit (HELOC) provides a credit line with program-specific draw and repayment periods. Compare both payments, fees and any variable-rate exposure.
FHA streamline refinance
If your goal is to change an existing FHA mortgage without taking cash out, review the separate FHA streamline eligibility and benefit tests. Its documentation and mortgage-amount rules differ from cash-out refinancing.
Keep your current mortgage
Borrowing less, postponing a project or paying down debt without refinancing may cost less overall. Compare these choices when the new mortgage would replace a favorable current rate.
Documents and the FHA Cash-Out Loan Process
Before applying, assemble information that lets a mortgage broker and lender assess the transaction:
- Current mortgage statements and details of every lien or home equity line on the property.
- Ownership and occupancy dates, with records such as utility bills where requested.
- Recent pay stubs and W-2s for employment income, tax returns and business records when required, and recent bank or asset statements. The lender will specify the documents needed for your income type.
- Mortgage payment history and any modification, forbearance or major credit-event documentation.
- Property address, unit count, insurance information, association dues and known repair issues.
- Your target net cash amount and intended repayment plan.
After you submit the application, the lender verifies the file, orders the appraisal and resolves underwriting conditions. Review the Closing Disclosure against your Loan Estimate before signing. We can help organize this process and compare available lender options. The approval decision stays with the lender.
For most refinances secured by a principal residence, a three-business-day right of rescission delays disbursement after signing and receipt of the required notices and disclosures. The CFPB explains how the cancellation period is counted. Confirm the funding date before committing the proceeds to a bill or contractor.
Have your property value estimate, current payoff and desired cash amount ready when you request a refinance quote. If you are ready to provide your loan information, use the secure mortgage application.
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FHA Cash-Out Refinance FAQs
Can I get an FHA cash-out refinance if my home is paid off?
Yes. HUD permits a cash-out transaction on a property owned free and clear. You still must meet the applicable ownership, occupancy, credit, income, appraisal and loan-limit requirements. The absence of an old mortgage does not remove underwriting.
Does FHA allow cash-out refinancing on a manufactured home?
Potentially. The home must meet FHA property requirements and have been permanently installed on a site for more than 12 months before case number assignment. The usual borrower, ownership, occupancy and cash-out rules also apply, and lenders may have additional restrictions.
Can a non-occupant co-borrower help me qualify?
Income from a non-occupant co-borrower cannot be used to qualify for an FHA cash-out refinance. Do not assume the co-borrower rules described for an FHA purchase apply to this transaction.
What happens to an existing HELOC when I refinance?
The lender must account for the HELOC and other liens. A lien may need to be paid off or approved to remain subordinate to the new mortgage. Retained subordinate financing must meet FHA's 80% combined loan-to-value limit and the lender's requirements, so it can reduce the available new loan amount.
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Sources & Further Reading
- FHA Handbook 4000.1: cash-out refinance and mortgage insurance rulesHUD · Sections II.A.8.d.v and II.A.2.a.iii; Appendix 1. Ownership, payment history, LTV, financed upfront MIP and insurance duration.
- Mortgage insurance premium scheduleHUD · Mortgagee Letter 2023-05. Upfront and annual premiums by loan amount, term and LTV.
- FHA mortgage limits by county and property sizeHUD · Official lookup. Select the applicable year, county and unit count.
- How the refinance cancellation period worksConsumer Financial Protection Bureau · Timing of the right of rescission.
- Conventional mortgage insurance requirementsFannie Mae · Selling Guide B7-1-01. How the 80% LTV threshold affects required mortgage insurance.
- FHA condominium approval pathsHUD · Project approval and Single-Unit Approval for condominium financing.
