The Quick Read: Upfront mortgage insurance on an FHA cash-out is a flat 1.75% of the base loan, and it does not matter that your old loan was conventional. Nothing is credited, because a conventional loan carries no FHA premium to credit back. The premium is usually financed, so it adds to your balance on top of the base loan, which is the amount measured against the 80% LTV cap.
This article covers one direction only: leaving a conventional loan for an FHA cash-out. Most of what ranks online covers the reverse, leaving FHA for conventional, and the rules are different.
Key Takeaways
- Upfront mortgage insurance premium (UFMIP) is 1.75% of the base loan on an FHA cash-out. It is the same percentage as on a purchase.
- The refund credit exists only when an FHA loan is refinanced into another FHA loan. A conventional payoff gets none.
- The premium is charged on the whole new base loan, not just the cash you take out.
- The FHA cash-out reaches 80% LTV on a home you have owned and lived in for 12 months before the case number.
- An annual premium comes on top, and at or below 90% LTV it ends after eleven years on a thirty-year loan. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
What Do Upfront and Annual MIP Actually Mean?
FHA mortgage insurance has two parts. The upfront premium is charged once and is almost always rolled into the loan. The annual premium is billed monthly as part of your payment.
Mortgage insurance premium (MIP) is the name for this FHA insurance. It protects the lender if you default. Conventional loans have a cousin called private mortgage insurance (PMI), but the two work differently. PMI can drop off a conventional loan when your equity grows. FHA’s annual premium follows its own schedule, and on most cash-outs that schedule is tied to your LTV.
Across the wholesale programs Lendmire places FHA files with, the upfront premium is 1.75% of the base loan. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. These are program facts, not prices, and all of it is subject to lender guidelines and full file review.
HUD’s Mortgagee Letter 2023-05 sets the upfront premium at 175 basis points, which is the same 1.75%. That letter lowered annual premiums on most loans. It left the upfront premium alone. If you read that the premium cut helped your closing costs, it did not.
Does Leaving a Conventional Loan Earn Any Upfront Premium Credit?
No. A refund credit exists only for FHA-to-FHA refinances, and a conventional payoff never qualifies. You pay the full 1.75%.
Here is how the credit works. When a borrower refinances an FHA loan into a new FHA loan within three years, part of the old upfront premium can be credited against the new one. It is a credit, not a check. It simply shrinks the new premium.
Now picture the borrower leaving a conventional loan. That old loan never paid an FHA upfront premium. There is nothing to credit. HUD’s refund language speaks only to FHA-to-FHA refinances, so a conventional payoff falls outside it. The conclusion follows from where the credit applies.
The same logic covers streamlines. An FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. A conventional loan cannot be streamlined into FHA.
There is one narrow exception on HUD’s books, and it is worth naming so you can rule it out. HUD’s FHA Resource Center lists a 0.01% upfront premium for streamline refinances of FHA loans endorsed on or before the middle of 2009. That is an FHA-to-FHA situation too. It has nothing to do with paying off a conventional loan.
How Is the Upfront Premium Calculated and Financed?
The premium is 1.75% of the base loan. The base loan is everything the new mortgage must cover, before the premium is added.
Walk through it in order:
1. Start with the payoff. That is the balance on your conventional loan.
2. Add other liens and allowed costs. A second mortgage or a HELOC that gets paid off belongs here.
3. Add the cash you want. This is the cash-out portion.
4. That total is the base loan. It must stay within the 80% cap against the home’s adjusted value and within the county loan limit.
5. Apply 1.75% to the base loan. That is your upfront premium.
6. Finance it on top. The final note is slightly larger than the base loan.
Two things follow. First, the premium is a function of the whole new loan, not the cash you walk away with. Take a small amount of cash from a large payoff and you still pay the premium on the entire base. Second, financing it grows your balance without adding a dollar to your pocket.
How the cap treats a financed premium is a point to confirm with your loan officer against the current Handbook. The base loan is measured against adjusted value, and the financed premium sits on top. Ask how the lender is applying it to your file.
County loan limits apply to the base loan, and they change every year. They are set by county, so check your own.
What Is the 80% Cap, and Where Did 85% Go?
FHA cash-out tops out at 80% LTV and combined LTV. Older web pages that show 85% are out of date. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
HUD cut the cap with Mortgagee Letter 2019-11, which applied to case numbers assigned on or after September 1, 2019. HUD’s press release said the change aligned FHA with the maximum that Fannie Mae and Freddie Mac allow on cash-out. The cap is measured against the property’s adjusted value, so the appraisal drives your ceiling.
The cap leaves a trade-off you should see plainly. The more equity you tap, the more the 1.75% premium matters, because it grows with the base loan. And the closer you sit to 80%, the less room a financed premium leaves.
Who Qualifies for the Cash-Out? (The 12-Month Tests)
You must own and live in the home as your principal residence for the 12 months before the FHA case number is assigned. The clock stops at the case number, not at closing.
That detail trips people up. If you are at month 11 when the lender pulls the case number, you wait. Starting early does not fix it.
Here is what the lender looks for:
- Ownership and occupancy. Twelve months, as above. Lenders typically look for evidence such as utility bills or employment records.
- Payment history. Payments on your mortgages made on time over the prior 12 months, or since you got the loans if that is shorter.
- Value. A full FHA appraisal sets value, and then adjusted-value rules apply.
- Liens. Everything being paid off counts toward the base loan, including any HELOC. A HELOC is counted at its full credit limit under one lender-side reading, so ask.
- Ratios. The base pair is 31/43 (housing to total income) with no compensating factors. Documented factors can reach 40/50 at the top tier, and the automated underwriting finding governs most files.
- Credit. The wholesale programs Lendmire works with start at a 580 decision score. Some lenders set higher floors. HUD’s waiting periods after credit events, such as two years after a chapter 7 discharge and three after a foreclosure, are HUD rules, not a promise from any one lender.
Cash-out is for a principal residence only. A second home or a rental does not qualify. One sentence covers it: on FHA, occupancy decides the leverage, and a home you do not live in is outside this product.
Where the General Rule Bends: Edge Cases
Most files follow the pattern above. A few do not.
Inherited homes. Handbook language, as quoted by industry sources, is that an inherited home has no minimum occupancy period for cash-out, as long as you have not treated it as an investment since inheriting it. If you rented it out after inheriting, the 12-month occupancy test returns. Ask your lender to confirm against the current Handbook.
Non-occupant co-borrowers. A non-occupant co-borrower is allowed on an FHA purchase. On a cash-out, income from a non-occupant co-borrower cannot be used to qualify, per the same Handbook quotes. That is a real difference between the two purposes.
Under 12 months. You are not cash-out eligible. An FHA rate-and-term refinance has its own rules, and with 12 months of owner-occupancy it reaches 97.75% on a principal residence. That is a refinance that pays off a loan and does not give you cash.
Hawaiian Homelands. Section 247 loans were excluded from the 2019 cap change. They are a different loan type.
Section 184. HUD’s Indian Home Loan Guarantee has its own cash-out rules, including a 24-month payment history review. Different program, different rules. Do not borrow its numbers.
HECM and Title I. These do not carry the standard FHA premiums at all, per HUD’s answers page.
What Happens to Your Old Loan’s Insurance at Payoff?
When the new FHA loan funds, your conventional loan is paid off and its private mortgage insurance ends with it. Any escrow balance held on the old loan is typically returned to you after payoff.
This matters because it points to the real question. If your conventional loan had PMI, FHA’s premium may replace it. If your conventional loan had no mortgage insurance, FHA adds a cost you were not paying before. Moving from a loan with no insurance to FHA introduces both the upfront and the annual premium.
How Long Does Annual MIP Last After the Cash-Out?
On a thirty-year FHA cash-out at or below 90% LTV, the annual premium ends after eleven years. Above 90% LTV, it lasts the whole term. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Because the cash-out cap is 80%, your loan lands in the shorter tier. That is a real advantage over an FHA purchase with the minimum 3.5% down. HUD’s published tables decide the exact percentage, which depends on term and loan amount. The Lendmire parameter range is 0.15% to 0.75%. A loan officer can tell you where your file falls. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Eleven years is not forever, but it is long. If you expect to move or refinance sooner, the annual premium is a smaller piece of your picture. If you plan to stay, add up eleven years of premiums before you decide.
FHA Cash-Out vs. Staying Conventional
The honest comparison depends on what your current loan has. Here is how the two cash-out paths line up.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Max LTV on a primary home | 80% | Generally up to 80% |
| Upfront insurance | 1.75% of base loan | None |
| Ongoing insurance | Annual premium, 11 years at 80% or less | Generally none at 80% LTV |
| Credit flexibility | Programs start at a 580 decision score | Lenders often set higher floors |
| Occupancy | Principal residence, 12 months | Primary-home rules vary |
Both Fannie Mae and Freddie Mac also generally permit up to 80% on a one-unit primary-residence cash-out, and conventional loans at 80% LTV generally do not carry PMI. That is the heart of it. If your credit and ratios fit a conventional cash-out, FHA’s two premiums may cost you more for the same equity.
FHA earns its place when conventional will not fit. Credit may be thinner. Your debt ratios may need the flexibility of documented compensating factors. Or a recent credit event may keep a conventional lender at arm’s length. In those cases, FHA’s premiums are the cost of access.
When Does the Switch Make Sense, and When Doesn’t It?
Switching makes sense when the file will not work conventionally and the cash does a job worth the premiums. It does not make sense when a conventional cash-out fits and you are only chasing a different structure.
Run this checklist:
1. Does your current conventional loan carry mortgage insurance? If yes, FHA may swap one cost for another. If no, FHA adds new costs.
2. Can you qualify conventionally? If yes, price both paths side by side.
3. How much cash do you need? A small cash-out on a large balance still triggers the full 1.75% on the whole base loan. That is expensive per dollar of cash.
4. How long will you keep the loan? The annual premium runs eleven years at 80% or less.
5. Would a second mortgage or HELOC leave your first loan alone? That is the other route to equity. It keeps your existing loan in place.
The CFPB’s research blog notes that most cash-out refinances now have LTVs below 80%, and that most cash-outs are under $50,000. Read that research as context: many borrowers take modest cash. Modest cash makes the premium on the whole loan weigh heavier.
Here is a borrower scenario in plain words. Say you owe about 60% of your home’s value on a conventional loan with no insurance and want to pull cash out to reach 78% total. Your FHA base loan lands at 78% of adjusted value. The 1.75% applies to all of it, not just the 18% you took out. A conventional cash-out may reach the same place without the upfront charge. Now flip it: with a recent credit setback, conventional may be closed to you, and FHA is the door that opens.
Lendmire’s FHA cash-out refinance program page lays out the product in more detail. For how premiums and refunds work in related situations, see Lendmire’s piece FHA Cash-Out Upfront Mortgage Insurance and Refund Rules.
How Do You Leave FHA Later?
Refinancing out of FHA pays off the loan and ends its annual premium. You then face the conventional rules again, which usually require enough equity and a qualifying credit profile.
That is why the eleven-year clock and your equity growth both matter. Equity gained over time can open the conventional door later. Remember that a refinance within three years of an FHA loan can bring an FHA-to-FHA credit, but a conventional exit carries no such credit. If you plan to cycle in and out, price each step.
Key Terms Defined
Upfront mortgage insurance premium (UFMIP): A one-time FHA charge of 1.75% of the base loan, usually financed into the balance.
Annual MIP: The ongoing FHA insurance premium, billed monthly as part of your payment.
Base loan: The new loan amount before any financed premium is added.
LTV (loan-to-value): Your loan balance divided by the home’s value, shown as a percentage.
CLTV (combined LTV): All mortgage balances on the home, added together, divided by its value.
Adjusted value: The appraised value after HUD’s adjustment rules. The 80% cap is measured against it.
Case number: The FHA identifier a lender requests for your file. It sets the end of the 12-month ownership clock.
Cash-out refinance: A new, larger mortgage that pays off the old one and gives you the difference in cash.
Frequently Asked Questions
Does an FHA cash-out charge upfront mortgage insurance if my old loan was conventional?
Yes. The full 1.75% of the base loan applies. The refund credit is only for FHA-to-FHA refinances, so a conventional payoff earns none. HUD’s refund language speaks to FHA loans only.
Is the upfront premium charged only on the cash I take out?
No. It is charged on the entire new base loan, which includes your payoff, other liens paid and allowed costs. A small cash-out from a large balance still carries the premium on the whole amount.
Did the 2023 annual premium cut lower my upfront premium?
No. A 2023 HUD mortgagee letter changed annual premiums only. The upfront premium stayed at 1.75%.
Can I use FHA cash-out on a rental or second home?
No. FHA cash-out is for an owner-occupied principal residence that you have owned and lived in for the 12 months before the case number.
How long does the annual premium last after an FHA cash-out?
At 80% LTV or below on a thirty-year loan, it ends after eleven years. Above 90% LTV it lasts the term. Because the cash-out cap is 80%, most cash-outs land in the shorter tier, subject to lender guidelines and full file review.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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 your own numbers, request a scenario review with Lendmire.
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.
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References
1. HUD Mortgagee Letter 2023-05
2. HUD FHA Resource Center, MIP structure
3. HUD Mortgagee Letter 2019-11
4. HUD press release PR 19-114
5. CFPB Office of Research blog on cash-out refinances
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: Can You Get an FHA Cash-Out After a Conventional Denial? · How Long Does an FHA Cash-Out at the Cap Carry MIP? · 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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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.