FHA Cash-Out Refinance | Rates & Guide 2025

What is an FHA cash-out refinance?

Need extra cash but not sure how to unlock it? With an FHA cash-out refinance, you can access up to 80% of your home's value and turn your equity into cash.

Much like other cash-out refinancing options, an FHA cash-out refinance involves taking out a larger loan than your current mortgage balance. The difference between the two loans is given to you as cash at closing, which you can use for whatever you need.

FHA cash-out plans often allow for more lenient credit scores and flexible debt-to-income ratios than conventional loans. Which means means you could access your equity even if your credit isn’t perfect.

In this article (Skip to…)

• How it works
• Applying
• Requirements
• Loan limits
• Refinance calculator
• Interest rates
• Closing costs
• Alternatives
• FAQ

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 receive 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 a FHA cash-out refinance depends how much equity you have in your house. Generally, 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 refi. That said, you're not obligated to borrow the entire amount of money.

However, be aware that you’ll have to cover closing costs, which typically range from 2% to 6% of the loan amount. Assuming an average closing cost of 4%, your cash-out could be reduced by about $1,600 (4% of $40,000), leaving you with approximately $38,400 in cash at closing.

How to get an FHA cash-out refinance

Are you considering leveraging your home's equity for extra cash? The FHA cash-out refinance could provide you the financial flexibility you're looking for.

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 in an FHA cash-out refi is to calculate your available home equity, which is essentially the market value of your property minus any existing mortgages or other liens. In addition to equity, lenders look for a respectable credit score and a stable monthly income to ensure you can comfortably afford the new mortgage payments.

Step 2: Choose an FHA-Approved Lender

Next, you'll need to find a mortgage lender authorized to offer FHA loans. While the FHA insures these loans, it does not originate them. Thankfully, most banks, credit unions, and other financial institutions offer FHA loans, so you'll have a variety of lenders to choose from.

Step 3: Complete the Application

To kick-start the FHA mortgage refinance process, you'll fill out a Uniform Residential Loan Application. This application will ask for personal information, such as your name, Social Security number, and financial details, including your monthly income and current 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 be scheduled to determine 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 of your FHA refinance. During this stage, you'll sign the loan documents and settle any remaining closing costs, which you might be able to roll into your new 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 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. 

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

• A credit score of at least 600 (though some lenders may require higher scores)
• A debt-to-income ratio below 43%
• More than 20% equity in your home
• On-time mortgage payment history for the past 12 months

Additionally, the home being refinanced must be your primary residence, and you must have lived there for at least 12 months before applying for the FHA cash-out refinance. Lenders will require proof (such as employment documentation or utility bills) to verify that you've occupied the property.

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?

With an FHA cash-out refinance, 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.

FHA cash-out refinance example

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

In this case, the home is worth $400,000, but the homeowner owes $250,000 on their current mortgage. So the amount of equity they have is $150,000.

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

• 20% of $400,000 is $80,000
• So $80,000 must be subtracted from their total $150,000 equity
• This gives a maximum cash-out potential of $70,000

However, the homeowner also uses some of their cash-out value to pay closing costs ($5,000).

So they end up with a total of $65,000 in cash back at closing. This is lower than the original $150,000 equity they had, due to the 20% equity requirement and closing costs.

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

With an FHA cash-out refinance, 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.

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

• Home Improvements or Renovations: Upgrade areas of your home, such as your kitchen or bathroom, which could increase your property’s value and provide more comfort or functionality.
• Debt Consolidation: Pay off higher-interest debt, such as credit cards or personal loans. This can help streamline payments and potentially reduce the amount of interest you pay over time.
• Education Expenses: Use the funds for tuition or other educational expenses for you or your family members, investing in your future.
• Emergency Funds: Set aside money for unforeseen expenses like medical bills, urgent repairs, or other unexpected financial challenges.
• Investments: You could use the funds to invest in other ventures, whether starting a business or expanding your investment portfolio.
• Large Purchases: Finance a major purchase such as a new car, furniture, or other big-ticket items without turning to high-interest loans.

The great thing about FHA cash-out refinancing is that there are almost no limits on how you can use the money. 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.

Understanding FHA cash-out refinance loan limits

The FHA allows a loan-to-value ratio of up to 80% with its cash-out refinance. 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.

In most areas of the country, the maximum FHA loan limit for a single-family home is $ for 2025. 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 refinance rates today average about 10-to-15 basis points (0.10-0.15%) below conventional rates. 

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 cash-out refi rates as follows:

*Sample rates only. May not be currently available

An FHA cash-out refinance 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 a convenient way to access extra funds, it's important to keep in mind the financial responsibilities that come with it. Not only will you need to cover closing costs, which typically range from 2% to 6% of the loan amount, but you’ll also be required to pay an upfront FHA mortgage insurance premium of 1.75%.

In a hypothetical scenario where you're refinancing $400,000, these closing costs could fall anywhere between $8,000 and $24,000, plus an additional $7,000 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

When it comes to an FHA mortgage refinance, the Federal Housing Administration is generally more lenient on 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

In 2023, the FHA reduced the annual mortgage insurance premium from 0.85% to 0.55%. For the average borrower pursuing an FHA cash-out refinance, this reduction could lead to a few hundred dollars in annual savings. Not too shabby, especially if you're looking to lessen your financial burden.

Flexible Use of Funds

For an FHA refinance cash-out, one of the biggest pluses is the flexibility in how you can use the money. Whether you're looking to fund home improvements that increase your property's value, consolidate high-interest debt, or invest in educational opportunities, 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 refinance 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 cash-out refinance a second home or an investment property, you'll need to look at other options, like a conventional cash-out refinance.

Increased Loan Balance

When you opt for an FHA cash-out refinance, you're increasing your overall debt. For example, if you owe $300,000 on your current mortgage and you get a cash-out refinance for $350,000, your debt just increased by $50,000. It's crucial to have a solid plan for how you'll manage this additional debt.

Potentially Higher Monthly Payments

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.

FHA cash-out refinance vs other refinances

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.

Technically, you can get an FHA cash-out refi 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, it doesn't carry the same risks associated with increasing your mortgage debt. 

If your main goal is to lower your monthly payments with minimal effort, the FHA Streamline Refinance is a great choice. However, if you need to tap into your home’s equity for a larger sum of cash, an FHA Cash-Out Refinance may be the better fit.

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 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: 

• 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 lets you borrow against your home equity without refinancing. However, unlike a home equity loan, a HELOC is a revolving line of credit, similar to a credit card. You borrow only what you need during the loan’s draw period (often 10 years), and you’ll only pay interest on the amount you’ve borrowed. Keep in mind that both a HELOC and a home equity loan use your home as collateral. If you fail to make your payments, you could risk foreclosure.
• Conventional cash-out refinance: If your debt-to-income (DTI) ratio is under 50%, your loan-to-value (LTV) ratio is below 80%, and your FICO score is at least 620, a conventional cash-out refinance might be a good option. Unlike a home equity loan, this option doesn’t require you to pay mortgage insurance, offering potential savings in the long run.

FAQ: FHA cash-out refinance

Check your FHA cash-out refinance eligibility

An FHA cash-out refinance is an excellent option for homeowners who may not have the best credit but still need to tap into their home’s equity.

For those with good credit and at least 20% equity, a conventional cash-out refinance or home equity loan may be more cost-effective.

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. Doing so will help you ensure that you secure the most competitive terms for your new loan.