The Quick Read: Moving to an FHA cash-out adds mortgage insurance to your payment, and that is the biggest change you will see. You pay an upfront premium of 1.75% of the base loan, usually financed into the balance. You also pay an annual premium, billed monthly. Your new loan can reach 80% LTV, and what you gain in cash or flexibility, you pay for in insurance.
Most homeowners making this move are not leaving an FHA loan. They hold a conventional mortgage, often one with no mortgage insurance at all. So the FHA payment does not just change. It gains a brand-new line item. This article walks through that line item step by step.
Key Takeaways
- The upfront premium is 1.75% of the base loan and is usually rolled into the new balance.
- The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV.
- A cash-out loan tops out at 80% LTV, which puts it in the band where annual premium ends after eleven years.
- Conventional PMI has a legal off-ramp. FHA premium follows HUD’s duration table instead.
- Your old payment may rise or fall. Everything depends on the new balance, the term and the insurance.
Key Terms Defined
MIP (mortgage insurance premium): The insurance FHA loans carry. It has two parts, an upfront premium and an annual premium.
UFMIP (upfront premium): A one-time charge of 1.75% of the base loan amount.
Base loan amount: The loan amount before the upfront premium is added.
PMI (private mortgage insurance): The insurance conventional lenders require on many low-down-payment loans. It is a different product from MIP.
LTV and CLTV: Loan-to-value is your loan divided by the home’s appraised value. Combined LTV adds any other liens to the loan.
Seasoning: The time you must own and live in the home before the loan is allowed.
What Changes in the Payment When You Switch?
Your payment is built from principal, interest, taxes, insurance and, now, mortgage insurance. The first four exist on your conventional loan today. The fifth is the one that moves.
Start with what you pay now. If you put 20% down or built that much equity, you likely pay no PMI. Switching to FHA means the new loan carries MIP no matter how much equity you have. That is the core of the story. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Two forces then push the payment in different directions. The new balance is larger because you are pulling cash out, and the financed upfront premium adds to it. Meanwhile, the monthly annual premium is stacked on top. A different loan term or a different loan structure can pull the payment the other way. So the payment can rise or fall, depending on the balance and the term you choose.
The mechanics are what matter, and they run the same on every loan.
How the Premium Is Built, Step by Step
Step one: the appraisal sets the ceiling. The lender measures your loan against the appraised value. HUD capped FHA cash-out loans at 80% LTV and CLTV in Mortgagee Letter 2019-11, down from 85%. HUD said it wanted to limit risk to the FHA insurance fund. Across the wholesale programs Lendmire places files with, the FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Step two: the base loan amount is set. That is the loan you are borrowing before any premium is added. Because CLTV counts, any other lien that stays on the home uses up room under the cap.
Step three: the upfront premium is calculated. HUD sets it at 1.75% of the base loan amount, per Mortgagee Letter 2023-05. Most borrowers finance it, which means it grows the balance and you pay interest on it.
Step four: the annual premium is added. It runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. The lender bills it monthly, so it lands inside your housing payment. That same Mortgagee Letter cut the annual premium for most new borrowers on loans endorsed on or after March 20, 2023. It did not change the upfront premium.
Premium schedules change by HUD letter, so confirm the current schedule with your loan officer before you rely on any figure.
How Long Does the Annual Premium Last?
Annual MIP on a cash-out loan lasts eleven years, when the loan sits at 80% LTV. HUD ties duration to LTV: at 90% or below it ends after eleven years, and above 90% it lasts the loan term. HUD’s Appendix 1.0 table lays out that structure. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Because a cash-out loan is capped at 80%, you land in the shorter band. That is an inference from two HUD sources, so confirm your own case when you apply.
Here is the catch. Your equity growth does not end the premium early. On FHA, the clock runs on HUD’s table, not on a request you make at some equity level. The upfront premium is also not refunded when you leave the loan by refinancing out of FHA into a conventional loan.
For a closer look at the multi-year picture, Lendmire’s piece How Much the Annual MIP Adds to an FHA Cash-Out Payment Over Time walks through the timeline.
MIP vs. PMI: Different Rules, Different Exits
MIP is not PMI. They are two products with two sets of rules.
| Feature | Conventional PMI | FHA MIP |
|---|---|---|
| Who sets the rules | Federal law for most loans | HUD’s duration table |
| Upfront charge | None typical | 1.75% of base loan |
| Ends at 80% equity request | Yes, with conditions | No |
| Ends automatically | Generally at 78% | After eleven years at 80% LTV |
| Needed at 80% LTV | Often not | Yes |
The CFPB explains that under the Homeowners Protection Act, you can ask your servicer to cancel PMI when the balance is scheduled to reach 80% of the home’s original value. The request must be in writing, your payment history must be good, and you must certify no junior liens. PMI generally ends automatically at the scheduled 78%. Those rules cover single-family principal residences closed on or after July 29, 1999.
Notice the contrast. Conventional insurance has a legal off-ramp. FHA insurance follows HUD’s schedule. If you hold a conventional loan with no PMI today, you give up a loan with no insurance cost for one with an eleven-year one.
Where the General Rule Breaks
The rules above hold for most files. These edge cases are where they bend.
- Inheritance. If you inherited the home, you do not need the 12-month occupancy period. That holds only if you never treated it as an investment property after inheriting it. Renting it out removes the exception until you occupy it. Verify the exact wording against HUD’s handbook with your loan officer.
- FHA-to-FHA premium exceptions. HUD’s upfront premium exceptions cover certain Streamline and Simple Refinances of older FHA loans. They do not apply when you move from conventional to FHA cash-out.
- Hawaiian Home Lands. These Section 247 loans have no annual MIP, and the 2019 LTV change does not apply to them. It is a named exception that rarely comes up.
- Endorsement date, not closing date. The 2023 annual premium reduction depends on when HUD insures the loan. Premiums follow the endorsement date.
- Case-number date. The 80% cap applies to case numbers assigned on or after September 1, 2019.
- Not everyone has PMI. Conventional PMI rules cover a defined set of loans, and high-risk mortgages are exempt. If you have no PMI today, MIP is a brand-new cost to you.
- Second liens. A second mortgage or HELOC does not get you past the cap. The limit applies to combined debt.
If you own a home you rent out or use as a second home, one sentence settles it: occupancy decides the leverage, and the standard FHA cash-out is for your principal residence.
What Underwriters Weigh Besides Equity
Eighty percent LTV does not mean approval is automatic. Across the wholesale programs Lendmire places files with, the lender typically weighs your ownership and occupancy history, mortgage payment history, credit, income, the new payment and the appraised value, and approval remains subject to underwriting.
The monthly premium sits inside your housing payment, so it feeds the housing-expense ratio. The base ratio pair is 31/43 (housing and total debt as a share of income) with no compensating factors. Documented compensating factors can stretch that to 40/50 at the top tier, and the automated finding governs most files.
The credit starting point across the networks we place with is a 580 decision score. Some lenders set a higher floor on cash-out, so your own number may be tighter. County loan limits apply and change every year. Every parameter here is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For documentation, expect the standard set: income, assets, occupancy proof and mortgage history. It is the same general package as other owner-occupied loans.
Does the Move Make Sense? A Decision Look
Picture a homeowner with a conventional loan, no PMI, and plenty of equity. They want cash for a renovation. Their credit is fine for conventional, so the question is whether FHA solves anything. Usually it does not. A conventional cash-out at that equity level often avoids mortgage insurance, so FHA adds cost without adding access.
Now picture a homeowner whose credit took a hit. A conventional cash-out may be out of reach or priced poorly. FHA’s flexibility on credit and ratios can open a door that was closed. Here the insurance cost buys access.
A few questions help sort the cases:
- Do you qualify for a conventional cash-out at the equity you have?
- Would the cash you pull out justify a new insurance line item?
- How long will you hold the loan? Eleven years of annual premium is a long time if you plan to leave in three.
- What will it cost to refinance out of FHA later? You would lose the upfront premium you financed.
- Does a home equity loan or line fit better than replacing your whole mortgage?
The entry cost and the exit cost belong together.
Qualifying also deserves a pause. The monthly premium raises the housing payment, which raises the housing ratio. A payment that looks fine on paper can crowd a ratio, so ask how the premium enters your qualifying numbers.
You can read more about how the program works on Lendmire’s FHA cash-out refinance program page.
Frequently Asked Questions
Do I need an FHA loan already to get an FHA cash-out?
No. You can refinance a conventional loan into an FHA cash-out. The Streamline refinance is different. It only works on an existing FHA loan, so it is not available to you from a conventional mortgage.
Is MIP the same as PMI?
No. PMI belongs to conventional loans and carries legal cancellation rights. MIP belongs to FHA loans and follows HUD’s duration table. MIP also has an upfront piece that PMI typically lacks.
Can I cancel MIP once I have 20% equity?
Not by request. FHA annual premium ends on HUD’s schedule, not on an equity threshold. On a cash-out loan at 80% LTV the schedule runs eleven years. Refinancing into another loan is the other way out. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Can I finance the upfront premium?
Yes. The upfront premium is 1.75% of the base loan, and borrowers commonly roll it into the balance. That raises your loan amount and your CLTV, so it counts against the 80% cap.
Does the 2023 annual premium cut apply to my existing FHA loan?
No. The reduction applies to loans endorsed on or after March 20, 2023. You would get the newer schedule only through a new loan, according to HUD’s notice.
Before You Decide
Ask your loan officer to show you how the premium is calculated, what is financed, and how the payment compares to your current one. Ask what the Loan Estimate shows for mortgage insurance. Then ask for the same cash-out on a conventional loan, and compare the full terms side by side. 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 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 Mortgagee Letter 2023-05
3. HUD Mortgagee Letter 2015-01, Appendix 1.0
4. 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: FHA and Conventional Cash-Out Requirements Side by Side for a Primary Home · Can You Refinance Out of FHA With a Conventional Cash-Out Refinance? · Conventional Cash-Out vs FHA Cash-Out for a Current FHA Homeowner
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.