The Quick Read: No. Switching from a conventional loan to FHA does not raise the ceiling, because the FHA cash-out limit is 80% of the home’s adjusted value no matter what kind of loan you hold today. That 80% counts every lien on the home, not just the new first mortgage. What does reach higher is a different kind of transaction, such as a rate-and-term refinance with no cash out, or a VA loan for eligible borrowers.
Why the Existing Loan Type Doesn’t Matter
FHA looks at the home, not at the loan being paid off. A homeowner with a conventional mortgage who applies for the FHA cash-out refinance program faces the same 80% loan-to-value ceiling as a homeowner who already has an FHA loan. Across the wholesale programs Lendmire places files with, that ceiling is applied to appraised value, and the lender then tests the borrower’s credit, income and ability to repay.
HUD set this limit in Mortgagee Letter 2019-11, which lowered it from 85% to 80% of the adjusted value. The letter applies to both loan-to-value and combined loan-to-value. Only a narrow category, mortgages insured under Section 247 for Hawaiian Homelands, falls outside it.
So the short version for a conventional borrower: your current loan gives you no special room. It simply gets paid off. The 80% line stays where it is.
How the 80% Is Actually Measured
The cap is measured against “adjusted value,” which comes from the appraisal. HUD’s Handbook 4000.1 glossary defines the term, including how it works for homes acquired within the last 12 months.
Here is the part many homeowners miss. The 80% applies to the combined debt. A second mortgage or home equity line that stays in place uses up room under the cap. It does not add room. HUD’s knowledge base says the same: for case numbers assigned on or after September 1, 2019, the maximum LTV or CLTV on a cash-out refinance is 80% of adjusted value.
Picture a homeowner whose home appraises well and who owes about 50% of its value on a first mortgage. If a home equity line equal to another 15% of value stays open, the combined debt already sits at 65%. Only about 15 points of room remain under the cap before costs. A line counts at its credit limit, not only the amount drawn, so an unused line can still shrink the usable room.
Does Conventional Cash-Out Go Higher?
Not for a one-unit primary home. The Fannie Mae Eligibility Matrix lists 80% for a one-unit principal residence cash-out and 75% for two to four units. The matrix is a standing document that changes, so check the live version before relying on it.
That means for an owner-occupied one-unit home, FHA and conventional cash-out share the same 80% ceiling. FHA is not a way to borrow more. Its draw is a different underwriting profile, often more flexibility on credit, and it comes with its own mortgage insurance structure. Occupancy matters too: leverage is lower for rentals, second homes and manufactured homes, so those borrowers should read the matrix line for their property type.
| Question | FHA cash-out | Conventional cash-out |
|---|---|---|
| Ceiling, one-unit primary home | 80% | 80% |
| Does a second lien count? | Yes, combined | Yes, combined |
| Existing loan type matters? | No | No |
| Main difference | Often more credit flexibility | Credit and pricing follow the full file |
Routes That Do Go Above 80%
Three routes get past 80%, and none of them is a loophole in the cash-out cap. Each is a different transaction.
A rate-and-term refinance. No cash comes out, so the cash-out cap doesn’t apply. For FHA, the rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months. The tradeoff is plain: you keep your equity cushion thin and take no cash. It fits a homeowner who wants to change the loan, not pull money out.
A limited cash-out refinance. This is a conventional category where cash back is capped and leverage can be higher on a one-unit primary home. Fannie Mae lists 97% on its matrix, but the Selling Guide ties the highest tier to conditions: the existing loan must be owned or securitized by Fannie Mae, automated underwriting is required, and the loan must be fixed-rate. The matrix also notes that acquisition of high-LTV refinance loans is suspended. Treat that tier as narrow, not as a standard option. Paying off a non-purchase second lien can also make a refinance count as cash-out, so confirm how your lender classifies it.
A VA cash-out refinance. Eligible veterans, service members and surviving spouses can refinance a non-VA loan, including a conventional one, into a VA loan. VA’s quick-reference guide defines this kind of cash-out as one where the new loan exceeds the payoff. VA rules allow much higher leverage than FHA or conventional, though many lenders set their own lower limits. If you are eligible, this is the one mainstream path that genuinely goes past 80%.
Same Ceiling Does Not Mean Same Cash
Even at 80%, the cash you walk away with is smaller than the cap suggests. The cap sets a ceiling, not a payout. Several things shave it down:
- The appraised value may come in lower than you expect.
- Liens that remain, including a second mortgage, use up room.
- The new loan pays closing costs on the whole balance.
- On FHA, an upfront mortgage insurance premium of 1.75% of the base loan is financed into the balance.
The annual FHA premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above ninety percent LTV it lasts for the term. At or below ninety percent it ends after eleven years. A cash-out at 80% sits in the lower bracket, but the premium still affects the real cost of the cash. That figure comes from the file, not from the cap. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
If your equity is 20% or less, an 80% cap leaves little or no cash after costs. That is the honest bottom line for many homeowners reading this.
What Must Be True Before You Apply
FHA’s cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. Lenders also want a documented mortgage payment history. A home owned free and clear can still be refinanced as cash-out. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Conventional has its own seasoning rule. Under the Selling Guide, the existing first mortgage must be at least 12 months old, measured from the note date of the old loan to the note date of the new one. The same page covers a delayed financing exception for recent cash purchases.
A practitioner note: files stall far more often on appraisal and remaining liens than on the headline cap. A homeowner who knows the combined balance before applying avoids most surprises.
On credit and ratios, the wholesale programs Lendmire places FHA loans with start at a 580 decision score. Ratios begin at 31/43 for housing and total debt with no compensating factors. Documented factors can reach 40/50 at the top tier, and the automated finding governs most files. County loan limits apply too, since FHA limits are set by county and change every year. Everything here is subject to lender guidelines and full file review.
Which Path Fits Which Homeowner?
| Your situation | Path to look at first |
|---|---|
| Plenty of equity, wants cash | FHA or conventional cash-out at 80% |
| Wants a new loan, no cash | Rate-and-term refinance |
| Eligible for VA | VA cash-out refinance |
| Existing second lien stays | Count it inside the 80% |
| Little equity | Cash-out may leave nothing after costs |
For a borrower with strong credit and a conventional loan, conventional cash-out is often the natural lane, since the leverage matches and the underwriting profile fits. For a borrower with thinner credit or higher debt ratios, FHA may be the better fit, because its credit flexibility is the real draw. The decision turns on the file, not on the cap.
Two related Lendmire pieces cover the next step if the cap leaves you short. One explains whether an FHA cash-out can go above its cap with a subordinate lien, and another compares conventional cash-out with a home equity line for homeowners above the cap.
Key Terms Defined
Adjusted value: the appraisal-based number HUD applies the 80% limit to, with special treatment for homes bought within the last 12 months.
Combined loan-to-value (CLTV): the first mortgage plus any other liens, divided by the home’s value.
Cash-out refinance: a new loan larger than the payoff, with the difference paid to you.
Rate-and-term refinance: a new loan that changes the rate or term without taking cash out.
Limited cash-out refinance: a conventional refinance where cash back is capped, with different leverage limits than true cash-out.
What a Cash-Out Costs You
The CFPB’s guide to using home equity is blunt. A cash-out refinance can raise your monthly payment because it replaces your mortgage with a larger loan. It can also lengthen your payoff time. Because it is a new loan, the interest rate and other terms change. And because the home is collateral, missed payments put you at risk of foreclosure.
The CFPB also notes that lenders typically want borrowers to keep at least 10% to 20% of home value as equity. FHA’s 80% cap leaves 20%.
A common mistake is comparing only the cap. Compare the whole new loan against the one you have now, including the insurance structure and closing costs on the full balance. 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. Reach the team at 828-256-2183. Nothing here is a commitment to lend.
Frequently Asked Questions
Can a second mortgage get me past 80%?
No. The 80% limit is combined, so a second mortgage or home equity line that remains in place counts toward it. HUD’s letter applies the limit to both LTV and CLTV. A line counts at its credit limit, not only the drawn amount.
Is the old 85% limit still in effect?
No. A 2019 HUD mortgagee letter lowered the FHA limit from 85% to 80%. Older web pages still quote 85%, so check the date and the rule reference on anything you read.
Does having a conventional loan make me eligible for something FHA doesn’t offer?
No. The existing loan type doesn’t change the FHA limit. What matters is 12 months of ownership and occupancy, your payment history, the equity and your ability to repay at the new payment.
Is limited cash-out the same as cash-out?
No. Limited cash-out caps the cash you receive and can carry higher leverage on a one-unit primary home. The highest tier has narrow conditions, and the conventional matrix notes high-LTV acquisition is suspended, so don’t count on it.
Does the 80% cap mean I can take that much cash?
No. The cap is a ceiling. Appraised value, remaining liens, financed mortgage insurance, closing costs and qualifying all reduce what you can actually take, and approval depends on lender guidelines and the full file.
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 Glossary
3. Fannie Mae Eligibility Matrix
4. Fannie Mae Selling Guide B2-1.3-02
5. VA Cash-Out Refinance Quick Reference
6. Fannie Mae Selling Guide B2-1.3-03
7. CFPB: Using home equity to meet financial needs
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: How to Consolidate Debt Into a Conventional Cash-Out From an FHA Loan · Does an FHA Cash-Out From a Conventional Loan Carry MIP for Life? · How Much Cash a VA Cash-Out Adds Over Your FHA or Conventional Loan
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.