FHA No Cash Out Refinance: How It Works & When It Makes Sense

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The FHA no cash out refinance is a great refinance option for many homeowners because it offers competitive interest rates and less stringent lending requirements than other types of mortgages. We’ll cover how it works and when it’s a good fit.

What Is An FHA No Cash Out Refinance?

The FHA no cash out refinance is an FHA-insured mortgage transaction designed to reduce interest rates and monthly payments for homeowners who already have mortgages.

This type of refinance is also commonly called an FHA rate and term refinance. Homeowners use rate and term refinances to reduce monthly payments and interest rates or shorten loan terms without tapping into additional home equity.

FHA guidelines do not allow you to cash out equity when you do a no cash out or rate and term refinance. If you’re interested in getting cash out, you may want to check out an FHA cash out refinance, HELOC, or home equity loan.

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

FHA financing is attractive because it offers competitive interest rates, low minimum down payments, and lending requirements less stringent than conventional mortgage financing. 

FHA also offers two other rate/term transactions called the FHA simple refinance and the FHA streamline refinance. We’ll compare both of these with the FHA rate and term refinance shortly.

FHA No Cash Out Refinance Eligibility Requirements

The FHA no cash out refinance requirements are very similar to the FHA simple refinance requirements. There are only a few minor variations between the two. The following is a rundown of the most important eligibility criteria for a no cash out refinance:

  • Minimum credit score – The official FHA minimum credit score is 500, but most banks will require at least a 580 to 620.
  • Maximum debt-to-income ratios – The standard maximum front-end debt ratio (which includes principal, interest, property taxes, homeowner’s insurance, and annual mortgage insurance) is 31%. The maximum standard back-end ratio (which also includes all other debt payments) is 43%. It’s sometimes possible to exceed these ratios with compensating factors such as savings, good credit, low loan-to-value, etc. I’ve gotten applicants approved with debt ratios as high as 55% before.
  • Occupancy – Primary residence or HUD-approved second homes only. No rentals.
  • Eligible property types – Single-family homes, townhomes, planned-unit developments (PUD), FHA-approved condos, 1-4 unit residential buildings, and manufactured homes built after June 15, 1976 are eligible. Your home doesn’t need to be perfect, but it should be in at least reasonably good condition with no major repairs needed. If you’re financing a condo, you can check the approval status of the condo complex here.
  • Upfront mortgage insurance (UFMIP) – FHA charges 1.75% of the loan amount for upfront mortgage insurance, which must be entirely financed or entirely paid in cash. UFMIP can be partially refundable for certain FHA refinances (more on those later).
  • Annual mortgage insurance (MIP) – FHA also charges annual mortgage insurance that ranges from 0.50% to 0.75% of the loan amount, depending on loan-to-value, loan amount, and loan term. MIP is split into twelve installments that are paid as part of your monthly mortgage payment. Depending on the starting loan-to-value, MIP could apply for as long as 11 years or the life of the loan.
  • Mortgage late payments – No mortgage late payments in the last six months on any mortgage and no more than a 30-day late on any mortgage in the six months before that. You must also be current on all mortgages attached to the property you’re refinancing.
  • Forbearance – If you were granted a forbearance on the property you’re refinancing, you must have completed the plan and made at least three consecutive mortgage payments within the month due.
  • Maximum loan-to-value (LTV)– The maximum LTV is 97.75% for primary residences and 85% for HUD-approved second homes. If you owe more than these maximum LTVs, you may want to check into the FHA streamline refinance instead.
  • Maximum combined loan-to-value (CLTV) – The maximum CLTV is 97.75% for primary residences and 85% for HUD-approved second homes. If you owe more than these maximum CLTVs, you may want to check into the FHA streamline refinance instead.
  • Maximum mortgage amount – The maximum loan amount varies depending on the FHA loan limit and the area where the property is located. You can look up the loan limits for your area here.
  • Cash out – Cash out at closing is limited to $500 or less. If you want to cash out more than that, you’ll need to check into an FHA cash out refinance.
  • Allowed primary mortgage payoff – Any mortgage type, including conventional, VA, USDA, or FHA.
  • Other allowed payoffs – PACE (Property Assessed Clean Energy) loans, seasoned junior liens, equity splits due to divorce, recorded land contracts, and short payoffs (the lender settled for a lower payoff amount).

The main difference between the simple refinance and the no cash out refinance relates to what you can pay off as part of the transaction. The FHA simple refinance only allows you to pay off your existing FHA loan and any PACE loans (if applicable).

The FHA no cash out refinance allows you to pay off any kind of primary mortgage (conventional, VA, FHA, etc.) along with PACE loans, seasoned junior liens, equity splits due to divorce, recorded land contracts, and short payoffs (the lender settled for a lower payoff amount).

Current FHA Refinance Rates

Check out the table below for the latest FHA mortgage rates in your state. If you find something you like, I suggest submitting an application and locking the rate as soon as possible. Interest rates are volatile and can change at any time.

Want to see more options? Check all mortgage rates here

Comparing FHA Rate And Term Refinance Options

There are three main rate/term transactions available via FHA financing: FHA no cash out refinance, FHA simple refinance, and the FHA streamline refinance.

The FHA streamline refinance comes in two variations: the non credit qualifying FHA streamline and the credit qualifying FHA streamline.

If you’re not a mortgage professional, the key differences between these options can be confusing and difficult to remember. That’s why I’ve summarized them in the following table.

 FHA No Cash Out RefinanceFHA Simple RefinanceNon Credit Qualifying FHA StreamlineCredit Qualifying FHA Streamline
Documentation typeFull DocFull DocNo DocLite Doc
Minimum credit score500 *500 *None500 *
Credit report underwriting required?YesYesNoYes
OccupancyOwner-occupied, second homesOwner-occupied, second homesOwner-occupied, second homes, rentalsOwner-occupied, second homes, rentals
Max LTV97.75%97.75%NoneNone
Proof of income required?YesYesNoNo
Max debt ratios31% / 43%31% / 43%NoneNone
Appraisal required?YesYesNoNo
Allowed primary mortgage payoffAnyFHA onlyFHA onlyFHA only
Other allowed payoffsPACE loans, junior liens, equity splits, land contracts, and short payoffs.PACE loansNoneNone
Max cash out$500$500$0$0
Roll closing costs into new loan?YesYesNoNo
Learn MoreLearn MoreLearn More
* Though FHA only requires a minimum 500 credit score, most lenders will require at least a 580 to 620.

Why Do An FHA No Cash Out Refinance?

As we’ve covered, FHA offers several refinance options that have their own various requirements and nuances. Unless you’re an experienced mortgage professional, it can be difficult to figure out which option is the best.

So, why do an FHA no cash out refinance? When is it the best fit? The following is a rundown of when the no cash out refinance makes the most sense versus a streamline or simple refinance:

  • You’re refinancing a non FHA mortgage – If your main mortgage is conventional, VA, or USDA, then you’ll need to go with the FHA non cash out refinance. The streamline and simple refinance can only pay off an FHA mortgage.
  • You want to pay off other liens – If you want to pay off seasoned junior liens, equity splits due to divorce, recorded land contracts, and short payoffs as part of the refinance, you’ll need to go with the no cash out refinance. If you want to pay off just a PACE loan as part of the refinance, you can go with either the simple refinance or the no cash out refinance.

If you’re refinancing an FHA mortgage, you’ll probably want to go with the FHA streamline if:

  • You owe more than your home is worth – If you’re in a negative equity situation, then it makes sense to go with the FHA streamline because it doesn’t require an appraisal and there are no loan-to-value caps.
  • Your credit has deteriorated – Most lenders offer the non credit qualifying streamline, which means they will not require a credit report.
  • If you don’t have income or can’t prove income – Most lenders will not require income documentation.
  • You converted your home to a rental property – The simple refinance is only allowed on owner-occupied homes and HUD-approved second homes. If your home is now a rental, then the FHA streamline is the way to go.
  • You’re super busy and want an easy transaction – The FHA streamline requires very little paperwork, so it makes more sense if you want a quick and simple refinance transaction.

Having said all of this, here’s the bottom line: if your current mortgage isn’t FHA and/or you want to pay off PACE loans, seasoned junior liens, equity splits due to divorce, recorded land contracts, and short payoffs, the FHA no cash out refinance probably makes sense.

If you’re refinancing an FHA loan just to get the rate and payment down, the streamline is probably your best bet.

How To Get a UFMIP 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 FHA loan. For example, if the new mortgage insurance premium is $5,000, but you’re entitled to a $4,000 refund, the net UFMIP on the new FHA loan will be $1,000.

Frequently Asked Questions

Can you refinance an FHA loan?

Absolutely! There is no limitation on refinancing and no prepayment penalties.

What is the LTV for a FHA refinance with no cash-out?

It depends on the type of FHA refinance. For the FHA Simple Refinance and FHA No Cash Out Refinance, the maximum LTV is 97.75%. If you’re doing an FHA Streamline Refinance, there’s no LTV maximum.

Does FHA allow cash-out refinance?

Yes, it does. You can do a cash out mortgage up to the lesser of 80% of the value of your home or the FHA loan amount cap.

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.