The Quick Read: It depends on your credit, your equity, and how long you have owned the home. For a one-unit home you live in, both FHA and conventional cash-out reach about 80% of the home’s value. FHA tends to fit borrowers whose credit is bruised and who accept mortgage insurance on the whole loan. Conventional tends to fit borrowers with stronger credit and a first mortgage that is at least a year old. Either way, the cards become debt secured by your home. Program terms are subject to lender guidelines and full file review.
Side-by-Side
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | 80% of value | 80% on a 1-unit home; 75% on 2-4 units |
| Credit tolerance | Wider; wholesale programs start at a 580 decision score | Generally stricter; varies by lender |
| Mortgage insurance | Upfront and annual premium on the loan | Private insurance and credit-based pricing adjustments |
| Occupancy | Owner-occupied principal residence only | Principal residence; second homes and investment properties at lower leverage |
| Seasoning | Owned and occupied 12 months before the case number | Existing first mortgage at least 12 months old; title time also tested |
| Documentation | Income, credit, payment history, appraisal | Income, credit, payment history, appraisal |
| Debt ratios | Base 31/43; documented factors reach 40/50 | Set by the automated finding and lender overlays |
Leverage on the conventional side comes from the Fannie Mae Eligibility Matrix. Check the loan you are actually offered.
Who Each Option Is Really For
FHA is the tool for the borrower who has equity but a credit profile that conventional pricing punishes. Conventional is for the borrower with solid credit who wants mortgage insurance that is priced to their file rather than set by a program schedule.
The leverage is not the difference. Many people assume FHA reaches higher. It does not on a cash-out. HUD Mortgagee Letter 2019-11 cut the FHA cash-out cap from 85% to 80% of the adjusted value, to limit risk to the FHA insurance fund. An earlier HUD Mortgagee Letter 2009-08 had set the 85% rule. The older 95% figure you may still see online is history.
The real differences sit in credit tolerance, mortgage insurance, and seasoning. Those three decide most files.
How Cash-Out Actually Pays the Cards
A cash-out refinance replaces your current first mortgage with a larger one. The new loan pays off the old mortgage, covers closing costs, and leaves cash. That cash retires the card balances.
The math is simple and the appraisal drives it. Maximum loan equals the leverage cap times the appraised value. Subtract the old mortgage payoff, closing costs, and any financed mortgage insurance. What remains is the cash for the cards. A low appraisal cuts the cash directly.
Two points trip people up.
1. The new loan resets the whole balance. The terms of the new mortgage apply to the entire balance, not just the extra cash. If your current mortgage is on better terms than anything available now, that matters more than the card interest you save.
2. Only eliminated payments leave the ratio. Underwriting counts the new mortgage payment, including mortgage insurance on FHA. Card payments come out of your debt ratio only if the accounts are actually paid off. Whether the lender pays creditors directly or sends you the cash varies by lender and file.
Paying off cards also lowers your utilization, which often lifts credit scores. The federal consumer-finance regulator found that cash-out borrowers saw an initial sharp score improvement, followed by a gradual worsening. Scores generally stayed above pre-refinance levels. The cards can fill back up. The plan has to include that risk.
When FHA Cash-Out Is the Better Fit
FHA fits when credit is the obstacle. Across the wholesale programs Lendmire places FHA loans with, the floor starts at a 580 decision score. Debt ratios start at 31/43 and can reach 40/50 when compensating factors are documented, and the automated finding governs most files. That flexibility is why borrowers with high card balances often land here: the balances that hurt the credit score are the same ones being paid off.
It also fits when payment history is clean but the score is middling. Mortgage payment history on the existing loan matters on both products. The FHA path just weighs the rest of the file differently.
Know the conditions before you plan around it.
- Occupancy: the home must be your principal residence. The program is built for owner-occupants.
- Seasoning: you must have owned and occupied the home for 12 months before the case number is assigned. A home inherited within the past 12 months can qualify if you have lived in it since, with the inheritance documented.
- Mortgage insurance: FHA charges an upfront premium of 1.75% of the base loan, usually financed, and an annual premium between 0.15% and 0.75% of the balance. On a thirty-year loan above 90% LTV the annual premium lasts the full term. At or below 90% it ends after eleven years. A cash-out at 80% LTV falls in the second group, subject to the loan terms and lender guidelines.
- Existing FHA loans: the FHA Streamline is a no-cash-out product, so it cannot fund a card payoff. If you already hold an FHA loan, a cash-out is a separate decision with its own premium and credit review.
- Non-occupant co-borrower: one cannot be added on a cash-out to meet credit guidelines.
County loan limits apply and change every year. The FHA cash-out refinance program page covers how Lendmire’s wholesale network structures these files.
When Conventional Cash-Out Is the Better Fit
Conventional fits when your credit is strong. Risk-based pricing adjustments reward good credit, and private mortgage insurance is priced to your file. Fannie Mae publishes a Loan-Level Price Adjustment matrix showing that pricing varies by credit and leverage. FHA premiums follow a program schedule, so a strong-credit borrower may find the conventional path less costly over time. A borrower with weaker credit often finds the reverse.
It also fits when the home is not a simple one-unit primary residence. The matrix allows cash-out on second homes and investment properties at lower leverage. A 2-4 unit principal residence is capped at 75%, below the 80% for a 1-unit.
The seasoning tests are different from FHA’s. Under Fannie Mae’s Selling Guide, a first mortgage being paid off must be at least 12 months old. At least one borrower generally must have been on title for six months, with exceptions, including a delayed financing exception for cash purchases. The 12-month first-lien test does not apply to a limited cash-out refinance, which pays existing liens and costs but gives no cash for cards.
Files that assume seasoning away get kicked back. Check the note date on your current mortgage before you plan.
The Risk Both Options Share
Moving card debt into a mortgage does not erase it. It relocates it. The CFPB’s report on cash-out refinances and debt paydown says converting non-mortgage debt into mortgage debt can put the home at risk of foreclosure if payments become unsustainable. Defaulting on a card is unlikely to cost you the home.
Three costs deserve a hard look.
- A lower payment is not a lower cost. Short-term revolving debt becomes long-term debt. Total interest can rise even when the monthly payment falls.
- Equity gets spent. The same report notes cash-out draws down wealth you might need later.
- Closing costs shrink the cash. They can be financed, but they reduce what reaches the cards.
The CFPB has also noted that home equity lines tend to carry lower rates, payments, and foreclosure risk than cash-out refinances. For a smaller balance, or when your current mortgage terms are strong, a home equity loan, a line of credit, or nonprofit credit counseling may beat either product here. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Adjusted value: The value HUD uses to test FHA leverage, which can be the lesser of appraised value or original sales price for a recent purchase.
Seasoning: The minimum time you have owned the home, or held the existing loan, before a cash-out is allowed.
Loan-to-value (LTV): The new loan balance divided by the home’s value.
Mortgage insurance: Coverage that protects the lender on a high-leverage loan. FHA charges it as upfront and annual premiums. Conventional loans use private insurance and pricing adjustments.
Limited cash-out (rate-and-term): A refinance that pays existing liens and costs only, with no cash to the borrower for other debts.
A Balanced Verdict
Choose FHA when credit is the constraint, you meet the 12-month ownership and occupancy test, and you accept mortgage insurance on the full loan. Choose conventional when credit is strong, your existing mortgage is at least a year old, and you want pricing built around your file. On a 1-unit home you live in, neither reaches past 80%.
Skip both if the card balance is small, if you may sell soon, or if you are likely to run the cards back up. In those cases the cost of the new loan can outweigh the card interest you save. Run the comparison on total cost over the time you expect to hold the loan, not the monthly payment.
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. Reach the team at 828-256-2183 or request a quote through the quote page.
Frequently Asked Questions
Does FHA cash-out go higher than conventional?
No. Both reach about 80% of value on a one-unit primary residence. FHA’s cap fell from 95% to 85% in 2009 and to 80% in 2019. The differences are in credit tolerance, mortgage insurance, and seasoning.
Will the lender pay my credit cards directly?
It varies by lender and file. Some arrangements send payoffs to creditors at closing and others deliver cash to you. Ask early, because it affects how cleanly the debt ratio drops.
Can I switch from FHA to conventional, or the reverse, to consolidate cards?
Yes, in many cases, since a cash-out replaces the old loan entirely. Each side applies its own seasoning, credit, and insurance tests. Moving off FHA ends its premiums but brings conventional pricing. Moving onto FHA does the reverse. Compare the full cost, not the payment.
Does paying off cards raise my credit score?
Often, because utilization falls. The CFPB found a sharp initial improvement followed by a gradual decline, with scores generally staying above pre-refinance levels. Rebuilding balances erases the gain.
Is a cash-out refinance the safest way to clear card debt?
Not necessarily. It converts unsecured debt into debt secured by your home. A home equity line, a home equity loan, or credit counseling may carry less foreclosure risk, depending on your situation.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Eligibility Matrix
2. HUD Mortgagee Letter 2019-11
3. HUD Mortgagee Letter 2009-08
4. CFPB
5. Loan-Level Price Adjustment matrix
6. Fannie Mae Selling Guide B2-1.3-03
7. CFPB, Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
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: Refinancing An FHA 203(k) Loan After The Renovation Is Done · FHA Simple Refinance Vs FHA Streamline: The Appraisal Makes The Difference · FHA Cash-out Refinance Credit Requirements: The Floor And The Overlays Above It
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.