How an FHA cash-out refinance works
The new FHA loan pays off your current mortgage in full. Whatever is left after the payoff and closing costs comes to you as cash. You end up with one loan and one monthly payment, rather than a first mortgage plus a second lien.
- You apply, and the lender reviews your credit, income, assets and current mortgage
- An FHA appraisal sets the home's value, which decides how much you can borrow
- Underwriting confirms the occupancy and 12-month payment history rules
- At closing, the new loan pays off the old one, and on a primary residence you have a three-business-day right to cancel before the funds are released
From application to closing commonly takes 30 to 45 days, with the appraisal usually the main variable. Our guide on how refinancing a mortgage works covers each step in more detail.
FHA cash-out refinance requirements
The program sets a few firm rules. Lenders then add their own requirements on top, which is why it pays to compare more than one.
- Primary residence only. You must have owned and lived in the home as your primary residence for the last 12 months.
- On-time payments. Your mortgage payments over the last 12 months must have been made on time.
- 80% maximum. The new loan can be up to 80% of the appraised value.
- Credit and income. FHA is generally more flexible than conventional, but lenders review your credit and your debt-to-income ratio and set their own minimums, often above the FHA floor.
- Mortgage insurance. An upfront premium, usually rolled into the loan, plus an annual premium paid monthly.
It's a full-documentation loan: expect recent pay stubs, W-2s or tax returns, two months of bank statements, your current mortgage statement, ID and homeowners insurance. If you're self-employed and your returns understate your income, bank statement loans may be a better fit.
How much cash you could take out
The math is simple: appraised value × 80%, minus what you owe. Closing costs come out of that figure unless you pay them separately. The example below uses round, hypothetical numbers to show the arithmetic.
Hypothetical figures, chosen to show the math. They don't reflect any lender, rate or file, and they leave out closing costs and mortgage insurance.
| Appraised value | $400,000 |
|---|---|
| Maximum loan at 80% | $320,000 |
| Current mortgage payoff | $230,000 |
| Gross cash available, before closing costs | $90,000 |
If this homeowner only needs $40,000, borrowing less than the maximum keeps more equity in the home and a smaller balance going forward.
For illustration only. Not a commitment to lend, a rate lock or an offer of credit. Terms vary by lender, by property and by file.
To run your own numbers, use the cash-out refinance calculator with the value, balance and pricing you've been quoted.
FHA cash-out vs. conventional cash-out
Both commonly top out at 80% of the value on a primary home, so the difference is usually in qualifying and in cost, not in how much you can take.
A general comparison, not an offer. Caps, credit minimums and costs vary by lender and by file.
| Item | FHA cash-out | Conventional cash-out |
|---|---|---|
| Common cap, primary home | 80% | 80% (1 unit) |
| Occupancy | Primary home, owned and occupied 12 months | Primary, second home or rental |
| Mortgage insurance | Upfront and annual | None at 80% or below |
| Credit | More flexible | Stricter |
| Who it often suits | Lower scores or a higher debt-to-income ratio | Strong credit with 20%+ equity left |
If you can qualify for both, compare the total cost, including FHA mortgage insurance, rather than the headline rate alone.
For illustration only. Not a commitment to lend, a rate lock or an offer of credit. Terms vary by lender, by property and by file.
Our cash-out refinance page also covers VA cash-out for eligible veterans, which can go higher than 80% with some lenders.
When another option may cost less
A cash-out refinance reprices your whole balance, so the rate you already have is the deciding number.
- Your current rate is low. A HELOC or a fixed home equity loan leaves the first mortgage alone and prices only the cash you take.
- You have an FHA loan and only want a lower rate. An FHA streamline refinance usually involves less paperwork and often no appraisal, but it doesn't pay out cash.
- Your credit has improved. A conventional cash-out may avoid ongoing mortgage insurance if you'll keep 20% or more equity.
- The property is a rental. FHA doesn't apply. See investment property refinance instead.
Costs and trade-offs to weigh
- Closing costs apply, as on any refinance; our guide to the cost to refinance breaks them down
- FHA mortgage insurance adds an upfront premium and an ongoing monthly cost
- A new 30-year term restarts the clock on a loan you may have been paying for years
- Turning shorter-term balances into mortgage debt can cost more in total interest unless you pay it down faster
- Less equity leaves a smaller cushion if home values fall
See the cost to refinance a mortgage for a line-by-line look at fees and a worked break-even example. If you're new to FHA, FHA loans explains the program and how its mortgage insurance works.
Before you apply
8Twelve is a mortgage broker, not a lender. We compare your file across lenders in our network, put FHA cash-out side by side with conventional cash-out and a HELOC where they apply, and tell you if the numbers say not to refinance. A fit check takes a few minutes and starts with a soft-credit estimate.
