FHA Cash-Out Refinance: Requirements, Limits, and Closing Costs

An FHA cash-out refinance replaces your existing mortgage with a larger FHA-insured loan and pays you the difference in cash. To qualify, the FHA cash-out refinance requirements are that you own and occupy the home as your primary residence, have at least 20% equity, hold a credit score of 580 or higher, carry a debt-to-income ratio at or below 43%, and show a clean recent mortgage payment history. Your current loan does not need to be FHA-insured; conventional, VA, and free-and-clear homes all qualify.¹

Credit Score, Debt-to-Income, and Payment History

FHA sets the floor at a 580 credit score for cash-out transactions. Many lenders add their own overlay of 600 or 620 because cash-out loans default at higher rates than purchase loans. Below 580, this program is closed to you. That’s stricter than FHA purchase loans, where borrowers scoring 500 to 579 can still get in with a larger down payment.

Your debt-to-income ratio should sit at or below 43%. That’s the share of your gross monthly income consumed by all debt payments, including the new mortgage. Borrowers with strong credit, cash reserves, or extra income can sometimes stretch to 50%, but only when the lender’s underwriting system approves the file with those compensating factors documented.

Payment history is where a lot of applications fail. You need 12 straight months with no mortgage payment more than 30 days late before you apply. One 30-day late in that window is enough to disqualify you. You also need at least six months of on-time payments on your current mortgage.

After a Bankruptcy or Foreclosure

A Chapter 7 discharge doesn’t lock you out forever. You become eligible two years after discharge, or as early as 12 months if you can document that the bankruptcy stemmed from circumstances outside your control and you’ve handled money responsibly since. During an active Chapter 13, you can apply after 12 months of on-time plan payments with court approval.² A prior foreclosure generally means a three-year wait, with shorter timelines available for borrowers who can prove the foreclosure resulted from an economic hardship beyond their control.

Ownership and Occupancy

You must have owned and occupied the home as your primary residence for at least 12 months before applying.³ The clock runs from your ownership date, not from your first payment. Investment properties and second homes don’t qualify. Period.

One rule catches people off guard: non-occupant co-borrowers aren’t allowed. On FHA purchase loans, a parent or relative who won’t live in the home can co-sign to help you qualify. That option isn’t available for cash-out. Every borrower on the new note has to live in the property.³

How Much You Can Actually Borrow

Your new loan tops out at 80% of the home’s current appraised value. HUD lowered this from 85% in 2019 to reduce losses on the FHA insurance fund from cash-out defaults.⁴ Your cash is what’s left after subtracting the old loan balance and closing costs from that 80% ceiling.

On a home appraised at $350,000, 80% gives you a maximum loan of $280,000. If your existing balance is $200,000 and closing costs run $8,000, you’d walk away with roughly $72,000. The lender orders a fresh appraisal to set the value. Your original purchase price and tax assessments don’t count.

2026 FHA Loan Limits by County

Even with plenty of equity, FHA caps the total loan based on where the home sits. For 2026, the national floor for a single-family home is $541,287, and the ceiling in high-cost counties is $1,249,125.⁵ Most counties land somewhere between. Your new loan can’t exceed the lesser of 80% of appraised value or your county’s FHA limit, so check the county figure on HUD’s website if you’re in an expensive market.

Mortgage Insurance You’ll Pay

Every FHA cash-out refinance carries two insurance charges, and neither can be waived. The upfront mortgage insurance premium is 1.75% of the base loan amount.⁶ On a $280,000 loan, that’s $4,900. Most borrowers roll it into the loan balance, which means paying interest on it for years. Factor that into your true cost.

The annual premium gets split into 12 monthly payments and added to your mortgage payment. On a loan over 15 years with a balance at or below $625,500, the annual rate is 0.80% of the outstanding balance. Loans above $625,500 pay 1.00%. Shorter-term loans of 15 years or less carry rates between 0.45% and 0.95% depending on loan size.⁶

One structural detail works in your favor. Because cash-out LTV is capped at 80%, the annual premium falls off after 11 years rather than running for the life of the loan. Borrowers on FHA purchase loans with higher LTVs are stuck paying MIP the entire term. The 80% cash-out ceiling automatically puts you in the 11-year category.⁶

Other Closing Costs

The upfront MIP is the biggest single charge, not the only one. Budget for an origination fee (commonly 0.5% to 1% of the loan), the appraisal (typically $400 to $700, set by the appraiser and market rather than HUD),⁷ title insurance, recording fees, credit report and flood certification charges. All together, total closing costs generally run 2% to 6% of the loan. On a $250,000 loan, that’s $5,000 to $15,000.

You can finance some of these into the loan or take a lender credit in exchange for a slightly higher interest rate. Either move reduces upfront cash but increases what you pay over time. Compare the lifetime interest cost of rolling fees in against paying them from your cash proceeds before deciding.

Taxes on Your Cash Proceeds

The cash isn’t taxable income. You’re borrowing against your own equity. But the mortgage interest deduction has a limit worth knowing before you plan how to spend the money.

Interest is only deductible on the portion of the mortgage used to buy, build, or substantially improve the home securing the loan. If you use cash-out funds to pay off credit cards, cover tuition, or take a trip, the interest attributable to those funds isn’t deductible. For the portion that does qualify, the deduction applies to interest on the first $750,000 of total home acquisition debt, or $375,000 if you’re married filing separately.⁸

Documents to Gather Before You Apply

Pulling paperwork together in advance saves weeks in underwriting.

Two years of federal tax returns with W-2s, plus pay stubs covering the last 30 days. Self-employed borrowers should add profit-and-loss statements.
Two months of statements for every checking, savings, and retirement account.
Government-issued photo ID and your Social Security number.
Your most recent mortgage statement. The lender will pull servicing records directly as well.

The application form itself is the Uniform Residential Loan Application (Form 1003), which asks for two years of employment history, a full list of debts, and any other real estate you own.⁹ Fill every field. Blank spots slow underwriting and trigger requests for letters of explanation.

How Long the Process Takes

You apply through any FHA-approved lender. Not every lender offers cash-out refinances, and those that do often set overlays stricter than FHA’s minimums, so shopping two or three lenders is worth the time. The lender orders the appraisal after you submit. Then the file moves to underwriting, which typically runs 30 to 45 days. Complex income or appraisal questions can stretch that. Underwriters routinely ask for explanations of large deposits or recent credit inquiries during this period, so responding fast keeps things moving. After closing, federal law gives you three business days to rescind the transaction before funds disburse.¹⁰ Once that window closes, your old mortgage is paid off and the remaining cash is sent to you.

1
U.S. Department of Housing and Urban Development. HUD 4155.1 Section B – Maximum Mortgage Amounts on Refinance Transactions
2
U.S. Department of Housing and Urban Development. How Does a Bankruptcy Affect a Borrowers Eligibility for an FHA Mortgage
3
U.S. Department of Housing and Urban Development. Mortgagee Letter 2009-08 – Limits on Cash-Out Refinances
4
U.S. Department of Housing and Urban Development. Mortgagee Letter 2019-11
5
U.S. Department of Housing and Urban Development. HUDs Federal Housing Administration Announces 2026 Loan Limits
6
U.S. Department of Housing and Urban Development. Mortgagee Letter 2015-01 Appendix 1.0 – Mortgage Insurance Premiums
7
U.S. Department of Housing and Urban Development. HOC Reference Guide – Fees and Forms: Appraisal and Inspection
8
Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
9
Fannie Mae. Uniform Residential Loan Application Form 1003
10
Consumer Financial Protection Bureau. 12 CFR 1026.23 – Right of Rescission