The Quick Read: A conventional cash-out refinance is the route that ends FHA mortgage insurance, because it pays off the FHA loan with a new non-FHA first mortgage. An FHA cash-out refinance swaps one FHA loan for another, so the premiums continue. Conventional fits borrowers with solid credit, enough equity, and a loan old enough to season. FHA cash-out fits borrowers who need more flexible credit review and accept the insurance as the cost.
Here is the honest answer on who each option is really for. If your goal is to stop paying FHA mortgage insurance, FHA cash-out defeats the purpose. It resets the premium clock on a new FHA loan. Conventional cash-out is the only one of the two that can end it. But conventional has tighter gates: seasoning on the current loan, a credit and debt-to-income review, and mortgage insurance of its own if the new balance lands above 80% of value. The FHA path makes sense when the credit file would not clear conventional and the cash is the real goal.
Across the wholesale programs Lendmire places FHA files with, the pattern is consistent. Borrowers ask about “removing” FHA insurance, and the first thing to settle is whether they even need a refinance. Some loans can shed it without one. Most cannot.
Side-by-Side
| Factor | Conventional Cash-Out | FHA Cash-Out |
|---|---|---|
| Ends FHA mortgage insurance | Yes, FHA loan is paid off | No, new FHA loan carries it |
| Maximum leverage (primary home, 1 unit) | 80% of value | 80% of value |
| Credit review | Stricter, score-driven | Starts at a 580 decision score |
| Mortgage insurance | Private insurance only above 80% | Upfront 1.75% plus annual premium |
| Occupancy | Primary, second home, other | Owner-occupied principal residence |
| Seasoning | Existing loan at least 12 months old | Home owned and occupied 12 months |
| Documentation | Full income, asset, DTI review | Full review, ratios 31/43 up to 40/50 |
Program figures are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Leverage does not separate the two. Both cap at 80% on a one-unit primary residence. The agency rules back this up. HUD Handbook 4000.1 Update 7.5 set the FHA cash-out maximum at 80%, and the Fannie Mae eligibility matrix shows the same 80% for a one-unit primary residence on conventional. Older references still show 85% for FHA. That figure is outdated.
Why FHA Mortgage Insurance Sticks Around
Post-2013 FHA loans do not drop mortgage insurance when equity reaches 20%. Duration is set by the loan-to-value at origination, not by today’s value. Under Mortgagee Letter 2013-04, the automatic cancellation at 78% was rescinded. For loans originated at or below 90% LTV, the annual premium runs 11 years. Above 90%, it runs for the full term. That matches the program mechanics: on a thirty-year loan above 90% LTV, the annual premium lasts for the term. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Two things homeowners get wrong here. A new appraisal does not cancel the premium. And “MIP is always for life” is not true either, since the 90% line and the 11-year rule exist.
Check your case-number date first. Older loans follow a different rule. HUD’s own Q&A says loans with case numbers assigned before June 3, 2013 could cancel at 78% of the original schedule with five years of premiums paid. New appraised values were not considered. If your loan sits in that window, you may not need a refinance at all. Ask your servicer to confirm in writing.
Premium levels also moved. HUD cut the annual premium by 30 basis points for loans endorsed on or after March 20, 2023, per HUD’s FHA INFO 2023-11. A newer FHA loan may already carry a lower premium, which changes the break-even on refinancing out. In the programs Lendmire works with, the annual premium sits between 0.15% and 0.75% of the balance depending on term, amount and LTV.
Key Terms Defined
MIP (mortgage insurance premium): The FHA’s insurance charge, paid as an upfront amount at closing and an annual amount spread over monthly payments.
PMI (private mortgage insurance): Insurance on a conventional loan, usually required when the balance is above 80% of value.
LTV (loan-to-value): The loan balance divided by the appraised value of the home.
CLTV (combined loan-to-value): All liens on the home added together, divided by value. A second mortgage counts toward it.
Seasoning: The minimum time you must hold the current loan or the home before a new cash-out loan is allowed.
Cash-out refinance: A new loan larger than your payoff, with the difference paid to you as cash.
When Conventional Cash-Out Is the Better Fit
Conventional is the better fit when ending the premium is the goal and the file can carry it. Four conditions usually decide this.
1. Equity. The new loan, including payoff, closing costs rolled in and any cash taken, needs to land at or under 80% of the appraised value. Above that, private mortgage insurance enters. That is not the end of the world, but it undercuts the reason for leaving FHA.
2. Seasoning. The Fannie Mae Selling Guide requires the loan being paid off to be at least 12 months old, measured note date to note date, with at least one borrower on title for six months. An FHA loan under a year old generally blocks a full conventional cash-out. A limited cash-out refinance, which gives back essentially no cash, is not held to the same 12-month test, per the guide’s limited cash-out section.
3. Credit and debt ratios. Conventional leans harder on score and DTI. The same guide calls for six months of reserves on automated findings with a DTI above 45%. Files that cleared FHA on documented compensating factors sometimes do not clear here.
4. Occupancy. On a primary home, 80% is the cap. For two to four units or a second home, the conventional cap drops to 75%. A conventional cash-out can also cover a second home. FHA cannot.
The payoff is structural. Once the FHA loan is retired, the FHA premium is gone. If you land at or under 80%, there is no replacement insurance. If you land above it, private insurance applies. Under the Homeowners Protection Act, as the CFPB’s examination procedures describe, a borrower may request cancellation at 80% of the original value, and servicers must terminate it at 78% if the borrower is current. That is a cancellation path FHA does not offer on newer loans. The exception is “high risk” loans, which follow a final-termination rule instead.
Picture a homeowner with a post-2013 FHA loan, comfortable credit, and equity well above 20%. The conventional route retires the premium and may let them pull cash at the same time. Run the numbers on the whole new loan, not only the premium: a new term, a new payment, and closing costs all enter the comparison. The tradeoff is real. Dropping the premium does not automatically lower the monthly cost.
When FHA Cash-Out Is the Better Fit
FHA cash-out is the better fit when the file would struggle on conventional and the cash matters more than ending the premium. It is built for a wider credit range. Across the wholesale programs placed here, it starts at a 580 decision score, and the ratio envelope runs from 31/43 with no compensating factors up to 40/50 with documented factors at the top tier. Many files get decided by the automated finding.
It reaches 80% LTV on a home owned and occupied for 12 months before the case number. Occupancy is the strict part. It is for a principal residence. A homeowner who has since moved out, or one who bought and never lived in the home, usually cannot use it. There is a narrow exception tied to inheritance in HUD’s handbook text. Ask a loan officer to confirm how it applies, since HUD Handbook 4000.1 governs the terms.
The cost is the insurance. A new FHA cash-out carries an upfront premium of 1.75% of the base loan, usually financed, plus the annual premium. The annual premium duration follows the same LTV rule as before. At 80% LTV on the new loan, that is the 11-year branch on a thirty-year term. So FHA cash-out can still make sense for someone who does not need to leave FHA, wants cash, and would face a wall on conventional underwriting. Lendmire’s FHA cash-out refinance program page lays out how the product works for owner-occupants.
Consider a borrower with a score in the low-600s, a high DTI, and ample equity. Conventional may decline or require a larger reserve cushion. FHA may approve it on documented factors. The premium continues, but the file closes where it otherwise would not. That is a legitimate use. It is not a way to drop insurance.
The Options Neither Cash-Out Covers
Cash-out is not the only exit, and often not a more affordable one.
- Conventional rate-and-term or limited cash-out. It pays off the FHA loan and gives back essentially no cash. It escapes FHA insurance with higher allowed leverage than cash-out. Above 80% LTV, private insurance applies, cancellable later under the Homeowners Protection Act.
- FHA Streamline. It refinances an existing FHA loan with no appraisal, limited credit review and a net tangible benefit. The premium continues. It is not an exit.
- FHA rate-and-term with an appraisal. It reaches 97.75% on a principal residence occupied for the previous twelve months. Premiums continue.
- A second lien. A home equity loan or line leaves the FHA first mortgage in place, and the FHA premium stays. It counts toward CLTV.
- Waiting. If the loan is at or under 90% original LTV, the annual premium ends after eleven years.
- Pre-June 2013 loans. The old 78% and five-year rule may apply with no refinance. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Credit events matter for any new loan. HUD’s waiting periods, two years from a chapter 7 discharge and three years from a foreclosure, apply to FHA. They are HUD’s rules, not a promise from any lender.
The Break-Even Question
Dropping the premium is not the same as saving money. A new loan resets the term and may change the interest cost. Closing costs on a cash-out refinance can include origination fees, appraisal fees, title insurance and other taxes and fees, as the CFPB’s cash-out research paper notes. The same paper warns that turning other debt into home-secured debt can put the home at risk if payments become unsustainable.
So run it this way. Add up what you pay in FHA premiums over the time you expect to keep the home. Compare that with the cost of the new loan: closing costs, the reset term, and any private insurance. If you plan to sell in a few years, the break-even may never arrive. If you plan to stay for a decade, it often does. That is the question to answer before applying, and it varies by borrower, property and loan scenario.
Cash taken also moves the math. Every dollar pulled raises the balance toward the 80% line. A borrower who wants both an insurance-free loan and large cash proceeds is asking the equity to do two jobs. Often it can do only one.
Mistakes That Derail These Files
- Assuming the seasoning rule away. A loan under a year old usually cannot do a conventional cash-out. Check note dates before shopping.
- Counting on a high appraisal. The appraised value drives LTV on both programs. A low value can push a conventional loan over 80%, and private insurance comes back.
- Forgetting the second lien. A home equity loan counts toward CLTV on both programs.
- Treating the Loan Estimate as final. It is a Loan Estimate, then a Closing Disclosure at least three days before closing. Some fees can rise only within limits, per the CFPB’s Your Home Loan Toolkit. Compare the two documents line by line.
- Expecting a premium refund. A refund of the upfront premium is generally tied to FHA-to-FHA refinances. Confirm with HUD or your loan officer before counting on it.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Where the Verdict Lands
Pick conventional cash-out if ending the premium is the point, your credit and ratios clear a tighter review, the loan is at least 12 months old, and the new balance lands at or near 80%. Pick FHA cash-out if the file cannot clear conventional and the cash is worth carrying the insurance. If neither fits cleanly, a limited cash-out or simply waiting may beat both. Lendmire’s explainer FHA Cash-Out Upfront Mortgage Insurance and Refund Rules covers the other half of the cost.
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.
Frequently Asked Questions
Can I remove FHA insurance without refinancing?
Sometimes. Loans with case numbers assigned before June 3, 2013 may cancel at 78% with five years of premiums paid. Post-2013 loans at or under 90% original LTV pay for eleven years, then it ends. Above 90%, it lasts the term. Your servicer can confirm which rule applies.
Does an FHA cash-out refinance drop FHA mortgage insurance?
No. It replaces the FHA loan with a new FHA loan, so an upfront premium and an annual premium apply again. Only a non-FHA payoff ends the FHA premium.
Will a new appraisal end my FHA premium if my home gained value?
No. On post-2013 loans, duration is tied to LTV at origination. A new appraisal matters for a refinance, where it sets the new LTV, but not for cancelling the existing premium.
How much equity do I need to leave FHA without private mortgage insurance?
The new conventional loan generally needs to land at or under 80% of the appraised value, including payoff, rolled-in costs and any cash taken. Above 80%, private insurance is generally required, though it can be cancelled later under federal rules.
Is conventional always cheaper than staying FHA?
Not necessarily. Dropping the premium removes one cost, but a new loan adds closing costs and resets the term. The answer depends on how long you keep the home and the full terms of the new loan.
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 Handbook 4000.1 Update 7.5 transmittal
2. Fannie Mae eligibility matrix
3. HUD Mortgagee Letter 2013-04 (hosted by FHFA)
4. HUD Answers: MIP for loans with case numbers before June 3, 2013
6. Fannie Mae Selling Guide B2-1.3-03
7. Fannie Mae Selling Guide B2-1.3-02
8. CFPB HPA examination procedures
9. CFPB’s cash-out research paper
10. CFPB’s Your Home Loan Toolkit
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 and Conventional Cash-Out Requirements Side by Side for a Primary Home · FHA Cash-Out Upfront Mortgage Insurance and Refund Rules · Is an FHA Cash-Out Easier to Qualify for Than a Conventional Cash-Out?
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
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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.