The Quick Read: A conventional cash-out refinance can pay off your FHA loan and hand you the difference, but only when four things line up: the age of the FHA loan, your time on title, your equity, and your debt-to-income ratio. The new loan is capped well below what an FHA purchase allowed. Many borrowers leave FHA to drop its mortgage insurance, and a cash-out can leave some form of mortgage insurance in place anyway.
Can You Leave FHA With a Cash-Out Refinance?
Yes, with conditions. A conventional cash-out refinance is a brand-new first mortgage. It pays off the FHA loan, pays any other liens the deal is allowed to clear, and releases the leftover equity to you as cash. The FHA loan simply ends.
Most pages on this topic cover the opposite move: staying inside FHA. That route has its own rules, and it is covered in Lendmire’s FHA cash-out refinance program overview. Leaving FHA means you are held to conventional standards instead.
Key takeaways
- The FHA loan itself must be old enough. A recent purchase or a recent FHA refinance can block you.
- You need more than 20% equity for a one-unit home, because the cash you take comes out of the same cushion.
- Debt-to-income above a set threshold can trigger extra reserves.
- Leaving FHA ends the FHA premium. It may start conventional mortgage insurance.
- If you only want out of mortgage insurance, a no-cash refinance may fit better than a cash-out.
How the Transaction Works, Step by Step
Here is the sequence a file follows from start to finish.
1. Check the clocks. Compare dates on your current loan and your deed against the planned new loan. Dates are measured to the new loan’s signing and funding, not your application.
2. Test the equity. The new loan, including any financed costs, is measured against appraised value. That ratio sets your maximum cash.
3. Underwrite the file. The lender reviews income, credit, debts and assets. Automated underwriting handles most files. Others are underwritten by hand under tighter limits.
4. Review payment history. The lender looks at how the FHA loan has been paid, including how recent and how severe any late payments were.
5. Appraise the home. The appraisal drives the ratio and therefore the cash. It is also a closing cost.
6. Receive disclosures. You get a Loan Estimate that itemizes costs and shows estimated cash to close.
7. Close and wait out the cancel window. A refinance of your primary residence carries a federal right to cancel for a short period after signing. Cash is generally released after that window ends.
Across the wholesale programs Lendmire places files with, steps one and two are where most stalled files go wrong. Borrowers assume their equity is the only test. The loan’s age is just as often the problem.
The Three Clocks That Decide Eligibility
Three separate timers apply, and borrowers regularly blur them. All three come from the Fannie Mae Selling Guide section on cash-out refinances.
Clock one: loan age. The first mortgage being paid off must be at least 12 months old. It is measured from the old loan’s note date to the new loan’s note date. When you are leaving FHA, the FHA loan is that first mortgage. The rule does not apply to second liens paid off in the deal, or to buying out a co-owner under a legal agreement. Fannie Mae introduced this test in its announcement of the 12-month rule.
Here is the catch. A borrower who refinanced FHA-to-FHA recently can be blocked even after owning the home for years. The clock restarted with the new note.
Clock two: title. At least one borrower must have been on title for six months before the new loan funds. This is separate from loan age. The guide lists exceptions, covered below.
Clock three: occupancy. FHA itself is for a home you live in. Staying in the home as your primary residence keeps you eligible for the highest cash-out limits on the conventional side too. Lower caps apply to second homes.
A quick self-check: write down the FHA note date, your deed date and today’s date. If the FHA note is under a year old, wait.
Equity: Why an 80% Cap Means You Need More Than 20%
For a one-unit primary residence, conventional cash-out tops out at 80% of appraised value, per the Fannie Mae Eligibility Matrix. A two-to-four-unit primary residence tops out at 75%.
The cap applies to the whole new loan. That loan has to cover your FHA payoff, any financed closing costs, and the cash you want. So you need more than 20% equity to take any cash at all.
Run it in percentages. Say your FHA balance is 70% of the home’s appraised value. The cap leaves 10 percentage points of value between your payoff and the ceiling. Closing costs financed into the loan come out of that room first. What remains is your cash.
Now say your FHA balance is 78% of value. The cap leaves almost nothing. The refinance may still work as a no-cash or limited cash-out loan, but not as a meaningful cash-out.
A related point is the 97% figure some borrowers have heard. That number belongs to limited cash-out on a one-unit primary residence with a fixed rate. It is not the cash-out ceiling.
Credit, Debt Ratios and Reserves
Credit floors for conventional cash-out vary by loan-to-value, by whether the file is run through automated underwriting or by hand, and by lender. Some lenders set higher floors than the agency minimum. Expect the cash-out tier to be stricter than a no-cash refinance at the same score.
Debt-to-income carries a hard trigger. In files run through Fannie Mae’s automated underwriting, a ratio above 45% requires six months of reserves. Reserves are liquid funds left after closing, measured in months of the housing payment.
Payment history matters too. The lender reviews the FHA mortgage history on your credit report. Recent or severe late payments can make a loan ineligible. Lenders can generally rely on the credit report if it shows 12 months of recent payment activity. Otherwise they need a servicer verification or other proof. Fannie Mae sets this out in its guidance on previous mortgage payment history.
For comparison, FHA files in the network run from a base ratio pair of 31/43 up to 40/50 with documented compensating factors. Conventional files do not use that structure. They rely on the automated finding and the 45% trigger. A borrower who qualified comfortably under FHA’s flexibility can find the conventional side less forgiving.
What Happens to FHA Mortgage Insurance?
Paying off the FHA loan ends the FHA premium going forward. It does not erase the history of how the premium was set.
FHA charges an upfront premium of 1.75% of the base loan, usually financed. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, amount and LTV. On a thirty-year loan above 90% LTV at the start, the annual premium lasts the full term. At or below 90%, it ends after eleven years. HUD’s Mortgagee Letter on FHA premiums sets out this structure.
The key point is that duration is tied to your original LTV. Growing equity does not shorten it. That is why many high-LTV FHA borrowers look to leave. A refinance is the exit.
Two cautions apply on the other side.
- Conventional mortgage insurance may still apply. A cash-out loan at the 80% cap generally carries no mortgage insurance, but a borrower with less equity going into a no-cash refinance may pay it. Confirm the treatment on your specific loan.
- It is cancellable. Per the CFPB’s guidance on removing private mortgage insurance, you can generally request cancellation when the balance is scheduled to reach 80% of original value, with good payment history. Servicers generally must end it automatically at 78%.
As for any refund of your FHA upfront premium, the credit is tied to FHA-to-FHA refinances. Ask your servicer and check the HUD refund schedule before assuming you will see money back.
Where the Rules Bend
The general rules have named exceptions. Check each against your situation.
- Title seasoning. The six-month title clock does not apply when delayed-financing requirements are met. Time in an inter vivos revocable trust can count when the borrower is its primary beneficiary. Earlier guide versions also excused inherited property and property awarded in a divorce. Ask your lender whether the current guide still does.
- Delayed financing. This is for a recent all-cash purchase, rarely an FHA situation. The new loan is limited to the documented investment plus certain costs and priced as cash-out.
- Free-and-clear homes. With no first mortgage, the 12-month test has nothing to measure. The title clock still applies.
- Delinquent taxes. A cash-out that finances real estate taxes more than 60 days delinquent is ineligible unless an escrow account is set up, with a narrow carve-out where state law bars requiring one.
- Student loans. A feature waives the cash-out pricing adjustment when proceeds pay off student loans. It has its own criteria.
- Limited cash-out. If you take only limited cash, the loan may be treated as limited cash-out, with a higher LTV ceiling.
- Second homes and manufactured homes. Caps run lower. A manufactured-housing cash-out sits at 65%.
Pricing is the other quiet difference. Cash-out loans carry loan-level price adjustments that no-cash refinances do not. Your Loan Estimate shows how that lands on your file.
Cash-Out vs the Other Exits
Cash-out is one path among several. This comparison shows how each handles equity and mortgage insurance.
| Option | New appraisal? | Cash to you | FHA premium |
|---|---|---|---|
| Conventional cash-out | Yes | Yes, up to 80% LTV | Ends |
| Conventional no-cash | Yes | Minimal | Ends |
| FHA Streamline | No | None | Continues |
| FHA cash-out | Yes | Yes, up to 80% LTV | Continues |
| Second lien beside FHA | Often | Yes | Continues on first |
The FHA Streamline refinances an existing FHA loan with a limited credit review and a net tangible benefit test. The FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
This is a real toss-up for some borrowers. If your priority is dropping the insurance, a no-cash conventional refinance may do it more cleanly. If you need the cash, a conventional cash-out has stricter equity and credit tests than the FHA version. Neither path wins for everyone.
The Real Cost of Taking Cash
The CFPB’s research on cash-out refinances notes that costs can include origination fees, appraisal fees and title insurance. It adds that a cash-out can replace a lower-cost mortgage with a more expensive one, so the benefit depends on your situation.
Three points follow:
- The new loan is larger, so the payment and payoff time may go up.
- Paying off credit cards or other debt with home equity converts unsecured debt into debt secured by your home.
- If payments become unmanageable, the home is at risk.
Closing costs for a refinance are typically built into the loan terms or paid at closing. Nothing about a refinance is free, even when it is marketed as “no closing cost.” In that case, the costs are folded into the balance or the interest.
A Readiness Checklist
Before you apply, confirm each of these:
- The FHA note date is at least 12 months old.
- At least one borrower has been on title for six months, or an exception fits.
- Your FHA balance leaves room under the 80% cap after financed costs.
- Your debt-to-income is below the reserve trigger, or you have six months of reserves.
- Recent mortgage payments are clean.
- You know what you will do with the cash and what the larger loan does to your payment.
- You have compared a no-cash refinance if the real goal is mortgage insurance.
Key Terms Defined
Note date: the date you signed the loan’s promissory note, used to measure loan age.
Seasoning: the time a loan or ownership has existed before a new transaction is allowed.
LTV (loan-to-value): the loan amount divided by the home’s appraised value.
MIP: the mortgage insurance premium FHA charges, an upfront amount plus an annual one.
PMI: private mortgage insurance on a conventional loan, which can be cancelled once equity builds.
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. Every program figure is subject to lender guidelines and a full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Can I do this if my FHA loan is under a year old?
Generally not as a cash-out. The first mortgage being paid off must be at least 12 months old, measured note date to note date. If you recently refinanced FHA-to-FHA, the clock restarted on the new note. A no-cash refinance follows different timing, so ask your lender.
Will I still pay mortgage insurance after leaving FHA?
It depends on your equity in the new loan. The FHA premium ends when the loan is paid off. A conventional loan above 80% of value generally carries private mortgage insurance, which is cancellable. At the 80% cash-out cap, that depends on the structure, so confirm it with your lender.
Do I need an existing FHA loan to do this?
No. Any first mortgage that meets the age test works. The FHA Streamline and FHA cash-out do need an existing FHA loan. Leaving FHA for conventional is a different transaction.
Can I do this on a second home?
The conventional cash-out caps run lower on second homes. FHA loans are for a primary residence, so a second home is not an FHA scenario to begin with. Occupancy decides how much leverage is available.
How much cash can I take out?
Up to the difference between 80% of appraised value and your payoff plus financed costs, for a one-unit primary residence. A two-to-four-unit home caps at 75%. Credit, debt-to-income and lender overlays can lower the figure.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide: Cash-Out Refinance Transactions
2. Fannie Mae announcement of the 12-month rule
3. Fannie Mae Eligibility Matrix
4. Fannie Mae B3-5.3-03 Previous Mortgage Payment History
5. HUD Mortgagee Letter on FHA premiums
6. CFPB on removing private mortgage insurance
7. CFPB: 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: FHA Cash-Out Requirements for a Homeowner With No Tax Returns · Can You Refinance Out of FHA With a Conventional Cash-Out Refinance? · Should You Stay With an FHA Cash-Out or Move to Conventional?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.