The Quick Read: Usually, on credit score and debt load, but not on equity or ownership time. An FHA cash-out tops out at 80% of your home’s value, needs 12 months of owning and living in the home, and adds FHA mortgage insurance. Conventional cash-out also caps at 80% on a primary home, so FHA gives you no extra equity to borrow against.
What Does “Easier to Qualify” Actually Mean?
“Easier” is not one thing. A loan can be easier on your credit score and harder on your paperwork. It can forgive a heavy debt load and still demand a year of history in the home.
Lenders look at six things on a cash-out file:
1. Your credit score and credit history.
2. Your debt-to-income ratio, or DTI. This compares your monthly debts to your monthly income.
3. Your equity, shown as loan-to-value, or LTV. LTV is the new loan divided by the home’s appraised value.
4. How long you have owned and lived in the home.
5. Your payment history on the current mortgage.
6. The property itself: its type, its use and its appraisal.
FHA is looser on the first two. It is the same on the third. On the fourth through sixth, it can be stricter or just different. The rest of this piece takes each in turn.
The Scorecard: FHA vs. Conventional
Here is the side-by-side. The conventional column describes general investor guidelines, which vary by lender.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Credit score | Varies by scenario | Generally asks for a higher score |
| Debt load (DTI) | 31/43 base; up to 40/50 with compensating factors | Tighter; the automated underwriting finding governs |
| Equity (LTV) | 80% max | 80% max on a one-unit primary home |
| Ownership time | 12 months owned and lived in | Existing first mortgage must be 12 months old |
| Mortgage insurance | 1.75% upfront plus annual premium | Generally none at 80% LTV or below |
| Property use | Primary residence only | Also second homes, with lower caps |
Easier on credit and DTI: FHA. Equal on equity. Different on ownership time. Harder on cost, because of the insurance. That is the honest verdict.
Why FHA Is More Flexible on Credit and Debt
FHA loans carry government mortgage insurance. That insurance protects the lender if the loan fails. Because the lender has that backstop, FHA guidelines can accept a lower credit score and a heavier debt load.
Conventional loans work differently. Lenders sell most of them to investors, who set tighter standards for borrowers with weaker credit or higher DTI. There is no government backstop, so the file has to look stronger.
Across the wholesale programs we place FHA files with, the starting point is a decision score of 580. That is the floor on the programs Lendmire works with, not the floor for every lender. Some lenders set a higher minimum of their own. Those extra rules are called overlays, meaning a lender’s own limits on top of the program’s. A borrower who is reviewed on paper can still miss a lender’s overlay. That is why the lender you apply through matters.
The DTI side works the same way. The base FHA pair is 31/43. The first number is your housing cost as a share of income. The second is all your monthly debts as a share of income. With documented compensating factors, such as steady savings or a long job history, the ceiling reaches 40/50 at the top tier. Most files are decided by the automated underwriting finding, which weighs the whole picture.
Conventional files get the same automated review. They just tend to have less room at the high-DTI end. If your debt load is the problem, FHA may be the only door that opens.
Where FHA Is Not Easier
Equity, ownership time and property type are where the “easier” story breaks down.
Equity: Same Cap
Many homeowners assume FHA lets them borrow more. It does not. The FHA cash-out reaches 80% LTV. That is the same ceiling as conventional on a one-unit primary home. HUD cut the FHA cap from 85% to 80% in Mortgagee Letter 2019-11. The Fannie Mae eligibility matrix also shows 80% for a one-unit primary residence. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Both programs leave you with about 20% equity in the home. If you have less than that, neither cash-out works.
Ownership Time: Different Gates
FHA wants the home owned and lived in for 12 months before the case number is assigned. The case number is the file’s FHA identifier. At least one borrower must have lived there as a primary residence for that year. Utility bills or employment records can help show it.
Conventional has its own clock. Fannie Mae requires the existing first mortgage to be at least 12 months old before it can be paid off in a cash-out, per its Selling Guide. It also has a delayed-financing exception for homes bought with cash within the past six months. FHA has no matching exception.
Two edge cases are worth knowing. An inherited home can skip FHA’s minimum occupancy period, as long as you have not treated it as an investment property. And a manufactured home must have been permanently installed on its site for more than 12 months.
Payment History: Clean Recent Record
Both programs look hard at your recent mortgage payments. On FHA, a late payment in the past year can stop a cash-out. Rules on how many late payments are tolerated vary by lender and change over time, so ask before you assume. Recent lates hurt on either side.
Property Type: FHA Is Narrower
FHA cash-out is for the home you live in. A second home or rental is out. Conventional is wider, but its equity caps drop for second homes and for two-to-four-unit properties. The same Fannie Mae matrix shows the lower caps. If the home is not your primary residence, occupancy decides your leverage, and FHA is not an option.
The Cost of Easier Qualification
FHA’s flexibility is paid for in mortgage insurance. There are two parts.
The upfront premium is 1.75% of the base loan. Most borrowers finance it, which means it is added to the loan balance. HUD sets this in its mortgage insurance policy, with limited exceptions such as certain streamline refinances of older FHA loans.
The annual premium runs between 0.15% and 0.75% of the balance. Where you land depends on the loan term, the loan amount and the LTV. On a thirty-year loan above 90% LTV, the annual premium lasts for the full term. At or below 90% LTV, it ends after eleven years. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Because an FHA cash-out stops at 80%, it falls in the shorter eleven-year bucket. Still, you pay for those eleven years.
Many homeowners believe FHA insurance disappears once they have 20% equity. It does not. Cancellation depends on the original loan terms, not on today’s equity. HUD publishes the termination rules, and your loan officer can walk you through them for your loan.
Conventional at 80% LTV or below generally carries no mortgage insurance. It can carry loan-level price adjustments, which are fees built into the loan’s pricing. These depend on credit score and LTV. A borrower with strong credit often sees them stay modest. A borrower with weak credit may see them add up, which narrows the cost gap.
Here is the practical rule. The longer you plan to keep the loan, the more the insurance matters. If you might sell or refinance within a few years, FHA’s extra cost has less time to bite.
One Borrower, Two Programs
Picture a homeowner with a mid-range credit score and a heavy debt load. She has owned and lived in her home for several years. She has about 35% equity and wants cash to pay off credit cards and fix a roof.
On a conventional file, her debt load puts her near the edge. The automated finding comes back marginal, and the lender may ask for a lower DTI or stronger reserves. Reserves are cash left in the bank after closing.
On an FHA file, the same debt load fits inside the 40/50 range if her compensating factors are documented. She qualifies, within the 80% cap. She pays the 1.75% upfront premium, which is financed. She also pays the annual premium for eleven years.
Now flip her profile. Say her score is strong and her debts are light. Conventional approves her easily. She pays no mortgage insurance at 80% LTV or below. FHA would cost her more for no benefit. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Same home, same equity, same cash goal. The difference is her credit and debt, and that decides which loan is easier and which is cheaper. Both results are subject to lender guidelines and full file review.
Which One Fits You?
Use this table as a starting point, not a verdict.
| Your situation | Likely better fit |
|---|---|
| Lower score, heavy debts | FHA |
| Strong score, moderate debts | Conventional |
| Home is a second home or rental | Conventional only |
| Need cash within the first year of owning | Only conventional, and only if you bought the home with cash and use its delayed-financing exception; FHA needs a full 12 months |
| Qualify for both, keeping the loan long | Conventional |
| Qualify for both, may sell soon | Compare total costs |
If you qualify for both, compare the full cost, not just the approval. Your Loan Estimate lays out closing costs and cash to close, and the CFPB’s Loan Estimate guide explains how to read it.
If you already hold an FHA loan, the question becomes whether to stay FHA or switch. Lendmire’s piece Cash-Out Refinance With an Existing FHA Loan: Stay FHA or Switch to Conventional? covers that decision.
The Lendmire team arranges the FHA cash-out refinance program through wholesale lenders. That lets you compare it against conventional on the same home.
Improving Your Odds on Either Program
Some fixes help on both sides. Others help one more than the other.
- Pay down revolving debt. Lower card balances improve your DTI and often your score.
- Keep your mortgage current. Recent late payments can block a cash-out on either program.
- Document compensating factors. For FHA, savings, steady employment and low payment shock all count toward the 40/50 range.
- Do not open new credit. A new account moves your score and your DTI at the wrong time.
- Know your credit event dates. HUD’s waiting periods are two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules. Individual lenders may require more.
- Check your equity first. If the 80% cap leaves too little cash, a cash-out may not do what you need.
If you only need to pay off your current loan and roll in costs, you may not need a true cash-out. Conventional has a limited cash-out option with a higher LTV ceiling and a small cap on cash back. It can be the better choice for that goal.
Key Terms Defined
Cash-out refinance: A new mortgage that pays off your old one and gives you the difference in cash. The proceeds can be used for any purpose.
LTV (loan-to-value): The loan amount divided by your home’s appraised value. A higher LTV means less equity.
DTI (debt-to-income): Your monthly debt payments divided by your monthly income. FHA’s base pair is 31/43.
Seasoning: The waiting period a lender wants before you can refinance, such as 12 months of ownership.
Overlay: A lender’s own rule that is stricter than the program’s minimum.
Mortgage insurance premium: A charge that protects the lender if the loan fails. FHA charges an upfront and an annual premium.
Frequently Asked Questions
Can I get an FHA cash-out with bad credit?
Possibly, but “bad” matters. The programs we place FHA files with start at a decision score of 580. Below that, our network does not reach, even though HUD has a lower tier with a 10% minimum investment on purchases. Some lenders set a higher floor still. A recent late payment or a credit event inside HUD’s waiting periods can also block the loan.
Do I need an existing FHA loan to do an FHA cash-out?
No. A cash-out replaces any existing mortgage, or taps equity where no mortgage exists. The loan you hold now can be conventional, FHA or another type. The 12-month ownership and occupancy gate applies either way.
Can I use an FHA cash-out on a second home or rental?
No. FHA is for your primary residence only. Conventional cash-out can work on a second home, but at a lower LTV cap than the 80% on a primary home.
Can I switch to conventional later to drop the mortgage insurance?
Often, yes. If your credit improves and you keep at least 20% equity, a conventional refinance generally carries no mortgage insurance. That ends the FHA premium, but it comes with new closing costs. Whether it pays off depends on how long you keep the new loan.
Does the 80% cap guarantee I will get that much cash?
No. The cap is a ceiling, not a promise. The lender also weighs your income, credit, payment history, the new loan’s payment and the appraisal. Your closing costs and the financed upfront premium reduce the cash you actually receive.
Next Step
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. For the conventional side, see Lendmire’s explainer on the maximum LTV for a conventional cash-out refinance. All program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
2. Fannie Mae Eligibility Matrix
3. Fannie Mae Selling Guide, B2-1.3-03: Cash-Out Refinance Transactions
4. HUD Mortgagee Letter 2015-01, Appendix 1.0
5. CFPB: Understand Your Loan Estimate
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: How to Qualify for an FHA Cash-Out With Debts Paid at Closing · How Much Equity an FHA Borrower Needs for a Conventional Cash-Out · FHA Cash-Out Appraisal Requirements for Value and Repairs
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
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.