FHA Cash-Out Refi at 668 Credit Score: How I Consolidated $41K in Debt and Improved My Credit to 721

I had a 668 credit score—right in the middle range. Not terrible, but not great. And I had $41,000 in high-interest credit card debt at 21.6% average rate costing me $8,856/year.

When I applied for conventional cash-out refinance, I got denied. My credit score was below the 680 minimum most conventional lenders require.

But FHA cash-out refinance approved me at 668 credit score and helped me consolidate all $41,000 debt, save $548/month, and improve my credit to 721 within 8 months.

Here’s exactly how FHA cash-out refi works for middle credit scores (640-699), the complete approval process, interest rates versus conventional, upfront mortgage insurance costs, and how debt consolidation dramatically improved my credit score from 668 to 721.

My Credit and Debt Situation

Credit profile:

• Middle credit score: 668 (TransUnion 671, Experian 668, Equifax 665)
• Credit utilization: 76% ($41,000 used of $54,000 total limits)
• Payment history: 100% on-time (no late payments ever)
• Credit age: 8 years average
• Recent inquiries: 2 in past 6 months
• Collections: $0
• Bankruptcies: None

My 668 score wasn’t bad—I’d never missed a payment. But high credit card utilization (76%) was destroying my score and keeping it in the middle range despite perfect payment history.

Debt to consolidate:

• Credit card 1: $15,800 at 23.99% → $395/month minimum
• Credit card 2: $13,400 at 21.49% → $335/month minimum
• Credit card 3: $8,200 at 19.99% → $205/month minimum
• Store card: $3,600 at 24.99% → $90/month minimum
• Total debt: $41,000
• Average interest rate: 21.6%
• Monthly payments: $1,025
• Annual interest: $8,856

At minimum payments, I’d pay off this debt in 5.6 years but would pay $27,600 in total interest—67% more than the $41,000 I borrowed.

Home equity position:

• Home value: $340,000 (FHA appraisal)
• Current FHA mortgage: $229,000 at 4.5% (FHA loan from 2019)
• Current payment: $1,160/month (includes MIP)
• Remaining term: 26 years
• Equity: $111,000 (33%)

I had plenty of equity for debt consolidation. But with my 668 credit score, would I qualify for cash-out refi?

Why Conventional Cash-Out Refi Denied Me (668 Score Too Low)

I first tried conventional cash-out refinance at three lenders:

Conventional cash-out refi requirements:

• Minimum credit score: 680 (I had 668 = denied)
• Maximum LTV: 80%
• Rate quoted (if I qualified): 6.75% for 720+ score, likely 7.25% for 680-699 score
• PMI required: Yes, if under 20% equity after cash-out
• Closing costs: $7,500-$9,000

All three denied me for credit score below 680. One lender said: “If your middle score reaches 680, reapply and we can proceed.”

I had two options:

1. Wait 4-6 months to improve credit to 680+ (but continue paying 21.6% debt interest meanwhile)
2. Try FHA cash-out refinance (accepts 620+ credit scores)

I chose FHA cash-out refi to consolidate debt immediately rather than waiting months while paying $8,856/year in credit card interest.

FHA Cash-Out Refi Requirements and My Approval

FHA cash-out refinance has different requirements than conventional:

FHA cash-out refi requirements:

• Minimum credit score: 580 for 90% LTV, 600+ for 80% LTV (I had 668 = qualified easily)
• Maximum LTV: 80% (stricter than conventional’s 80% but more accessible)
• Occupancy: Must be owner-occupied primary residence (I met this)
• Seasoning: Must own home 12+ months (I owned 5 years)
• Payment history: No late mortgage payments in past 12 months (I had perfect history)
• Debt-to-income: Maximum 50% back-end DTI (I was 44%)

My FHA cash-out refi quote:

• New loan amount: $270,000 (includes $41K debt payoff)
• Interest rate: 7.125% (0.375% higher than conventional’s 6.75% baseline)
• New monthly payment: $2,015 (P&I + MIP)
• Closing costs: $8,900 (includes 1.75% upfront MIP = $4,725)
• Term: 30 years
• LTV: 79.4% ($270K / $340K)

FHA approval took 28 days from application to closing. The lender through Browse Lenders specialized in FHA loans and understood exactly how to structure my application for approval at 668 score.

FHA Mortgage Insurance: The Hidden Cost

FHA loans require two types of mortgage insurance:

1. Upfront Mortgage Insurance Premium (UFMIP):

• Cost: 1.75% of loan amount
• My UFMIP: $270,000 × 1.75% = $4,725
• Financed into loan (added to principal, not paid at closing)
• This increased my total loan from $265,275 to $270,000

2. Annual Mortgage Insurance Premium (MIP):

• Cost: 0.55% of loan amount annually for loans over 95% LTV OR
• Cost: 0.50% for loans 90-95% LTV OR
• Cost: 0.45% for loans under 90% LTV
• My MIP: 0.45% (79.4% LTV) = $1,215/year = $101/month
• Paid monthly as part of mortgage payment
• Cannot be removed (FHA MIP for life on cash-out refi)

My total closing costs breakdown:

• Lender fees: $1,950
• Title and escrow: $1,480
• Appraisal: $645
• Recording fees: $125
• Prepaid interest and escrow: $700
• Total cash at closing: $4,900
• Plus UFMIP financed: $4,725
• Total closing costs: $9,625

The UFMIP ($4,725) being financed into my loan was convenient—I didn’t need that cash at closing—but it increased my total loan amount and means I’m paying interest on that mortgage insurance premium for the life of the loan.

Monthly Payment Comparison: Before and After

Before FHA cash-out refi:

• FHA mortgage: $1,160/month (P&I + MIP)
• Debt payments: $1,025/month minimum (I paid $1,250 with extra)
• Total: $2,185/month ($2,410 with my extra debt payments)

After FHA cash-out refi:

• New FHA mortgage: $1,820/month (P&I only)
• Annual MIP: $101/month
• New total mortgage: $1,921/month
• Debt payments: $0
• Total: $1,921/month

Net savings: $2,410 - $1,921 = $489/month (based on what I was actually paying) Net savings on minimums: $2,185 - $1,921 = $264/month

Wait, I said I saved $548/month in the title. Where does that number come from?

I was actually planning to increase my debt payments to $1,300/month to accelerate payoff. So my planned budget was:

• Mortgage: $1,160/month
• Planned debt payments: $1,300/month
• Total planned: $2,460/month

Savings vs planned budget: $2,460 - $1,921 = $539/month

Rounding to $548/month accounts for eliminating one debt payment I’d already scheduled for the following month before the refi closed.

Interest Rate: FHA vs Conventional Comparison

FHA cash-out refi rates are typically 0.25-0.50% higher than conventional for the same credit score:

My FHA rate: 7.125%

• Base rate for 668 credit score on FHA cash-out
• Includes lender fees and points
• Fixed for 30 years

Conventional rate (if I qualified at 680 score):

• 720+ score: 6.75% baseline
• 680-699 score: 7.0-7.25% (estimated, since I didn’t qualify)
• My 668 score: Would not qualify (minimum 680)

Even though FHA rate was slightly higher, it was my only option at 668 credit score. Conventional lenders wouldn’t approve me.

Effective rate with MIP:

• Stated rate: 7.125%
• Annual MIP: 0.45% = $101/month = $1,215/year
• Effective cost: $1,820 × 12 + $1,215 = $22,860/year in mortgage costs
• Effective rate: ($22,860 ÷ $270,000) = 8.47% effective rate

The monthly MIP of $101 increases my effective borrowing cost from 7.125% to 8.47%. This is important to understand—FHA loans are more expensive than conventional due to lifetime MIP.

But compared to my 21.6% credit card debt, even 8.47% effective rate was a massive savings.

Total Interest Savings: Debt vs FHA Cash-Out Refi

Let me compare total interest costs:

Scenario A: Keep debt, pay off in 5 years at $1,300/month

• Total interest on $41K debt at 21.6% (5 years): $22,800
• Mortgage interest on $229K at 4.5% (5 years): $50,200
• Total interest: $73,000

Scenario B: FHA cash-out refi

• Total interest on $270K at 7.125% (5 years): $93,900
• MIP costs (5 years): $6,075
• Closing costs: $4,900 (cash paid)
• UFMIP financed: $4,725 (paying interest on this)
• Total cost: $109,600

Wait—FHA cash-out refi costs me $36,600 MORE in interest over 5 years than keeping debt separate?

Yes. But here’s why I still chose it:

1. My 668 credit score meant no conventional option

• I couldn’t qualify for conventional cash-out refi at all
• My only alternatives were: FHA cash-out refi OR personal loan at 12-14% OR keep paying 21.6% credit cards
• FHA was the best available option

2. Credit score improvement opened future refinance option

• My credit improved 668 → 721 in 8 months (detailed below)
• At 721, I can refinance to conventional and remove MIP
• Refinancing to conventional at 6.5% would save $15,200 over remaining loan term

3. Predictable fixed payment vs variable credit card rates

• Credit card rates were increasing (started at 18% avg, now 21.6% avg)
• FHA 7.125% is fixed for 30 years
• Eliminates risk of future rate increases

4. Mental health and stress reduction

• Managing 4 credit card payments was overwhelming
• One single mortgage payment is dramatically simpler
• Reduced financial stress improved my overall wellbeing

5. Tax deductibility of mortgage interest

• Mortgage interest is tax-deductible (consult tax advisor)
• Credit card interest is NOT deductible
• Effective after-tax cost of FHA loan is lower

How Debt Consolidation Improved My Credit 668 → 721

This was the unexpected benefit. Here’s how my credit improved after FHA cash-out refi:

Before cash-out refi (668 score):

• Credit utilization: 76% ($41,000 / $54,000 limits)
• Total credit card debt: $41,000
• Payment-to-income ratio: High (44% DTI)
• Available credit: $13,000
• Average account balance: $10,250

Immediately after cash-out refi (673 score - 5 point jump):

• Credit utilization: 2% ($1,200 / $54,000 limits)
• Total credit card debt: $1,200 (kept one small balance for credit mix)
• Payment-to-income ratio: Lower (36% DTI)
• Available credit: $52,800
• Average account balance: $300
• New mortgage inquiry: -5 to -10 points temporarily

3 months after cash-out refi (695 score - 27 point jump):

• Credit utilization: 1% ($600 / $54,000 limits)
• All accounts current and low balance
• New mortgage established with on-time payments
• Credit inquiry impact fading

8 months after cash-out refi (721 score - 53 point jump):

• Credit utilization: 0% ($0 / $54,000 limits)
• 8 consecutive on-time mortgage payments
• Debt-to-income improved to 34%
• Credit inquiry impact gone
• All negative utilization impact removed
• Crossed into “good credit” range (700+)

Credit score factors that improved:

1. Utilization dropped 76% → 0% (largest impact, +45 points)
2. Payment history remained perfect (maintained 100% on-time)
3. Debt-to-income improved (44% → 34%, indirect credit benefit)
4. Credit mix improved (added installment loan to existing revolving credit)
5. Available credit increased ($13K → $54K, shows responsible management)

The 53-point credit improvement (668 → 721) was life-changing. At 721, I now qualify for:

• Conventional refinance (can remove FHA MIP)
• Better credit card offers (0% balance transfer if needed)
• Lower auto loan rates
• Better personal loan rates
• Improved middle credit score positioning for all future credit applications

My Plan to Refinance Out of FHA into Conventional

Now that my credit is 721, I’m planning to refinance from FHA to conventional to eliminate the lifetime MIP:

Current FHA loan:

• Balance: $267,600 (after 8 months payments)
• Rate: 7.125%
• Payment: $1,820 + $101 MIP = $1,921/month
• MIP for life (cannot remove)

Conventional refi target (when rates improve):

• Balance: ~$267,000
• Target rate: 6.25-6.5% (rates need to drop from current 6.75%)
• Estimated payment: $1,645/month (no MIP)
• Savings: $276/month ($101 MIP + $175 from lower rate)

I’m waiting for rates to drop to 6.5% or lower before refinancing. At current 6.75-7.0% conventional rates, refinancing now wouldn’t save enough to justify the closing costs.

But once rates drop 0.5-0.75%, I’ll refinance to conventional, eliminate the lifetime MIP, and reduce my interest rate—saving approximately $276/month or $3,312/year.

The FHA cash-out refi was a stepping stone to access debt consolidation at 668 credit score, improve my credit to 721, and eventually refinance to conventional to eliminate MIP and get better rates.

FHA Cash-Out Refi: When It Makes Sense for Middle Credit Scores

Choose FHA cash-out refi if:

1. Your credit score is 620-679 (middle range)

• Conventional requires 680+ minimum
• FHA accepts 580+ (best rates at 640+)
• I qualified at 668 when conventional denied me

2. You have significant high-interest debt (15%+ rates)

• My 21.6% credit card debt made FHA’s 8.47% effective rate a huge savings
• Lower debt rates (under 10%) might not justify FHA costs
• Calculate: Is debt rate at least 6-7% higher than FHA effective rate?

3. You can refinance to conventional in 1-3 years

• Debt consolidation will improve your credit (mine went 668 → 721)
• Once credit reaches 700+, refinance to conventional and remove MIP
• FHA is a temporary solution, not permanent

4. Your DTI is under 50%

• FHA allows up to 50% DTI (more flexible than conventional’s 43%)
• My 44% DTI qualified for FHA but might struggle with conventional
• High DTI borrowers benefit from FHA flexibility

5. You’ve owned home 12+ months with perfect payment history

• FHA requires 12-month seasoning and no late payments
• Perfect mortgage history is required for FHA cash-out approval
• I had 5 years ownership with zero late payments

When to Wait for Conventional (Don’t Use FHA)

Avoid FHA cash-out refi if:

1. Your credit score is 680+ already

• Conventional offers better rates and no lifetime MIP
• FHA makes sense for 620-679 scores, not higher
• I would’ve chosen conventional if I qualified

2. You can improve credit to 680+ in under 3 months

• Wait and apply conventional to avoid lifetime FHA MIP
• My 668 score would’ve taken 6+ months to reach 680 naturally
• 3 months of 21.6% debt interest ($2,214) was worth avoiding

3. Your debt interest rates are under 10%

• FHA effective rate (8.47% with MIP) isn’t much savings
• Better to pay off low-rate debt separately
• My 21.6% made FHA worthwhile

4. You’re planning to sell home in under 3 years

• FHA closing costs ($8,900) need time to recover
• My breakeven: $8,900 ÷ $548/month = 16.2 months
• Selling soon means you won’t benefit from consolidation

5. Your remaining mortgage term is under 10 years

• FHA extends to 30-year term (restarts clock)
• I restarted from 26 remaining to 30 years
• Short remaining terms better served by HELOC or personal loan

8-Month Results: Was FHA Cash-Out Refi Worth It?

8 months after FHA cash-out refi:

• FHA mortgage balance: $266,800
• Monthly payment: $1,921 (P&I + MIP)
• Total interest paid: $15,100 (mortgage + MIP)
• Credit score: 668 → 721 (53-point improvement)
• Credit utilization: 76% → 0%
• Total monthly obligations: $2,410 → $1,921 = $489/month savings
• Financial stress: 9/10 → 3/10

If I’d kept the debt:

• Remaining debt: $34,200 (paid down $6,800 at $1,300/month)
• Interest paid: $13,700 on debt + $4,800 on mortgage = $18,500
• Credit score: Likely 668-675 (minimal improvement with 76% utilization)
• Total monthly obligations: Still $2,410/month
• Financial stress: Still 9/10

The FHA cash-out refi consolidated all my debt, saved me $489/month, and most importantly improved my credit 53 points to 721 in just 8 months. I now qualify for conventional refinance to eliminate lifetime MIP once rates improve.

Was FHA worth it despite higher cost than conventional? Yes, because it was my only option at 668 credit score.

The lifetime MIP is expensive, but it’s temporary—I’ll refinance to conventional at 721 credit score and remove it. FHA served as the bridge I needed to consolidate debt and improve credit when conventional loans denied me.

The Bottom Line: FHA Opens Doors for Middle Credit Scores

FHA cash-out refinance accepted my 668 credit score when conventional lenders denied me at their 680 minimum. It consolidated my $41,000 debt at 21.6% into a 7.125% FHA mortgage (8.47% effective with MIP), saved me $548/month, and improved my credit from 668 to 721 in 8 months.

Key FHA benefits for middle credit scores:

• Accepts 620-679 credit scores (conventional requires 680+)
• Flexible 50% DTI limit (versus conventional’s 43%)
• Access to debt consolidation when conventional won’t approve
• Credit improvement from debt payoff (mine: 668 → 721)
• Path to conventional refinance once credit improves

Key FHA drawbacks:

• Lifetime MIP that cannot be removed (0.45-0.55% annually = $101/month for me)
• 1.75% upfront MIP financed into loan ($4,725 for me)
• Slightly higher rates than conventional (7.125% vs 6.75% baseline)
• Higher total cost than conventional (but only option at 668 score)

For middle credit score homeowners (640-679) with high-interest debt, FHA cash-out refinance provides the access to debt consolidation that conventional loans deny. It’s more expensive than conventional due to MIP, but it’s a strategic stepping stone to improve credit and refinance to conventional within 1-3 years.

Connect with FHA specialists at Browse Lenders who understand how to structure FHA cash-out refi applications for middle credit scores and can help you consolidate debt even when conventional lenders say no.

Have questions about FHA cash-out refinance for middle credit scores (640-679) and debt consolidation? Contact our team at support@browselenders.com for personalized guidance.