FHA Cash-Out Refinance | Rates & Guide 2024

By: Tim Lucas Updated By: Ryan Tronier Reviewed By: Paul Centopani
February 8, 2024 - 17 min read

What is the FHA cash-out refinance?

The FHA cash-out refinance lets you refinance up to 80% of your home’s value to leverage your equity.

Like other cash-out loans, FHA cash-out refinancing works by taking out a larger loan than what you currently owe on the home. You use this to pay off the existing loan, then pocket the difference as cash at closing.

FHA cash-out plans allow for more lenient credit scores and flexible debt ratios than other cash-out programs. That means homeowners can access their equity even without perfect credit.

Verify your FHA cash-out refinance eligibility. Start here


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What is the FHA cash-out plan?

The FHA cash-out plan, commonly referred to as the FHA cash-out refinance, is a refinancing option for homeowners. With it, you can access the cash value of the equity in your home by refinancing your current mortgage with a larger one.

This option is especially advantageous for those with lower credit scores, as FHA loans have more lenient credit score requirements than a conventional cash-out refinance.

Verify your FHA cash-out refinance eligibility. Start here

How does a FHA cash-out refinance work?

FHA cash-out refinancing works by allowing homeowners to refinance their existing mortgage for more than they owe and then receiving the difference as a lump sum of cash. This option is ideal for those who have built a significant amount of equity in their home.

How much you can borrow with an FHA cash-out plan depends on the amount of equity you have in your house. As a general rule, you can borrow up to 80% of your home’s appraised value, minus any existing mortgage balance.

For instance, if your home is valued at $300,000 and you owe $200,000, you could potentially get up to $40,000 with the FHA cash-out plan. That said, you’re not obligated to borrow the entire amount of money.

However, you’ll have to pay closing costs, which typically range from 2% to 6% of the loan amount. Assuming an average closing cost of 4%, the actual cash you receive would be the $40,000 potential cash out minus the $1,600 in closing costs, leaving you with a lump sum of approximately $38,400.

How can I use money from the FHA cash-out plan?

With an FHA cash-out plan, you can pay off any mortgage type and take equity out of your home. This could be in the form of a check or funds wired to an account of your choice.

Verify your FHA cash-out refinance eligibility. Start here

The best part of an FHA cash-out refinance is that you can use the funds for any purpose. Some popular uses include:

  • Home improvement projects
  • Credit card debt consolidation
  • Auto loan payoff
  • Student loan refinancing
  • College tuition dues
  • First and second mortgage consolidation
  • High-interest debt payoff
  • Refinancing from an adjustable-rate loan into a fixed-rate

There is almost no limit to what you can use the money for. Homeowners who want to reduce monthly payments on other debt or just have a little extra cash in the bank should examine this loan type.

What is a FACOP refinance?

You may be wondering what the term FACOP means in relation to your FHA cash-out refinance. By definition, a FACOP stands for Federal Assistance Cash-Out Program. Some lenders use the term FACOP refi to refer to an FHA cash-out refinance and use these two interchangeably.

One thing to note on the FACOP refi is to be cautious of recent online scams offering free money to applicants. Keep in mind that only FHA cash-out refinances backed by and insured by the Federal Housing Administration are legitimate.

FHA cash-out refinance requirements

Borrowers applying for an FHA cash-out refinance need to meet standards set by the Federal Housing Administration. Exact requirements can vary by lender, but homeowners always need to meet the FHA’s minimum guidelines.

Verify your FHA cash-out refinance eligibility. Start here

To qualify for an FHA cash-out refinance, you must have the following: 

  • A credit score of at least 600 (with most lenders)
  • A debt-to-income ratio below 43%
  • More than 20% equity in the home
  • On-time mortgage payment history for the past 12 months

In addition, the home being refinanced must be your primary residence. And you must have lived in it for at least 12 months before applying for an FHA cash-out plan. Lenders will ask for employment documentation or utility bills to prove you’ve occupied the home as your primary residence for the past year.

Qualifying borrowers can apply for the FHA cash-out refinance even if their existing home loan is a conventional mortgage or another type of loan program.

Regardless of your current loan type, using the FHA cash-out refinance will result in mortgage insurance premiums (MIP) on your new FHA loan.

However, FHA refinance rates are often more competitive than conventional ones. So for many homeowners, mortgage insurance is a fair tradeoff for cash back and a new, lower rate.

How much money can I get with FHA cash-out refinancing?

You can borrow up to 80% of your home equity. Therefore, the value you’ve added to your home will ultimately determine the maximum amount of money you can get using an FHA cash-out refinance.

Because you must leave 20% equity in your home after the cash back is withdrawn, look at your total equity and subtract 20%—plus closing costs—to get an estimate of how much cash you can take out.

Check your FHA cash-out refinance eligibility. Start here

FHA cash-out refinance example

Here’s an example of how the FHA cash-out calculation works:

Current home value$220,000
Current loan balance$140,000
New FHA Loan (max 80% of value)$176,000
Loan payoff-$140,000
Subtract closing costs-$3,000
Maximum FHA Cash-Out$33,000 

In this case, the home is worth $220,000, but the homeowner owes $140,000 on their current mortgage. So the amount of equity they have is $80,000.

However, 20% of the home’s value must remain untouched.

  • 20% of $220,000 is $44,000
  • So $44,000 must be subtracted from their total $80,000 equity
  • This gives a maximum cash-out potential of $36,000

However, the homeowner also uses some of their cash-out value to pay closing costs ($3,000).

So they end up with a total of $33,000 in cash back at closing. That’s quite a bit lower than the $80,000 of equity originally calculated.

See your cash back options. Start here


Understanding FHA cash-out refinance loan limits

The FHA allows a loan-to-value ratio of up to 80% when using the cash-out refinance program. That means your new loan can be up to 80% of the home’s appraised value.

However, the new mortgage must be within the FHA loan limits for your area. FHA loan limits may place a cap on your cash-out loan amount if the value of your home has increased significantly since you purchased it.

Verify your FHA cash-out refinance eligibility. Start here

In most areas of the country, the maximum FHA loan limit for a single-family home is $ for 2024. However, maximum loan amounts go up to $ for one-unit homes in high-value real estate markets like Los Angeles, California, and New York, New York.

You can find your local FHA loan limits here.

FHA cash-out refinance calculator

Lastly, if you’re curious about how much you can borrow with an FHA cash-out refinance, then this free calculator template in Google Sheets will help you determine your options.

FHA cash-out refinance rates

FHA loans offer lower interest rates—even lower than conventional loan rates.

According to loan software company ICE Mortgage Technology, FHA fixed rates average about 10-to-15 basis points (0.10-0.15%) below conventional rates on average.

Verify your FHA cash-out refinance eligibility. Start here

This is due to FHA’s strong government backing. Lenders can issue these loans at lower risk.

However, borrowers need to consider FHA mortgage insurance, which raises the “effective” FHA rates as follows:

 FHA Cash-OutConventional Cash-Out
Interest rate 6.00%*6.25%*
Mortgage insurance 0.80%0.00%
Effective rate6.80%6.25%

*Sample rates only. May not be currently available

FHA cash-out plans may come with higher rates than standard FHA loans. Check around with various lenders to find the best rate.

FHA cash-out refinancing costs

While an FHA cash-out refinance may seem like an easy way to access extra funds, it’s important to remember that it comes with its own set of financial obligations. You’ll not only have to pay closing costs, which can range from 2% to 6% of the loan amount, but you’ll also be responsible for an upfront FHA mortgage insurance premium of 1.75%.

In a hypothetical scenario where you’re refinancing $200,000, these closing costs could fall anywhere between $4,000 and $12,000, plus an additional $3,500 for the mortgage insurance premium. These expenses are aside from various other fees your lender may charge, including those for appraisals and title searches.

FHA cash-out refinance pros and cons

When it comes to cashing out on your home’s equity, there’s no shortage of options. Yet one of the most debated is the FHA cash-out refinance. As with any financial product, there are benefits and drawbacks to consider. Here’s what you need to know to make an informed decision:

Pros

Credit score flexibility

The Federal Housing Administration is generally more lenient when it comes to credit scores compared to conventional loans. So, if your credit report has a few dings, you might find it easier to qualify for this type of loan.

Recent reduction in mortgage insurance premium

Also, it’s worth noting that as of March 2023, the FHA reduced the annual mortgage insurance premium from 0.85% to 0.55%. What does that mean in layman’s terms? Well, for the average borrower, this reduction could lead to an annual savings of around $800. Not too shabby, especially if you’re looking to lessen your financial burden.

Spend it your way

One of the biggest pluses is the flexibility in how you can use the money. Whether you’re looking to add a new room, pay off some pesky credit card debt, or take that dream vacation, the choice is yours. This flexibility gives you more control over your financial strategy.

Potentially lower mortgage rates

Mortgage interest rates can make or break a loan. The good news is that FHA loans usually offer lower interest rates compared to other options like credit cards or personal loans. This can save you a lot of money in the long run, making it a financially savvy way to borrow.

Cons

Mortgage insurance costs

Unlike conventional cash-out refinance options, FHA loans come with both an upfront and monthly mortgage insurance premium (MIP).

  • Upfront mortgage insurance: 1.75% of the new loan amount upfront (typically included in the loan balance)
  • Annual mortgage insurance: 0.55% of the loan amount annually, paid in 12 installments with the mortgage payment

Property limitations

Additionally, you’ll need to think about property limitations. You can only use an FHA cash-out refinance on your primary residence. If you’re hoping to refinance a second home or an investment property, you’ll need to look at other options, like a conventional cash-out refinance.

More debt on your plate

When you opt for a cash-out refinance, you’re increasing your overall debt. For example, if you owe $150,000 on your current mortgage and you get a cash-out refinance for $180,000, your debt just increased by $30,000. It’s crucial to have a solid plan for how you’ll manage this additional debt.

Monthly mortgage payments may rise

Your new loan will have its own terms and interest rates, which might result in higher monthly payments than your current mortgage. This is something to think carefully about, especially when budgeting for the long term.

If you’re unsure which type of refinance is best for your situation, your loan officer can help you compare options and loan terms to make the right choice.

Verify your FHA cash-out plan eligibility. Start here

How to get an FHA cash-out refinance

Are you considering leveraging your home’s equity for extra cash? The FHA cash-out plan may offer the financial flexibility you’re seeking.

Whether you’re a first-time home buyer or a seasoned homeowner, here’s what you can expect when applying for this type of loan.

Step 1: Assess your home equity

The first step is to evaluate your available home equity, which is essentially the market value of your property minus any existing mortgages or other liens. Besides equity, lenders will also look for a respectable credit score and a stable monthly income to ensure you can afford the new mortgage payments.

Step 2: Choose an FHA-approved lender

Your next move is to find a mortgage lender authorized to offer FHA loans. While the FHA insures these loans, they don’t actually originate them. Most banks, credit unions, and other financial institutions offer FHA loans, so you should have plenty of options.

Step 3: Complete the application

To kick-start the process, you’ll fill out a Uniform Residential Loan Application. This application will request information ranging from your personal details—like your name and Social Security number—to your financial details, such as your monthly income and existing debts.

The lender will then pull credit reports from the three main credit bureaus: Experian, Equifax, and TransUnion. Your FICO score will also be evaluated. Depending on your specific circumstances, you may need to provide additional documents. An appraisal will also be conducted to validate your home’s current market value.

Step 4: Close the loan

If all goes well and your application is approved, you’ll advance to the closing stage. This is where you’ll sign the paperwork and address any remaining closing costs, which you may have the option to finance into your loan. This new FHA-insured loan will replace your current mortgage. Note that if this is your primary residence, you’ll have a 3-day period to reconsider your decision.

FHA cash-out plan vs other loans

Refinancing your home can be challenging. You’re often faced with multiple options, such as the conventional cash-out refinance and the FHA Streamline Refinance. Each type of loan has its own unique benefits and considerations. It’s important to understand these differences to make an informed decision that aligns with your financial goals.

Conventional cash-out refinancing vs. FHA cash-out refi

The big advantage of using an FHA cash-out refinance over a conventional cash-out loan is that the FHA has more lenient credit requirements.

Check your FHA cash-out plan eligibility. Start here

 FHA Cash-OutConventional Cash-Out
Minimum Credit Score 500 (official), 600–660 (likely)620 (official), 640–680 (likely)
Maximum LTV80%80%
Can Replace Any Loan TypeYesYes
OccupancyOwner-occupied onlyOwner, 2nd home, rental 

Technically, you can get an FHA cash-out plan with a FICO score as low as 500. However, you’re much more likely to find lenders starting in the 580–600 range, and even some as high as 600.

If your credit score is on the lower end of that spectrum, you’ll want to be extra thorough when shopping around for a lender that will approve your refinance and provide a competitive rate.

FHA Streamline Refinance vs FHA cash-out refi

The FHA Streamline Refinance is designed primarily to make your existing FHA loan more affordable. Unlike the FHA cash-out refinance, the Streamline option doesn’t allow you to tap into your home’s equity to get a lump sum of cash. Its primary goal is to lower your monthly mortgage payments or to switch you from an adjustable-rate to a fixed-rate mortgage.

One of the most significant differences is the paperwork and underwriting process. The Streamline Refinance typically involves less documentation and fewer steps. In many cases, you won’t need to go through a new home appraisal or provide extensive financial documentation. This makes the entire process faster and, often, less expensive.

Moreover, because the FHA Streamline Refinance doesn’t allow for cash back (except for a maximum of $500 in certain situations), it doesn’t carry the same risks associated with increasing your mortgage debt.

So, if your primary goal is to make your current FHA mortgage more affordable quickly and with minimal hassle, the Streamline option is designed for you. On the other hand, if you’re looking to tap into your home’s equity for a significant sum of money, cash-out refinancing would be the more appropriate route.

FHA cash-out refinance alternatives

An FHA cash-out refinance isn’t the only way to access your home equity. For many homeowners, one of the following options could be a better choice:

Check your cash-out loan options. Start here

  • Home equity loan: A home equity loan lets you borrow against the equity in your home without refinancing. You receive a lump sum of cash that you’ll pay off with monthly installments towards the principal and interest until the loan is paid in full
  • HELOC: A home equity line of credit (HELOC) also allows you to borrow against your home equity without refinancing. But because it’s a revolving line of credit, much like a credit card, you only borrow what you need during the loan’s draw period, which is often 10 years. During this time, you only pay interest on what you borrow. Remember that both a HELOC and a home equity loan use your house as collateral. So if you are unable to make monthly mortgage payments, you risk foreclosure
  • Conventional cash-out refinance: If you have a DTI ratio under 50%, an LTV ratio below 80%, and a FICO score of 620 or more, a conventional cash-out refinance may be ideal. With this loan, you will not be required to pay mortgage insurance

FAQ: FHA cash-out refinance

Verify your FHA cash-out plan eligibility. Start here

What credit score is needed for an FHA cash-out refinance?

The official FICO credit score minimum for all FHA loans is 500. However, a realistic minimum that lenders will actually allow is somewhere between 600 and 660 or higher. This is because lenders often set higher minimums than the FHA. If one lender can’t make your loan, keep looking until you find one with more lenient standards.

Can you get a cash-out refinance with bad credit?

It is possible to get a cash-out refinance with less-than-ideal credit. The FHA cash-out program will be your best chance at getting approved. Most cash-out loans, such as conventional or home equity loans, require good credit. But the FHA may allow you to be approved with a credit score in the low 600s or even the high 500s.

Does FHA cash-out require a new appraisal?

Yes, FHA requires a new appraisal to determine the current market value of the home. The lender will calculate the LTV on your new mortgage loan based on the home’s recently appraised value.

Is there a 100 percent cash-out loan?

Only the VA loan program offers a 100 percent cash-out refinance option. VA loans are restricted to veterans and active-duty military members. Those with qualifying service histories will typically find the VA cash-out refinance to be a better deal than the FHA cash-out plan.

Is money from a cash-out refinance taxable?

A cash-out refinance is a debt, not an income. Therefore, it’s usually not taxable as income. However, consult a tax advisor before filing.

How soon can I do an FHA cash-out refinance?

To use the FHA cash-out refinance, you must have lived in the residence you’re refinancing for at least 12 months. In addition, you must have paid all your mortgage payments for the past year within the month they were due.

What is the maximum debt-to-income ratio (DTI) for an FHA cash-out plan?

FHA loans require a DTI of 43 percent or less unless significant compensating factors are present, such as a high credit score or lots of equity in the house. In these cases, a DTI of up to 50 percent is possible. DTI is the portion of your future housing and other debt payments compared to your pre-tax income. For instance, if your income is $7,000 per month, a 43 percent DTI would be $3,000. In this example, you could have a $2,000 house payment and $1,000 combined payments for a car, student loans, or other debts.

Can you add a co-borrower to an FHA cash-out plan?

No. You may not add any borrower to the loan who does not live in the home. These are known as “non-occupant co-borrowers” and are not allowed for cash-out loans.

Can you add a second mortgage to a cash-out loan?

Generally, you can’t add a second mortgage to the FHA cash-out plan unless both loans add up to 80 percent of the home’s value or less. However, you may be able to keep an existing second mortgage and subordinate it to the new FHA loan. Subordinating involves receiving a document from the second mortgage lender stating it’s okay to get a new first mortgage.

What are FHA equity reserves?

You may have received a notification from a lender stating that you haven’t tapped into your FHA equity reserves. This marketing gimmick is trying to entice you to refinance via an FHA Streamline Refinance. This is likely referring to the FHA mortgage insurance refund you are entitled to when replacing one FHA loan with another via an FHA streamline refinance. Cash-outs are not allowed when you get an FHA streamline refinance; however, you may save on your monthly payment. Only the FHA cash-out refinance allows you to receive cash back at closing.

Check your FHA cash-out plan eligibility

Homeowners who don’t have great credit but need to tap home equity are the best candidates for FHA cash-out plans.

For those with good credit and at least 20% equity, a conventional cash-out refinance or home equity loan might yield lower costs.

If you’re interested in an FHA cash-out refinance, shop around with a few lenders and find the best rate for your new loan.

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Tim Lucas
Authored By: Tim Lucas
The Mortgage Reports Editor
Tim Lucas spent 11 years in the mortgage industry before moving into the world of digital media. He's helped thousands of families buy and refinance real estate at banks and mortgage companies and now continues that mission through industry-leading content. Tim has been featured in national publications such as Time, U.S. News and World Report, MSN, Scotsman Guide, and more.
Ryan Tronier
Updated By: Ryan Tronier
The Mortgage Reports Editor
Ryan Tronier is a personal finance writer and editor. His work has been published on NBC, ABC, USATODAY, Yahoo Finance, MSN Money, and more. Ryan is the former managing editor of the finance website Sapling, as well as the former personal finance editor at Slickdeals.
Paul Centopani
Reviewed By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.