Cash-Out Refi · LTV Limits · MIP Rules
FHA Cash-Out Refinance: LTV Limits, Credit Requirements, and When It Beats a Conventional Cash-Out
HUD Handbook 4000.1 — FHA Refinance Requirements
HUD — Section 203(b) Mortgage Insurance
FHA cash-out refinances allow up to 80% LTV, require a minimum 580 FICO score for most lenders, and carry both upfront and annual MIP. The program is most valuable for borrowers with credit scores between 580 and 680 who cannot qualify for conventional cash-out terms.
Next step:
Compare Mortgage Offers
Key Requirements
- Credit score: FHA minimum is 500, but most lenders require 580 to 620 for cash-out refinances through overlays
- LTV limit: Maximum 80% loan-to-value — you must retain at least 20% equity after the cash-out
- Occupancy: The property must be your primary residence — investment properties and second homes are not eligible
- Action: Calculate your current equity — you need at least 20% to qualify for any cash-out amount
Seasoning Rules
- Ownership: You must have owned and occupied the property for at least 12 months before applying for an FHA cash-out refinance
- Payment history: At least 6 months of on-time mortgage payments on the existing loan are required, with no more than one 30-day late in the past 12 months
- Inherited properties: Properties acquired through inheritance may have modified seasoning requirements depending on the lender
- Action: Verify your payment history and ownership timeline before applying to avoid processing delays
MIP Costs
- Upfront MIP: 1.75% of the new loan amount, which can be financed into the loan balance
- Annual MIP: Typically 0.55% of the loan balance per year, paid monthly as part of your mortgage payment
- Duration: MIP is permanent on FHA loans originated with more than 10% down — most cash-out refinances carry MIP for the life of the loan
- Action: Factor MIP into your cost comparison — FHA cash-out with MIP may cost more monthly than conventional with PMI that cancels
Best Use Cases
- Sub-680 credit: FHA cash-out is often the only option for borrowers with 580 to 680 FICO who need equity access
- Debt consolidation: Rolling high-interest debt into a lower-rate FHA mortgage can reduce total monthly payments significantly
- Home improvement: Using equity for value-adding renovations can increase both property value and quality of life
- Action: Compare FHA cash-out terms against HELOC and conventional cash-out before committing
Frequently Asked Questions
How much cash can you take out with an FHA refinance?
Can you do an FHA cash-out on a conventional loan?
Is there a waiting period for an FHA cash-out refinance?
The Bottom Line Up Front
FHA cash-out refinance lets you tap up to 80% of your home’s value with lower credit requirements than conventional cash-out programs. The trade-off is permanent MIP that adds to your monthly payment for the life of the loan.
The FHA cash-out refinance fills a specific gap in the market: borrowers who have significant home equity but credit scores below 680 where conventional cash-out terms become expensive or unavailable. If your FICO is above 700, a conventional cash-out will almost always cost less over time because PMI cancels at 80% LTV while FHA MIP does not. Below 680, FHA cash-out becomes competitive because conventional pricing penalties for lower scores offset the MIP cost difference.
- Maximum LTV is 80% — you must keep at least 20% equity in the property after the cash-out
- FHA minimum credit score is 500, but most lenders set their cash-out overlay at 580 to 620 — very few lenders approve FHA cash-out below 580
- Upfront MIP of 1.75% is added to the loan balance, and annual MIP of 0.55% is permanent on most FHA cash-out loans
- The property must be your primary residence with at least 12 months of ownership and 6 months of on-time mortgage payments
What Are the FHA Cash-Out Refinance Requirements?
The requirements combine borrower qualification (credit, income, DTI) with property and timing requirements (ownership seasoning, payment history, primary residence). All must be met simultaneously.
FHA cash-out is a full qualification refinance — unlike an FHA Streamline, the lender must verify your income, assets, employment, and credit. A new appraisal is required to establish the current property value. The property must meet FHA minimum property standards, which means the appraiser will evaluate the home for health, safety, and structural soundness in addition to market value.
- Credit score: 580 minimum for most lenders, with some allowing 500 to 579 at reduced LTV — FHA does not set an official cash-out minimum, but lender overlays are strict on this product
- DTI ratio: TOTAL Scorecard approves up to 56.99% DTI with compensating factors, but most lenders cap FHA cash-out at 43% to 50% DTI through overlays
- Employment: 2-year employment history required, with income documented through pay stubs, W-2s, and tax returns — self-employed borrowers need 2 years of tax returns
- Property: must be a 1 to 4-unit primary residence — the appraiser must determine that the property meets FHA minimum property standards at the time of the refinance
- Payment history: at least 6 on-time payments on the current mortgage, with no more than one 30-day late in the most recent 12 months
How Do FHA Cash-Out LTV Limits Compare?
FHA caps cash-out at 80% LTV. Conventional cash-out goes to 80% as well, but with risk-based pricing that penalizes lower credit scores. The LTV ceiling is the same — the difference is the cost.
At 80% LTV, you are borrowing against 80% of your home’s current appraised value and keeping 20% equity. If your home appraises at $400,000, the maximum new loan amount is $320,000. Subtract your current mortgage balance and closing costs to calculate the net cash you receive. The upfront MIP of 1.75% is added to the loan amount, which slightly reduces your net cash.
- FHA cash-out: 80% LTV maximum, upfront MIP of 1.75% financed into the loan, annual MIP of 0.55% permanent — net effective LTV is approximately 81.4% after financing MIP
- Conventional cash-out: 80% LTV maximum, no upfront mortgage insurance, PMI required above 80% LTV but cancels at 80% — however, loan-level price adjustments penalize scores below 700 significantly
- VA cash-out: 100% LTV for eligible veterans, no mortgage insurance, VA funding fee of 2.15% to 3.3% depending on use — the highest LTV cash-out option available
- For borrowers with 580 to 660 credit, FHA cash-out rates are typically 0.25% to 0.75% lower than conventional rates at the same LTV because conventional LLPAs are punitive at those score levels
Deal Math
Run the lifetime cost comparison before choosing FHA or conventional cash-out. On a $250,000 loan, permanent FHA MIP at 0.55% costs $1,375 per year. Conventional PMI at 0.50% on the same loan costs $1,250 per year but cancels when you reach 78% LTV. If you plan to stay in the home long-term, the conventional option is cheaper even at a slightly higher rate because the PMI eventually disappears.
When Does FHA Cash-Out Beat Conventional Cash-Out?
FHA wins for borrowers with credit scores between 580 and 680. Above 700, conventional is almost always cheaper. Between 680 and 700, run the numbers both ways because the crossover depends on your specific LTV, loan amount, and how long you plan to keep the loan.
The cost comparison comes down to three factors: interest rate, mortgage insurance cost, and how long you keep the loan. FHA rates are more favorable at lower credit scores because FHA does not use risk-based pricing the way Fannie Mae and Freddie Mac do. But FHA’s permanent MIP eliminates that advantage over time for borrowers who plan to stay in the home for more than 5 to 7 years.
- 580 to 619 credit: FHA is typically the only viable cash-out option — conventional lenders either deny or price prohibitively at these scores
- 620 to 679 credit: FHA usually offers a lower rate and monthly payment — conventional LLPAs at these score levels add 1.0% to 2.5% in pricing adjustments that inflate the rate
- 680 to 699 credit: the crossover zone — compare total cost including MIP vs PMI, rate differences, and planned holding period before choosing
- 700 and above credit: conventional wins on both rate and total cost because LLPAs are minimal and PMI cancels while FHA MIP does not
The Bottom Line
FHA cash-out refinance is the right tool for borrowers with significant equity and credit scores between 580 and 680 who need cash access. Above 700, conventional cash-out is cheaper. The permanent MIP is the main drawback — factor it into your total cost comparison and plan for a future refinance to conventional when your score improves.
The best strategy for many FHA cash-out borrowers is to use the product now to access the equity they need, then refinance to conventional once their score reaches 700 or above to eliminate the permanent MIP. This two-step approach captures the FHA advantage when you need it and exits the MIP penalty when you no longer need the credit score flexibility.
Frequently Asked Questions
Can I use FHA cash-out proceeds for anything?
Yes. FHA does not restrict how you use the cash-out proceeds. Common uses include debt consolidation, home improvements, education expenses, emergency funds, and major purchases. The funds are deposited into your account at closing and are yours to use however you choose.
Does FHA cash-out require an appraisal?
Yes. A full FHA appraisal is required for every cash-out refinance. The appraiser determines the current market value of the property and verifies that it meets FHA minimum property standards. The appraisal must be ordered through FHA’s connection portal and cannot be transferred from a previous transaction.
Can I do an FHA cash-out on a home I inherited?
Potentially, but the seasoning requirements may differ. If you inherited the property and have been living in it as your primary residence, some lenders will count the inheritance date as the ownership start date. You still need at least 12 months of ownership and 6 months of on-time mortgage payments on any existing loan.
What are the closing costs on an FHA cash-out refinance?
Closing costs typically range from 2% to 5% of the new loan amount, plus the 1.75% upfront MIP. On a $250,000 cash-out refinance, expect $5,000 to $12,500 in closing costs plus $4,375 in upfront MIP. The MIP can be financed into the loan, but the closing costs reduce your net cash proceeds.
Can I remove MIP after an FHA cash-out refinance?
Not on the FHA loan itself. MIP on FHA loans originated with less than 10% equity is permanent for the life of the loan. The only way to eliminate MIP is to refinance out of the FHA loan into a conventional mortgage once you have 20% equity and a credit score high enough for competitive conventional pricing.
Is there a maximum loan amount for FHA cash-out?
Yes. FHA cash-out refinances are subject to FHA loan limits, which vary by county. In 2026, the FHA floor is $541,287 and the ceiling in high-cost areas is $1,249,125. Your maximum loan amount is the lesser of 80% LTV or your county’s FHA loan limit.
How long does an FHA cash-out refinance take to close?
Typically 30 to 45 days from application to closing. The timeline includes appraisal scheduling, underwriting, and any condition clearing. If the property needs repairs to meet FHA minimum property standards, the timeline extends by 1 to 3 weeks depending on the scope of work.
Can I do an FHA cash-out if I currently have a VA or USDA loan?
Yes. FHA cash-out can refinance any existing mortgage type, including VA, USDA, and conventional. The new loan will be FHA regardless of what the existing loan is. However, if you have a VA loan, compare the VA cash-out option first — VA cash-out allows up to 100% LTV with no mortgage insurance.