The Quick Read: Having an FHA loan today doesn’t lock you into FHA tomorrow. On a primary residence, both an FHA cash-out and a conventional cash-out top out at 80% of the home’s value, so leverage rarely decides the question. The real differences are mortgage insurance, seasoning, credit and income documentation, and what happens to the FHA premium you’re already paying. Everything here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
The one-paragraph honest answer: FHA cash-out tends to fit a homeowner whose credit is thinner or whose debt-to-income ratio runs high, since FHA allows ratios that conventional underwriting often won’t. Conventional cash-out tends to fit a homeowner with solid credit and manageable debts, because a conventional loan at 80% or below typically carries no private mortgage insurance. The FHA premium is the usual reason people look to leave. Credit and DTI are the usual reason people can’t.
Side-by-Side
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage (primary home) | 80% of adjusted value | 80% for 1 unit; 75% for 2-4 units |
| Credit floor | Starts at a 580 decision score | Generally higher; set by guide and lender |
| Mortgage insurance | FHA premium, upfront and annual | Typically none at 80% or below |
| Occupancy | Owner-occupied principal residence only | Other occupancies allowed, at different leverage |
| Occupancy history | Owned and occupied 12 months before case number | Title held 6 months; existing first mortgage 12 months old |
| Ratios | 31/43 base, up to 40/50 with documented factors | Typically tighter; automated findings govern |
| Documentation | Automated or manual underwriting | Mostly automated, with manual limits |
Those are program-level snapshots, not promises. Individual lenders can set stricter standards than the agencies do, which is why two lenders can give different answers on the same file.
How an FHA Cash-Out Works When Your Current Loan Is FHA
An FHA cash-out is a new FHA loan that pays off your existing mortgage and puts the leftover equity in your hands. HUD’s Mortgagee Letter 2019-11 lowered the maximum loan-to-value on these loans from 85% to 80% of adjusted value, and the change now sits in HUD Handbook 4000.1. Plenty of websites still quote the older caps. They’re out of date.
You do not need an FHA loan already in place to do an FHA cash-out. You do need to have owned and lived in the home as your principal residence for the 12 months before the case number is assigned. Across the wholesale programs Lendmire places FHA files with, that’s the standard seasoning test, and an inherited home is the main exception HUD recognizes.
Mortgage insurance carries over in concept, not in fact. The new loan has its own upfront premium of 1.75% of the base loan, usually financed into the balance, plus an annual premium that depends on term, amount, and LTV. Because the cash-out cap is 80%, the annual premium on a thirty-year FHA cash-out should end after eleven years rather than lasting the loan term. That’s a practical read of the schedule, not a quoted HUD rule. Learn more about the FHA cash-out refinance program and how the pieces fit together.
One more point: an FHA Streamline is not a cash-out product. It refinances an existing FHA loan with no appraisal and a limited credit review, but you can’t pull equity out through it.
How a Conventional Cash-Out Works When You’re Leaving FHA
A conventional cash-out replaces the FHA loan with a new first mortgage that isn’t government-insured. Under the Fannie Mae Selling Guide, the mortgage being paid off must be at least 12 months old, measured from the old note date to the new one. At least one borrower must have been on title for six months before disbursement, subject to listed exceptions. If the home was listed for sale, it has to come off the market first.
Fannie Mae’s eligibility matrix caps a one-unit primary residence at 80% LTV and a two-to-four-unit home at 75%. For automated-underwriting files with a DTI above 45%, the guide also triggers a six-month reserve requirement. That’s where conventional can pinch: reserves and ratios. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Here’s a trap worth knowing. Fannie Mae’s “limited cash-out” category has gentler seasoning and, in some cases, higher leverage. But the highest-leverage version requires that Fannie Mae already own your current loan. An FHA loan is government-insured and not owned by Fannie Mae, so that route is closed. If you’re leaving FHA and want any meaningful cash, plan on a true cash-out at 80% or below. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Mortgage Insurance: Staying Versus Leaving
This is the budget question behind most of these decisions. On a modern FHA loan, you can’t cancel the annual premium just because you’ve built 20% equity. Duration is set by the original LTV under HUD’s Mortgagee Letter 2023-05: eleven years at 90% or below, the full term above that. Refinancing into a new FHA loan restarts the clock on its own terms.
A conventional cash-out at 80% or below generally carries no private mortgage insurance at all. If you ever do go above 80% on a conventional loan, the CFPB explains that PMI must be terminated automatically when the balance is scheduled to reach 78% of the original value, provided you’re current. That cancellation right applies to conventional loans only.
So the insurance trade is real. But it isn’t free money. Dropping the FHA premium means qualifying under conventional standards, and a new loan resets your term, rolls in closing costs, and may replace an existing payment structure you like. Whether the premium savings outweigh those costs depends on how long you’ll keep the home.
When FHA Cash-Out Is the Better Fit
FHA tends to win in a few profiles:
- Credit that sits in the middle. The wholesale programs Lendmire works with start at a 580 decision score. Conventional cash-out often asks for more.
- Higher debt-to-income. FHA’s base ratios are 31/43, and documented compensating factors can reach 40/50 at the top tier. Conventional underwriting generally has less room.
- A thin reserve cushion. A conventional file with a high DTI may need six months of reserves. FHA is typically more forgiving there.
- A recent credit event. HUD’s own waiting periods apply: two years from a Chapter 7 discharge and three from a foreclosure. These are HUD rules, not network promises, and a lender may add overlays.
- A short horizon for staying put. If you’d sell before conventional savings could repay closing costs, staying in the FHA lane may pencil better.
The flip point: if your credit and ratios would clear conventional comfortably, paying an FHA premium for flexibility you don’t need is the thing to question.
When Conventional Cash-Out Is the Better Fit
Conventional usually wins when the borrower is strong on paper and plans to stay awhile:
- Credit and DTI that clear automated findings. The cash-out is then simply cheaper to carry month to month, since there’s typically no mortgage insurance at 80% or below.
- A long holding period. The longer you keep the home, the more years of avoided premium you collect against one-time closing costs.
- Equity that comfortably exceeds the 20% floor. Both paths require roughly 20% equity left in the home. If the appraisal comes in light, either path can shrink or disappear.
- A desire to be done with FHA’s rules. A conventional loan has no FHA premium schedule to track.
Here’s the catch: the 12-month-old-mortgage and six-month title rules mean a recent FHA purchase may not be eligible yet. Check the note date first.
Key Terms Defined
Cash-out refinance: A new mortgage that pays off the old one and gives you the leftover equity in cash.
Adjusted value: The appraised value HUD uses to measure FHA’s 80% cap.
Seasoning: How long you’ve owned the home or held the existing loan before a refinance qualifies.
Mortgage insurance premium (MIP): FHA’s insurance charge, made of an upfront piece and an annual piece.
Private mortgage insurance (PMI): Conventional insurance, usually required only above 80% LTV and cancellable by law.
Streamline refinance: An FHA-to-FHA refinance with limited paperwork that doesn’t allow cash out.
A Quick Self-Check Before You Apply
Walk through these in order:
1. Note date on your current FHA loan. Under 12 months old? Conventional cash-out is likely off the table for now.
2. Occupancy. Is this your principal residence and has it been for 12 months? If you’ve moved out, FHA cash-out is closed.
3. Credit and DTI. Strong on both? Conventional deserves a look first. If either is stretched, FHA’s flexibility matters.
4. Equity. After the appraisal, will you still hold about 20% in the home?
5. Time horizon. Will you keep the loan long enough to recover closing costs?
Texas has its own cash-out rules, and Hawaiian Home Lands loans fall outside the 80% change. Those are narrow cases, and a licensed loan officer can tell you whether they apply.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The Balanced Verdict
Neither option is the right call by default. FHA cash-out is a tool for borrowers who need its flexibility on credit, ratios, or reserves. Conventional cash-out is a tool for borrowers who clear tighter standards and want the insurance gone. With leverage equal at 80% on a primary residence, the decision comes down to what you qualify for and how long you’ll hold the loan.
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.
Frequently Asked Questions
Do I need an existing FHA loan to get an FHA cash-out refinance?
No. FHA cash-out is available to qualifying owner-occupants whatever their current loan type. What matters is that you’ve owned and lived in the home as your principal residence for the 12 months before the case number is assigned. An inherited property is the main exception to the occupancy period.
Can an FHA Streamline pull cash out of my home?
No. A Streamline refinances an existing FHA loan with no appraisal and a limited credit review, and it requires a net tangible benefit. It’s a no-cash-out product, so a homeowner who wants equity needs a true cash-out refinance, FHA or conventional.
How much equity do I have to leave in the home?
Roughly 20% on a primary residence under either path, since both cap at 80% of value. A two-to-four-unit home under the conventional guide caps at 75%. The appraisal sets the figure, so a lower-than-expected value can reduce the cash available.
Will my FHA mortgage insurance end if I refinance to conventional?
Paying off the FHA loan ends that loan’s annual premium. A conventional cash-out at 80% LTV or below typically carries no private mortgage insurance. Any refund of upfront premium depends on timing and on program rules, so ask your loan officer to check your file.
Can I do a conventional cash-out right after buying with FHA?
Usually not right away. The existing first mortgage generally must be at least 12 months old, and one borrower must have been on title for at least six months. A limited cash-out has gentler seasoning, but the highest-leverage version isn’t open to FHA loans.
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.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD Handbook 4000.1 update transmittal
3. Fannie Mae Selling Guide B2-1.3-03
4. HUD Mortgagee Letter 2023-05
5. CFPB: When can I remove PMI from my loan?
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: Is an FHA Cash-Out Easier to Qualify for Than a Conventional Cash-Out? · FHA Cash-Out Requirements for a Homeowner With No Tax Returns · FHA and Conventional Cash-Out Requirements Side by Side for a Primary Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.