FHA Cash Out Refinance: How to Tap Into Home Equity With 500+ Credit Scores

Our content may contain affiliate links. If you click a link and make a purchase, we may receive compensation at no added cost to you. We work hard to provide great resources and information. We appreciate your support!

The FHA cash out refinance offers homeowners with dinged credit a way to convert home equity into cash. In this FHA cash out guide, we’ll cover how this type of refinance works and who is eligible.

What is an FHA Cash Out Refinance?

The FHA cash out refinance is type of FHA-insured mortgage transaction that enables homeowners to convert home equity into cash.

FHA mortgages are funded by private lenders, but insured and regulated by the Federal Housing Administration (FHA).

You may also hear the FHA cash out refinance referred to as a FACOP loan. Whether it’s called a FACOP loan or an FHA cash out loan, it’s the same thing.

The FHA cash out refinance enables you to refinance your existing mortgage balance with a larger loan and take the difference (minus closing costs and escrow deposits) as cash at closing. You can use the cash for whatever you like. Homeowners commonly use the proceeds to:

  • Consolidate debt and reduce monthly expenses
  • Home improvements and repairs
  • Pay off medical, dental, or vet bills
  • Pay for college tuition and expenses
  • Invest in a business

An FHA cash out refinance is best-suited for homeowners with more than a 20% equity position in their homes and at least fair credit scores.

If you have excellent credit, you may want to consider a conventional cash out refinance or HELOC. We’ll cover those and some other possible alternatives shortly.

FHA also insures and regulates the home equity conversion mortgage, or HECM. The HECM is the most popular reverse mortgage program in the United States.

Eligibility Criteria

The FHA cash out refinance is a great option for many homeowners because the qualifying requirements are less stringent compared to other types of cash out mortgages, including HELOCs, home equity loans, and conventional cash out refinances.

Here’s a rundown of the basic eligibility requirements:

  • Credit scores – The official minimum qualifying credit score is 500, but most lenders will require scores of at least 600 or 620. If your credit scores are below 620, you may need to look around a little more to find a lender who will work with you.
  • Occupancy – You must currently live in the home and have lived in it for at least the prior twelve months. If you inherited the home, the 12-month rule doesn’t apply as long as you’ve never used the home as a rental. The lender will require employment documentation and/or utility bills to prove occupancy.
  • Mortgage payments – All payments on all mortgages on your credit must have been made on time for the last twelve months. If you have a past forbearance, then the forbearance must be complete and you must have made at least twelve mortgage payments on time since the forbearance ended.
  • Maximum loan-to-value – The maximum loan-to-value of the new mortgage is 80%. That means you must currently owe significantly less than 80% of your home’s value to get cash out.
  • Maximum loan amount – The combined mortgage amount of the new mortgage and any secondary liens (such as a HELOC or home equity loan) cannot exceed the Nationwide Mortgage Limit.
  • Debt-to-income ratio – The standard debt-to-income ratio for all FHA loans is 43%. In other words, all debt payments and mortgage payments (including taxes, insurance, and any HOA dues and mortgage insurance premiums) cannot exceed more than 43% of your total monthly gross income. There is some leeway to exceed 43% with compensating factors, such as documented reserves, excellent credit, etc.

There may be some flexibility with some of these guidelines, depending on the lender. If you don’t get approved with one lender, it may be worth trying another one.

FHA Cash Out Refinance Rates

Want to see more options? Check all mortgage rates here

Mortgage Insurance Refund

You may be entitled to an up front mortgage insurance premium (UFMIP) refund if your existing FHA mortgage is no more than 36 months old. This applies to any FHA refinance loan type, whether it’s an FHA streamline, simple refinance, no cash out refinance, or cash out refinance. 

You may remember that there are two types of mortgage insurance that apply to any FHA mortgage:

  • Upfront mortgage insurance (UFMIP) – Upfront mortgage insurance currently equals 1.75% of the loan amount.
  • Annual mortgage insurance (MIP) – Annual mortgage insurance is paid as part of your monthly mortgage payment. The annual mortgage insurance rate varies depending on how much equity you have in your home. Your lender can estimate the new MIP amount for you.

There are no refunds for the annual mortgage insurance, but you may receive a large refund for the UFMIP, based on the following table:  

Months After ClosingUFMIP Refund %Months After ClosingUFMIP Refund %Months After ClosingUFMIP Refund %
180%1356%2532%
278%1454%2630%
376%1552%2728%
474%1650%2826%
572%1748%2924%
670%1846%3022%
768%1944%3120%
866%2042%3218%
964%2140%3316%
1062%2238%3414%
1160%2336%3512%
1258%2434%3610%

Important: UFMIP refunds are not paid directly to you. They’re applied to the upfront mortgage insurance premium on your new

Cash Out Alternatives

If you’re not sure a the FHA cash out refinance is right for you, you may want to consider these alternatives:

  • HELOC – A HELOC enables you to tap into home equity at your convenience on a revolving basis. The payments are typically interest-only, which keeps them low, but you’ll need to make extra principal payments to pay the debt down. HELOC rates are usually variable and you’ll likely need at least decent credit and substantial equity in your home to qualify. You do not need to refinance your existing mortgage to get a HELOC; most HELOCs are written as second mortgages behind an existing mortgage. Click here to check out today’s HELOC interest rates.
  • Home equity loan – Home equity loans are a fixed-rate alternative to a HELOC. You borrow one lump sum and pay it back with a fixed interest rate over a set loan term. You’ll likely need at least decent credit and substantial equity in your home to qualify. You do not need to refinance your existing mortgage to get a home equity loan; most home equity loans are structured as second mortgages behind an existing mortgage. Click here to check out today’s home equity loan rates.
  • Conventional cash out refinance – If you have strong credit scores, you may want to consider a conventional cash out refinance. Conventional (non government-insured) mortgages have the advantage of not requiring mortgage insurance if the loan amount is less than 80% of the value of the home. A variety of loan products are available, including the 10/1 ARM7/1 ARM, 5/1 ARM, and 10-, 15-, and 30-year fixed products. Check out current conventional refinance rates here.
  • Home equity agreement – A home equity agreement is a unique home equity solution that enables you to convert home equity into cash with no monthly payments and zero interest charges – even if you have less than perfect credit. Not available in all states. Find out more about the home equity agreement here.
  • HECM Reverse Mortgage – If you’re at least 62, a HECM reverse mortgage enables you to convert home equity into cash without a mortgage payment and without giving up ownership of your home. No mortgage payments are required as long as at least one borrower (or non-borrowing spouse) lives in the home and pays the required property charges. You remain the owner of your home and you’re free to leave it to your heirs. Find out more about a HECM here.

Frequently Asked Questions

Can you do a cash-out refinance on an FHA loan?

Yes! The minimum qualifying credit score is 500, but most lenders will require at least a 620. The maximum loan-to-value (subject to loan limits) is 80% of the value of your home.

Is the FHA cash out program legit?

Yes! The minimum qualifying credit score is 500, but most lenders will require at least a 620. The maximum loan-to-value (subject to loan limits) is 80% of the value of your home.

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

The minimum qualifying credit score is 500, but most lenders will require at least a 580 to 620. The maximum loan-to-value (subject to loan limits) is 80% of the value of your home.

Is it worth it to refinance out of an FHA loan?

If you have excellent credit and a lot of equity in your home, it can make sense to refinance out of an FHA loan and eliminate the mortgage insurance. As long it saves you money, the refinance can make sense.

Mike Roberts Avatar
About Mike Roberts

Mike Roberts is the founder of MyHECM.com, a published author, and a highly experienced mortgage industry veteran with over a decade of mortgage banking experience. When he's not working, he enjoys spending time with his family, skiing, camping, traveling, or reading a good book. Roberts is the author of The Reverse Mortgage Revealed: An Industry Insider’s Guide to the Reverse Mortgage, which is available on Amazon.