The Quick Read: An FHA cash-out refinance on the home you live in carries mortgage insurance. A conventional cash-out at the same leverage generally does not. Both loans stop at a similar ceiling on a one-unit home, so your equity changes how much cash you can take far more than it changes the insurance bill. FHA tends to suit borrowers with thinner credit or tighter debt ratios. Conventional tends to suit borrowers who can clear its credit bar and want no insurance line at all.
Key Takeaways
- FHA cash-out stops at 80% loan-to-value (LTV), so you keep at least 20% equity. That puts every FHA cash-out in the lowest-LTV premium tier.
- FHA charges an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium that runs eleven years at or below 90% LTV on a thirty-year loan.
- Conventional private mortgage insurance (PMI) generally applies only above the 80% line. A cash-out that stops at the cap usually avoids it.
- “No PMI” does not mean “cheaper overall.” Conventional cash-out can cost more in other places, so compare full Loan Estimates.
- Equity sets the size of your cash. It does not move you between FHA premium tiers.
Everything here is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Side-by-Side
Across the wholesale programs Lendmire places FHA files with, the practical differences come down to a short list. Conventional figures below describe the general pattern. Lenders set their own overlays.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Maximum leverage | 80% LTV | About the same on one unit; lower on 2-4 units |
| Credit floor | 580 decision score at these programs | Usually higher; set by lender |
| Mortgage insurance | Upfront 1.75% plus annual premium | Generally none at or below 80% LTV |
| Occupancy | Principal residence, owned and occupied 12 months | Primary home; other occupancies allowed at lower leverage |
| Documentation | Automated finding; 31/43 base ratios, up to 40/50 | Automated finding and lender overlays |
| Insurance duration | Eleven years at 90% LTV or less | Cancels once PMI is no longer required |
Note the rows left out. Pricing is not compared here because it depends on your file, your lender and the day you lock. Leverage, credit, insurance and occupancy decide most of the fit.
Lendmire’s FHA cash-out refinance program follows the FHA column. A broker like Lendmire arranges the loan through wholesale lenders. It does not lend the money itself.
Key Terms Defined
Loan-to-value (LTV): the new loan balance divided by the home’s appraised value, shown as a percentage.
Upfront mortgage insurance premium (UFMIP): a one-time FHA charge of 1.75% of the base loan, which most borrowers finance into the balance.
Annual mortgage insurance premium (MIP): the ongoing FHA charge, collected in monthly installments and set by loan term, loan amount and LTV.
Private mortgage insurance (PMI): the insurance on a conventional loan, generally needed when LTV is above 80%.
Cash-out refinance: a new, larger mortgage that pays off the old one and hands you the difference.
Base loan: the loan amount before any financed upfront premium is added.
Why Equity Doesn’t Move the FHA Premium Much
Equity decides how much cash you can pull, not which insurance tier you land in. FHA caps cash-out at 80% of the home’s adjusted value, and HUD’s Mortgagee Letter 2019-11 lowered that cap. The same limit applies to combined LTV, so any second mortgage counts toward it. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
That cap has a useful side effect. Premium tiers on FHA step up as LTV climbs past 90%. A cash-out loan cannot reach 90%, so it always sits in the lowest-LTV tier. HUD’s premium structure Q&A shows the annual premium split by term, base-loan amount and LTV. Across the whole schedule, the annual premium runs from 0.15% to 0.75% of the balance. Your term and loan amount place you inside that range. Equity above the cap does not.
Here is how that plays out for a homeowner at three equity levels. All figures are percentages of the home’s value.
| Current equity | Room for cash at the 80% cap | FHA insurance | Conventional PMI |
|---|---|---|---|
| 20% | None; closing costs would eat it | Not worth pursuing | Not applicable |
| 35% | Roughly 15% of value, before costs | 1.75% upfront; low-tier annual | Generally none at or below 80% |
| 50% | Roughly 30% of value, before costs | Same tier; upfront scales with loan size | Generally none at or below 80% |
Two things stand out. First, a bigger cash-out is a bigger loan, so the 1.75% upfront premium is a larger piece of money. The percentage never changes, but the amount does. Second, the more equity you leave in the home, the smaller the loan and the smaller the premium base.
The upfront premium and closing costs come out of the same pot as your cash. A homeowner with 25% equity who wants “20% of value in cash” is asking for something the 80% cap does not allow.
When FHA Cash-Out Is the Better Fit
FHA is the better fit when credit or debt ratios, not insurance, are your bottleneck. Many homeowners who ask about FHA cash-out have a score that falls short of what a conventional lender wants. Others carry more monthly debt than conventional ratios tolerate. FHA starts at a 580 decision score across the programs Lendmire works with. Ratios begin at 31/43 with no compensating factors. Documented strengths can stretch them to 40/50 at the top tier, and the automated finding governs most files.
Here are the situations where FHA tends to come out ahead:
- Your credit score sits below a typical conventional floor. A conventional lender may decline you outright. Insurance cost is a moot point if you cannot qualify.
- Your debt ratios run high. Medical bills, student loans or a car payment can push you past conventional limits but still fit inside FHA’s documented range.
- You already hold an FHA loan and want cash. A cash-out FHA loan replaces your old one with a fresh loan carrying its own premium schedule. That cost is real, so weigh it against what the cash does for you.
- A past credit event is behind you. HUD sets waiting periods of two years after a chapter 7 discharge and three years after a foreclosure. Those are HUD’s rules, not a promise from any lender.
FHA premium duration also helps the math. On a thirty-year loan at 90% LTV or below, the annual premium ends after eleven years. HUD’s current rule sits in Handbook 4000.1, Appendix 1.0. Check that appendix for the current schedule, since tiers are tied to loan-amount thresholds that change. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
The honest catch: the premium is the cost of FHA’s flexibility. Over eleven years, a borrower who could have qualified conventionally often pays more in insurance on FHA.
When Conventional Cash-Out Is the Better Fit
Conventional is the better fit when your credit and debt ratios clear the bar with room to spare. At or below the 80% line, PMI generally does not apply. Fannie Mae’s eligibility matrix caps cash-out at 80% on a one-unit primary home and at a lower figure on two- to four-unit homes. It also lists lower limits for manufactured housing.
Conventional tends to win in these cases:
- You have strong credit and moderate debt. You skip the upfront premium and the eleven years of annual premium.
- You plan to stay put for a long time. A permanent insurance line has more time to add up.
- You own a second home. FHA cash-out requires the home to be your principal residence. Conventional programs may allow cash-out on other occupancies at lower leverage.
- You want to keep more of your equity. Conventional can look cheaper on insurance, but the 80% cap still applies on a one-unit primary residence.
Still, “no PMI” is not the same as “cheaper.” Conventional cash-out can carry pricing adjustments built into the loan terms rather than a separate insurance line. The same goes for a larger loan with a different structure. A conventional cash-out with no insurance can cost more over time than an FHA loan with it. Compare the full Loan Estimates, not just the insurance line.
One more wrinkle is the cancellation difference. PMI has a path to removal as equity builds. The CFPB’s page on removing PMI explains that borrowers can request cancellation at 80% of the original value. After a refinance, “original value” means the appraised value at the time of that refinance. The same page notes that FHA insurance follows different rules, so reaching 20% equity does not cancel FHA’s annual premium.
Where Homeowners Get This Wrong
Several myths show up often in this comparison.
- “FHA mortgage insurance is just PMI.” It isn’t. The two follow different cancellation rules, and FHA’s carries an upfront piece.
- “FHA premiums last for life.” On a thirty-year loan, that applies above 90% LTV. A cash-out loan, capped at 80%, falls in the eleven-year group.
- “FHA cash-out goes to 85%.” That was the old rule, before the cap fell to 80%.
- “The premium cut changed the upfront cost.” The 2023 reduction touched the annual premium. The upfront premium stayed at 1.75%.
- “More equity means a cheaper FHA premium.” Not once you are under the cap. The tier stays low. The loan just gets smaller. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Existing FHA Borrowers: Does Refinancing Reset the Clock?
It does, in the sense that a cash-out FHA refinance is a new loan with its own premium schedule. Your old loan’s insurance ends when that loan is paid off. The new loan brings its own upfront premium and its own eleven-year annual premium clock. FHA’s streamline refinance is a different product: it skips the appraisal and requires a net tangible benefit, and the premium continues. A streamline does not give you cash.
Moving from FHA to conventional works the other way. You leave FHA’s insurance behind, but you must meet conventional credit and LTV standards. If you take cash and go above 80%, PMI enters the picture.
A Simple Path to a Decision
Three questions sort most files.
1. Do you have enough equity to take the cash you want after costs? Under the 80% cap, anything beyond your equity above 20% is out of reach on either loan.
2. Does your credit clear conventional standards? If yes, price both. If no, FHA may be the only door.
3. How long will you hold the loan? A long hold favors conventional. If you might refinance or sell within eleven years, FHA’s annual premium is less of a drag.
Some files land in a gray zone: decent credit, moderate debt and a hold of five to ten years. That is a “model both” file. Ask for a Loan Estimate on each and compare the whole package.
The Verdict
This is a fair fight, not a one-sided one. FHA is for borrowers whose credit or debt ratios need flexibility and who accept an upfront and annual premium for it. Conventional is for borrowers who qualify without help and want no insurance line at the 80% cap. Equity shapes how much cash you get. It rarely rearranges the insurance math.
If you are close to qualifying conventionally, price that route first. If you are not, FHA’s premium is the cost of access, and it ends after eleven years at this leverage.
Comparing Your Own Numbers
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. Ask for both options on paper so the insurance, fees and terms sit side by side.
Frequently Asked Questions
Is the FHA upfront premium paid in cash or financed?
Most borrowers finance it. The premium is 1.75% of the base loan, and financing it raises the final loan balance. Whether you can finance it depends on lender guidelines and the 80% LTV cap applied to your file.
Can I cancel FHA mortgage insurance once I reach 20% equity?
Not through the PMI cancellation rights. Those apply to private mortgage insurance, and FHA insurance follows its own rules. On a thirty-year cash-out loan at or below 90% LTV, the annual premium ends after eleven years. Check HUD’s current schedule for your term. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Does conventional cash-out always avoid mortgage insurance?
Generally, at or below the 80% line, PMI is not required. If a lender allows higher leverage or you refinance without taking cash out, PMI may apply. Other costs may show up in the loan terms, so compare the full Loan Estimate.
What if I have less equity than the cash-out cap requires?
You may not have room to take cash at all. With 20% equity or less, an 80% cap leaves nothing after closing costs. A rate-and-term FHA refinance can reach 97.75% on a principal residence occupied for the previous twelve months, but it does not pay you cash.
Do I need to have lived in the home for a set period?
For FHA cash-out, yes. The home must be owned and occupied for 12 months before the case number. Conventional programs have their own seasoning and occupancy rules, so confirm them with the lender.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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. HUD Mortgagee Letter 2019-11
2. HUD FHA Resource Center: FHA Mortgage Insurance Premium structure
3. HUD Handbook 4000.1 (FHA Single Family Housing Policy Handbook)
4. Fannie Mae Eligibility Matrix
5. CFPB: When can I remove private mortgage insurance (PMI)?
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
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.