Last updated:
An FHA cash-out refinance replaces your current mortgage with a larger FHA-insured loan and pays you the difference in cash at closing. It is the most flexible way for a credit-challenged homeowner to reach home equity, and it is also the most tightly capped FHA refinance product — HUD limits it to 80% of appraised value.
Unlike a streamline, your existing loan does not have to be FHA. A conventional, VA, USDA, or fully paid-off property can be refinanced into an FHA cash-out loan.
LTV and loan-limit math
Two separate ceilings apply, and your loan amount is the lower of the two:
- 80% of the appraised value of the property (HUD Handbook 4000.1, II.A.8.d.vi).
- The FHA loan limit for the county where the property sits — check yours with our county limit lookup.
Worked example on a home appraising at $500,000 with a $280,000 payoff:
| Line | Amount |
|---|---|
| Appraised value | $500,000 |
| Maximum new loan at 80% LTV | $400,000 |
| Existing mortgage payoff | $280,000 |
| Estimated closing costs and prepaids | $9,000 |
| Upfront MIP financed at 1.75% | $7,000 |
| Approximate cash to borrower | $104,000 |
Note that financed upfront MIP is included inside the 80% cap — it is not added on top of it. If the county limit were $400,000 or lower, the county limit would govern instead of the value calculation.
Seasoning rules
HUD applies three separate seasoning tests, and all of them must be satisfied:
- Ownership seasoning. The borrower must have owned the property for at least 12 months before the FHA case number assignment. If the property was inherited or acquired through a legally awarded divorce settlement, the 12-month rule can be satisfied differently.
- Occupancy seasoning. The property must have been the borrower's principal residence for the 12 months preceding case number assignment. Investment and second homes are not eligible.
- Payment seasoning. Where a mortgage lien exists, at least 12 monthly payments must have been made, each paid within the month due for the prior 12 months. On a loan less than 12 months old, all payments since origination must be on time. A property owned free and clear needs no payment history.
If the home was purchased with cash within the last 12 months, ownership seasoning is not met and a delayed financing style FHA cash-out is not available — that is a conventional-only structure.
Credit, income and property requirements
| Requirement | Standard |
|---|---|
| Minimum credit score (HUD) | 500 floor; 580 for the standard program. Lender overlays of 600 to 620 are common on cash-out |
| Maximum LTV | 80% of appraised value |
| Occupancy | Principal residence only |
| Appraisal | Full interior/exterior appraisal by an FHA Roster appraiser, subject to Minimum Property Requirements |
| Income documentation | Full documentation — pay stubs, W-2s, tax returns for self-employed, written or electronic verification of employment |
| Debt-to-income | Determined by TOTAL Scorecard findings or manual-underwriting ratios with documented compensating factors |
| Mortgage insurance | Upfront MIP of 1.75% plus annual MIP for the life of the loan at above 90% LTV; at 80% LTV the annual factor is at the lower end of the schedule |
| Property types | 1 to 4 units, with the borrower occupying one unit |
Employment must be verified under the current Handbook 4000.1 written and electronic verification-of-employment standards, with reverification close to closing. Our underwriting checklist lists the exact items.
Step-by-step process
- Establish your equity position. Pull recent comparable sales and estimate value conservatively — 80% of a realistic value, not a hopeful one, sets your true ceiling.
- Confirm seasoning. Verify 12 months of ownership, 12 months of occupancy, and 12 months of on-time payments before spending money on an appraisal.
- Check the county limit. Run your county through the limit lookup; in lower-limit counties the limit, not the 80% rule, usually governs.
- Document income and assets. Two recent pay stubs, two years of W-2s, two years of returns if self-employed, and two months of statements for any account being used for reserves.
- Apply and receive your Loan Estimate. Review the APR, the financed upfront MIP, and the annual MIP factor — not just the note rate.
- Appraisal. The FHA Roster appraiser establishes value and inspects against Minimum Property Requirements. Any health-and-safety repairs must be cured before closing.
- Underwriting and conditions. Expect conditions on large deposits, credit inquiries, and any address or employment gap. Respond same-day; response speed is the single biggest driver of the timeline.
- Clear to close and CD delivery. Your Closing Disclosure must be in hand at least three business days before signing.
- Sign, then wait out rescission. On a primary residence refinance, federal law gives you a three-business-day right of rescission. Funds disburse after it expires — so cash arrives roughly four business days after signing, not the same day.
Plan on 30 to 45 days from application to funding.
When a cash-out makes sense — and when it does not
Reasonable uses: consolidating high-rate revolving debt, funding a renovation that adds durable value, covering a documented emergency, or buying out a co-owner in a divorce.
Weak uses: converting unsecured debt into 30-year secured debt without changing the spending behavior that created it, or pulling equity for a depreciating purchase. A cash-out puts your home behind that debt.
FHA cash-out vs the alternatives
| FHA cash-out | FHA streamline | Conventional cash-out | HELOC | |
|---|---|---|---|---|
| Maximum LTV | 80% | Balance-based, no cash | Commonly 80% | Varies by lender |
| Existing loan must be FHA | No | Yes | No | No |
| Appraisal | Required | Not required | Usually required | Often required |
| Credit flexibility | Highest | N/A (no credit decision on non-credit-qualifying) | Lowest | Moderate |
| Mortgage insurance | FHA MIP applies | FHA MIP continues | None at 80% LTV | None |
| Touches your first mortgage rate | Yes | Yes | Yes | No |
If you hold a low fixed rate on your first mortgage, replacing it to reach equity can cost more than the cash is worth. In that situation compare a second lien or HELOC before refinancing the whole balance. If your credit is the limiting factor, FHA cash-out is usually the only 80% option available.
Everything above reflects HUD Handbook 4000.1 as amended through Update 18. Eligibility, terms, conditions, and availability vary by borrower, property, lender, loan program, and state. All loans are subject to lender underwriting and approval. This is educational information, not an offer to lend or a commitment to make a loan.