FHA Cash-Out Refinance Guide
FHA Loans Guide
If you're a current homeowner who's built up equity in your home, an FHA cash-out refinance gives you a way to use it.
It lets you replace your current mortgage with a new, larger one and take the difference as cash. You can use that money for things like paying off debt, handling big expenses, or making improvements to your home.
In a Nutshell
An FHA cash-out refinance loan:
- Replaces your current mortgage with a new, larger loan
- Lets you take cash out from your home equity
- Typically requires a credit score of 580+ (Neighbors Bank requires 620)
- Requires you to keep at least 20% equity in your home
- Includes upfront and monthly mortgage insurance
It's a flexible option, but like any major financial step, it's important to understand how it works before moving forward.
Check out today's FHA cash-out refinance rates
How does an FHA cash-out refinance work?
An FHA cash-out refinance works like this: you apply for a new mortgage loan that's larger than the balance on your current loan. Then, that new loan pays off your old balance, and the lender gives you the difference between those two balances in cash after closing.
Keep in mind that an FHA cash-out refinance replaces your old mortgage loan entirely, giving you a new rate, term, and monthly payment. Depending on your qualifications, how much you're borrowing, and market conditions, this could mean getting a higher interest rate or payment than before.
Doesn't sound like a good fit? Check out the other FHA refinance loan options
What can you use the money for?
One of the biggest benefits of a cash-out refinance loan is flexibility. You can use the funds for practically anything, including:
- Paying off high-interest debt
- Home improvements or repairs
- Emergency expenses
- Education costs
- Major life expenses
How much cash can you get?
The amount you can take out using an FHA cash-out refinance depends on your home's value and how much you still owe. You can typically borrow up to 80% of your home's value, but you must leave at least 20% equity in the home.
Cash-out refinance example:
| Home Value | $400,000 |
| Proposed Loan Amount (leaving 20% equity) | $320,000 |
| Current Loan Balance | $250,000 |
| Closing Costs (4.5%) | $11,250 |
| Cash Out Amount | $70,000 - $11,250 = $58,750 |
This gives you a general idea, but your exact numbers will depend on your situation.
How do you check how much equity you have?
If you move forward with an FHA cash-out refinance, your lender will order an appraisal as part of the process. The appraiser will evaluate your home's condition and compare it to recent sales nearby to determine its current market value. This is the number your loan will be based on.
But if you're just starting to explore your options, you can still get a solid estimate on your own using the following steps:
- Find your current mortgage balance. You can usually see this on your most recent mortgage statement or in your loan servicer's online portal.
- Estimate your home's current value. You can start with an online home value tool which looks at things like recent home sales in your area, property details and market trends to help provide you with an estimate.
- Subtract what you still owe from your home's estimated value. The amount left is your estimated equity.
FHA Cash-Out Refinance Requirements
To qualify for an FHA cash-out refinance, you'll typically need:
- A credit score of 580 or higher (Neighbors Bank requires a 620 minimum)
- A debt-to-income ratio around 43% or lower
- At least 20% equity in your home
- To have lived in the home for at least 12 months
- A history of on-time mortgage payments over the past year
While the Federal Housing Administration sets the baseline requirements for FHA loans, each lender may have its own guidelines. The easiest way to understand what you qualify for is to get pre-qualified and walk through your options.
Want to see if you meet our requirements? Get started today
How to Apply For an FHA Cash-Out Refinance
To apply for an FHA cash-out refinance, you first need to find an FHA-approved lender. Not all mortgage lenders offer FHA loans — and even among those that do, not all offer cash-out refinances.
Once you find a lender, you need to fill out their application and submit financial documents (such as W-2s, bank statements and tax returns), as you did with your original loan.
Your lender will then order an appraisal, which they'll use to verify the value of your home and how much you can borrow against it.
Your refinance will then go through the standard underwriting process, during which your application, along with your homeowners insurance and tax information, is reviewed. This is similar to a purchase transaction, but can be faster since there is no seller or real estate agents in the transaction.
Finally, you close on the loan. This is when you pay your closing costs — including the FHA upfront mortgage insurance premium of 1.75%. After that's complete, the new loan pays off the old one, and you get a lump sum payment in return. You'll start making payments toward your new loan the second month after you close.
FHA Cash-Out Refinance FAQs
Here are some frequently asked questions about FHA cash-out refinances:
Note: Refinancing can result in higher finance charges over the life of the loan.
With over 11 years in the mortgage industry, Matt Roy has spent the last 7 years as an underwriter. He’s passionate about understanding the “why” behind lending decisions and helping homebuyers succeed.