Interest Rates and APR

Although FHA cash-out refinance rates are often lower than conventional alternatives, mortgage insurance premiums (MIP) can increase your total borrowing costs. This makes the annual percentage rate (APR)—a more accurate measure of overall costs—higher than a conventional cash-out refinance.

Additionally, FHA cash-out rates are typically 0.25% to 0.50% higher than standard rate-and-term refinance rates. However, exact rates vary based on market conditions and borrower qualifications.

Closing Costs

An FHA cash-out refinance requires closing costs that typically range from 3% to 6% of the loan amount. These costs include:

• 1.75% Upfront Mortgage Insurance Premium (UFMIP)

• Origination fees

• Underwriting fees

• Lender discount points

• Title insurance

• Appraisal fees

• Prepaid escrows (taxes and insurance)

UFMIP Refund Opportunity:
If you took out an FHA loan within the past three years, you may be eligible for a partial UFMIP refund, which can lower your closing costs.

Ongoing Mortgage Insurance Premium (MIP)

Unlike conventional loans, which do not require mortgage insurance for LTVs of 80% or lower, all FHA loans require ongoing MIP.

For most FHA cash-out refinances, this amounts to:

• 0.5% annual MIP (paid for 11 years if LTV ≤90%, or for the full loan term if LTV >90%)

How to Apply for an FHA Cash-Out Refinance

The process of applying for an FHA cash-out refinance involves five key steps:

1. Determine Your Current Loan Balance

Check your mortgage statement or online loan portal for your payoff amount. A rough estimate is fine at this stage, but you’ll need an exact balance later in the process.

2. Calculate Your Potential Cash-Out Amount

Use your home’s estimated value and current loan balance to determine your maximum loan amount.

💡 Formula:
(Home Value × 0.8) - Current Mortgage Balance = Maximum Cash-Out Amount

📌 Example:

• Home value: $350,000

• 80% max LTV: $280,000 (350,000 × 0.8)

• Current loan balance: $175,000

• Max cash-out (before closing costs): $105,000 ($280,000 - $175,000)

3. Compare Multiple Lender Quotes

Never accept the first offer you receive. To secure the best deal:

• Get quotes from at least three lenders

• Compare interest rates, closing costs, and fees

• Use the best offer as leverage to negotiate lower rates with other lenders

4. Proceed with Underwriting and Home Appraisal

Once you choose a lender and accept their Loan Estimate, the process moves to:

• Appraisal: Determines your home’s fair market value

• Underwriting: Lenders verify your credit, income, assets, and debt obligations

5. Close on Your Loan and Receive Funds

If your loan is approved:

• You’ll sign all necessary documents at closing

• Due to federal regulations, cash-out refinance funds are disbursed on the fourth business day after closing

• The funds are typically sent via wire transfer or check

⏳ Processing Timeline:
FHA cash-out refinances usually take 30-60 days to complete, depending on lender workload and appraisal availability.