The Quick Read: An FHA cash-out suits you if your credit is thinner or your debt load is heavy, and you can live with FHA mortgage insurance. A conventional cash-out suits you if your credit is strong and you want a mortgage insurance structure that can end sooner. Both pay off your current FHA loan and hand you the difference. The real split is how each one treats your credit, your equity, and the insurance. Program details are subject to lender guidelines and full file review.
Here is the honest referee’s answer. Neither option wins on every file. FHA cash-out tolerates a wider range of credit profiles, but it caps you at 80% of your home’s value and adds a new upfront premium. Conventional cash-out can look better once your credit has improved, but it asks for more seasoning on your existing loan and drops the FHA connection entirely.
Lendmire is a mortgage broker. It arranges FHA and conventional loans through wholesale lenders and does not lend directly. That vantage point is useful here because the same borrower often gets quotes on both.
Side-by-Side
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | 80% LTV | Set by occupancy and unit count |
| Credit floor | Varies by lender and scenario | Generally higher than FHA |
| Mortgage insurance | Upfront plus annual premium | PMI only where equity is thin |
| Insurance duration | Set by HUD’s table | Cancellable by law |
| Occupancy | Owner-occupied principal residence | Varies by occupancy |
| Debt ratios | 31/43 base, up to 40/50 with factors | Driven by automated findings |
| Existing-loan clock | 12 months of payment history | First mortgage 12 months old |
| Ownership clock | 12 months owned and lived in | 6 months on title |
Conventional leverage varies. Caps depend on occupancy and unit count, and a lender may add its own overlay. Ask for the cap that applies to your property.
What Each Option Has in Common
Both are true cash-out refinances. A new loan replaces your current one, and you receive the leftover equity as cash. Both start with an appraisal. Both raise your balance, and a cash-out typically means a larger balance and a bigger monthly obligation than the loan it replaces, per the federal consumer-finance regulator’s research blog on cash-out borrowers.
Neither is the same as a limited cash-out refinance. That product allows only a small amount of cash back, so it works like a rate-and-term refinance. If you only want a better structure, a different product may fit.
What Changes When You Already Hold an FHA Loan
Your current FHA loan shapes both paths in ways generic comparisons skip.
Staying FHA. The FHA cash-out refinance program reaches 80% LTV on a home you have owned and lived in for 12 months. HUD lowered that cap in Mortgagee Letter 2019-11, so older advice about borrowing a higher share of value is out of date. You also take on a new upfront mortgage insurance premium, which can be financed. An FHA-to-FHA refinance within a limited window can earn a partial refund credit on the old upfront premium. The schedule is HUD’s, so ask your lender how it applies to you.
Leaving FHA. A refinance into a conventional loan generally does not recover the old upfront premium. That is a real cost of switching, and it belongs in your comparison. In exchange, you leave FHA’s insurance schedule behind.
The insurance fork. On a thirty-year FHA loan above 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years. Because an FHA cash-out stops at 80%, it normally lands in the shorter bucket, though your lender should confirm against HUD’s table. Conventional PMI works differently. Federal law lets you request cancellation when the balance is scheduled to reach 80% of the original value, and it ends automatically at 78%, according to the CFPB’s PMI guidance. FHA premiums do not follow that rule.
And here is the catch. A conventional cash-out that leaves you with at least 20% equity may carry no PMI at all. A conventional cash-out that leaves you thinner will carry it. Equity after the cash-out matters as much as credit.
The payment-history test. FHA wants your mortgage paid within the month due for the previous 12 months, or since the loan began if shorter. The month before disbursement counts too. If you were in forbearance, HUD requires a completed plan plus 12 consecutive on-time payments before a cash-out, per Mortgagee Letter 2020-30. A purchase or no-cash-out refinance asks for only three. That gap catches people off guard.
The conventional clocks. Under the Fannie Mae Selling Guide, your existing first mortgage must be at least 12 months old, counted from its note date. At least one borrower must also have been on title for six months. These are two separate clocks, and meeting one does not satisfy the other. If you refinanced into your FHA loan recently, check the note date before you plan anything.
When FHA Cash-Out Is the Better Fit
Choose FHA when flexibility matters more than the lowest long-run insurance cost. In practice, these borrowers tend to land here:
- Credit still rebuilding. The wholesale programs Lendmire places FHA loans with start at a 580 decision score. Conventional programs generally want more.
- Heavier debt loads. FHA ratios start at 31/43 and can reach 40/50 with documented compensating factors, at the top tier. Many conventional files lean harder on the automated finding.
- A recent credit event. HUD’s own waiting periods apply: two years from a chapter 7 discharge and three from a foreclosure. These are HUD rules, not a network promise.
- Equity that is moderate, not large. At 80% LTV, FHA leaves you room, and the insurance ends after eleven years instead of lasting the term.
- A clean 12-month payment record. That is the entry ticket. Without it, the file stalls.
FHA also has limits. It only covers an owner-occupied principal residence. County loan limits apply and change every year. A non-occupant co-borrower generally does not help on a cash-out, so confirm the current Handbook text with your lender.
When Conventional Cash-Out Is the Better Fit
Choose conventional when your profile has outgrown what FHA was built for.
- Credit that has improved. If your score has climbed since you took the FHA loan, you may no longer need FHA’s flexibility. A stronger profile can price better on the conventional side, though pricing is something to compare on your Loan Estimate, not assume.
- Substantial equity left over. If you borrow modestly against a lot of equity, PMI may be small or absent.
- A desire for insurance that can end. PMI has statutory exit points. FHA’s duration comes from a table.
- A longer horizon. Giving up the old upfront premium refund makes more sense when you plan to stay put and let the savings build.
Conventional carries its own hurdles. Beyond the seasoning clocks, a loan run through automated underwriting with a debt-to-income ratio above 45% requires six months of reserves. A home listed for sale must come off the market by disbursement. A single-width manufactured home on a principal residence is not eligible for cash-out under Fannie Mae’s matrix.
Which Fits Which Borrower?
| Your Situation | Likely Direction |
|---|---|
| Score improved, plenty of equity | Conventional worth pricing |
| Score near the FHA floor | FHA cash-out |
| High debt ratios, solid payment record | FHA cash-out |
| Recent forbearance, under 12 clean payments | Wait, then reassess |
| Large equity left after the cash-out | Conventional may carry little or no PMI |
| Planning to sell soon | Neither may pay off |
The last row deserves honesty. Closing costs and a reset loan term take time to earn back. The CFPB reported median 2022 mortgage costs of $5,954, across all mortgage types. That figure is context, not a quote for your loan. The principle is simple: if you leave before the monthly benefit covers those costs, you lose.
Check These Alternatives First
A cash-out is not the only way to use your equity, and it is not always the right one.
- FHA Streamline. If you only want a better structure on your current FHA loan, the Streamline needs no appraisal and only a limited credit review. It requires a net tangible benefit, and your premium continues. It does not put cash in your hand.
- FHA rate-and-term with an appraisal. This reaches 97.75% on a principal residence you have occupied for the previous twelve months. Again, no cash out.
- A second lien. A home equity loan or line leaves your first mortgage untouched. That can matter if keeping your existing loan is part of the plan.
- Doing nothing. If the need is small or temporary, borrowing against the home may be the wrong tool.
Costs and Risks You Should Weigh
A cash-out raises your balance and often lengthens your term. The CFPB’s research on paying off non-mortgage debt through cash-out says this makes sense only when the cost of extracting the cash is lower than the cost of the debt it replaces. It also warns that turning credit cards into home-secured debt puts the house at risk.
That risk is the one to respect. Unsecured debt you cannot pay hurts your credit. Secured debt you cannot pay can cost you the home.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Practical Steps Before You Apply
1. Pull your payment history. Confirm 12 clean months, and the month before closing.
2. Check your note dates. The conventional route cares about your first mortgage’s age and your time on title.
3. Estimate your equity after the cash-out. That number drives both the 80% FHA cap and any PMI.
4. Gather occupancy proof. Utility bills or employment records usually do it for FHA.
5. Ask for both options. Compare the Loan Estimates line by line, including insurance treatment and how the old FHA premium is handled.
If your main goal is clearing card balances, Lendmire’s piece FHA Cash-Out vs Conventional Cash-Out to Pay Off Credit Cards walks through that specific use of the cash.
The Balanced Verdict
FHA cash-out is the more forgiving door. Conventional cash-out is the better long-term structure for borrowers whose credit and equity have grown. If your score is near the FHA floor or your ratios run high, FHA likely wins. If your credit has strengthened and you will keep much of your equity, conventional deserves a real look. The deciding numbers, equity after cash-out and months you plan to stay, are yours alone.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
Key Terms Defined
Cash-out refinance: A new mortgage that pays off your old one and gives you the leftover equity as cash.
LTV (loan-to-value): Your loan balance divided by your home’s appraised value.
Seasoning: The waiting period a lender requires before you can refinance or borrow against a home.
PMI (private mortgage insurance): Insurance on a conventional loan, usually required when equity is under 20%.
MIP (mortgage insurance premium): FHA’s insurance, with an upfront piece and an annual piece.
Frequently Asked Questions
Can I take cash out of my FHA loan without staying FHA?
Yes, through a conventional cash-out refinance, if you meet its rules. Your existing first mortgage must be at least 12 months old, and one borrower must have been on title for six months. You also forgo any refund of the old FHA upfront premium.
How much can I borrow on an FHA cash-out?
Up to 80% of your home’s adjusted value, with county loan limits applying. Your lender confirms the exact figure after the appraisal.
Does FHA mortgage insurance ever go away?
Often, yes. On a thirty-year loan at or below 90% LTV, the annual premium ends after eleven years. Above 90%, it lasts for the term. Because an FHA cash-out caps at 80%, it normally falls in the shorter bucket, though your lender should confirm against HUD’s table.
What if I had a forbearance plan on my FHA loan?
You must have completed the plan and then made 12 consecutive on-time payments before an FHA cash-out. A purchase or no-cash-out refinance requires fewer. Ask your lender how your plan documents will be treated.
Is a conventional limited cash-out the same thing?
No. Fannie Mae’s limited cash-out guide caps cash back at the greater of 1% of the new loan or $2,000. It works like a rate-and-term refinance, not a true cash-out.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB’s research blog on cash-out borrowers
2. HUD Mortgagee Letter 2019-11
3. CFPB: When can I remove PMI from my loan?
4. HUD Mortgagee Letter 2020-30
5. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
7. CFPB Office of Research cash-out paper
8. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: FHA Cash-Out Appraisal Requirements for Value and Repairs · Can a Homeowner Consolidate Debt With an FHA Cash-Out Refinance? · How Much Equity an FHA Borrower Needs for a Conventional Cash-Out
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.