FHA Cash-Out Refinance: Guidelines and Costs

An FHA cash-out refinance allows you to replace your current mortgage with a larger loan and pocket the difference between the two loans in cash. Since FHA loans are insured by the Federal Housing Administration (FHA), they tend to have more flexible eligibility guidelines than conventional loans, but there are extra costs, like mortgage insurance, to consider.

Key takeaways

• You can use FHA cash-out refinance funds for virtually any purpose, including home improvements or debt consolidation.
• FHA cash-out refinance closing costs generally range from 2% to 6% of your total loan amount.
• FHA cash-out refinance requirements include a maximum 80% LTV ratio and a minimum 500 credit score.

How an FHA cash-out refinance works

Let’s say you owe $150,000 on your existing mortgage and your home is worth $350,000. This means you have $200,000 in home equity ($350,000 minus $150,000). Since FHA loans generally allow you to borrow up to 80% of your home’s value, here’s how a cash-out refinance could play out:

• New loan amount: $280,000 (80% of $350,000 home value)
• Existing loan amount: $150,000
• Cash-out refinance payout: $130,000 ($280,000 minus $150,000)

The FHA cash-out refinance process generally involves the following steps:

1. Comparing lenders. You’ll want to shop around for the best refinance rates with FHA-approved lenders.
2. Submitting an application. Once you find a lender, fill out Form 1003, also known as the Uniform Residential Loan Application. You’ll also need to provide proof of income.
3. Getting a home appraisal. You’ll need to get an appraisal to verify your home’s market value. FHA appraisals are more in-depth — and typically more expensive — than conventional loan appraisals.
4. Reviewing your loan documents. Now is the time to review the loan details on your closing disclosure, provide any missing information and ask any final questions.
5. Closing on the loan. The final stage of the cash-out refinance process involves signing closing documents and paying closing costs. You typically won’t receive the lump-sum payout at the closing table — that’s because you have three days to cancel the contract under your right of rescission.

FHA cash-out refinance guidelines

Loan-to-value (LTV) ratio

The maximum loan-to-value (LTV) ratio for an FHA cash-out refinance is 80%. That means you can only borrow up to 80% of your home’s value, minus your outstanding loan balance.

Credit score

The minimum credit score for FHA loans is 500. However, some lenders may require a higher score. You’ll generally need a 780 score or higher to get the best refinance rates.

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Debt-to-income (DTI) ratio

You generally need a maximum 43% debt-to-income (DTI) ratio to get approved for an FHA cash-out refinance. However, you could get approved with a higher DTI ratio if you have a higher credit score or more mortgage reserves.

Mortgage insurance

All FHA loans require two forms of mortgage insurance:

1. The upfront mortgage insurance premium (UFMIP): The UFMIP is 1.75% of your loan amount, and you’ll pay it in a lump sum at closing.
2. The annual (or periodic) mortgage insurance premium (MIP): The amount of MIP you’ll pay depends on your LTV ratio, loan amount and repayment term, and ranges from 0.15% to 0.75% of your loan amount.

 Learn more about FHA mortgage insurance.

Loan limits

The 2025 FHA loan limit for single-family homes is $524,225. However, you may qualify to borrow up to $1,209,750 if you live in a high-cost area. To find out the specific limit in your area, use the FHA mortgage limits search tool on the U.S. Department of Housing and Urban Development (HUD) website.

Occupancy and length of residency

You must live in the home you’re refinancing as your primary residence for at least 12 months. FHA cash-out refinancing isn’t available for second homes or investment properties.

Payment history

You must have made on-time mortgage payments for the past 12 months to qualify for an FHA cash-out refinance.

FHA cash-out refinance closing costs

Closing costs for an FHA cash-out refinance will generally cost 2% to 6% of your loan amount. That means if you take out a mortgage for $200,000, your costs might be between $4,000 and $12,000.

FHA cash-out refinance closing costs include:

• Application fee: $75 to $500
• Origination fee: 0.5% to 1% of loan amount
• Home appraisal fee: $400 to $700
• Home inspection fee: $300 to $500

As a reminder, you’ll also pay upfront and annual mortgage insurance premiums.

FHA cash-out refinance pros and cons

Pros

 Flexible funds: You can use the money you “cash out” for any purpose, such as making an addition to your home or paying for college.

 Easier credit requirements: You can get an FHA loan with a credit score as low as 500, while a conventional loan typically requires a 620 or higher.

 Open to all borrowers: You don’t need to have an FHA loan to qualify for an FHA refinance.

Cons

 Increases debt: With a cash-out refinance, you’re taking out a larger loan, which can also mean a higher monthly mortgage payment.

 Mortgage insurance: FHA loans require both an upfront mortgage insurance premium and annual premiums.

 Strict occupancy rules: In order to qualify for an FHA refinance, you’ll need to live in the home as your primary residence.

FHA cash-out refinance rates

The average interest rate for a 30-year fixed-rate FHA refinance loan is currently 6.72%. Cash-out refinance rates are generally higher than regular refinance rates, however, FHA rates tend to be lower than conventional rates. For comparison, the average rate for a 30-year fixed-rate conventional refinance loan is currently 7.37%.

FHA cash-out refinance alternatives

• Conventional cash-out refinance. If you have good credit (620 score or higher), you may want to consider a conventional cash-out refinance. That way, you won’t have to deal with FHA mortgage insurance premiums.
• Home equity loan or HELOC. If you want to tap your home equity without replacing your current mortgage, consider a home equity loan or home equity line of credit (HELOC).
• FHA streamline refinance. If you don’t need extra cash and simply want to change your loan terms, an FHA streamline refinance may be right for you. Bonus: You won’t need a home appraisal to qualify.
• VA cash-out refinance. If your military service makes you eligible for a loan backed by the U.S. Department of Veterans Affairs (VA), you can borrow up to 90% of your home’s value with a VA cash-out refinance.
• Fixer-upper loan. If the sole purpose of your refinance is to make home improvements or renovations, consider a Fannie Mae HomeStyle® renovation loan or an FHA 203(k) rehabilitation loan. You may be able to borrow more than a regular cash-out refinance, since the lender uses the “after-improved” value to determine your loan amount.
• Personal loan. With higher interest than most mortgage rates, a personal loan can be a more expensive way to borrow money. However, if you don’t want to put your home at risk of foreclosure if you default, it may be a safer option than the others mentioned above.