The Quick Read: Holding an FHA mortgage does not lock you into another FHA loan when you want cash from your equity. A cash-out refinance replaces your current loan, so the new one can be FHA or conventional. Both cap out at 80% of your home’s value on a one-unit primary residence. The real differences are credit flexibility and how the mortgage insurance behaves afterward.
Here is the honest answer on who each option is for. A new FHA cash-out suits borrowers whose credit is still recovering, or whose debt-to-income ratio is stretched, because FHA underwriting bends further. Conventional cash-out suits borrowers with stronger credit who want to leave FHA mortgage insurance behind. Lendmire’s FHA cash-out refinance program covers the first path. Neither loan is automatic, and both depend on lender guidelines and a full file review.
Side-by-Side
Across the wholesale programs Lendmire places FHA files with, the choice usually comes down to a handful of items. This table shows them. Pricing is left out on purpose, because it depends on your file and belongs on a Loan Estimate.
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Max leverage (1 unit) | 80% LTV | 80% LTV |
| Max leverage (2-4 units) | 80% LTV on a principal residence | 75% LTV |
| Credit | More forgiving on weaker files | Stronger credit usually needed |
| Mortgage insurance | 1.75% upfront plus annual premium | Typically none at 80% LTV |
| Occupancy | Principal residence only | Other uses at lower leverage |
| Ratios and reserves | 31/43 base, up to 40/50 with factors | Extra reserves if DTI is above 45% |
| Ownership test | Owned and lived in 12 months | Its own seasoning clocks |
The conventional leverage limits come from the Fannie Mae Eligibility Matrix. The FHA ceiling used to be higher. HUD cut it to 80% to reduce risk to the FHA insurance fund, so FHA no longer wins on leverage. Old blog posts still quote the higher figure. Ignore them.
Key Takeaways
- Owning an FHA loan does not block a refinance into FHA or conventional. It only limits holding a second FHA purchase loan at the same time.
- At 80% LTV, both loans reach the same equity. Credit and mortgage insurance decide the choice.
- FHA charges a 1.75% upfront premium, usually financed, which raises your loan balance. The annual premium is billed monthly on top of that.
- Conventional cash-out generally carries no PMI at 80% LTV, though risk-based adjustments depend on credit and LTV.
- A streamline or a conventional limited cash-out is a different product. Neither is built to hand you meaningful cash.
When FHA Cash-Out Is the Better Fit
FHA cash-out wins when your credit is the obstacle, not your equity. A middling score, a past late payment, or a heavy debt load can push a conventional file out of range. FHA underwriting weighs the whole file more flexibly.
Consider a homeowner with a recovering score and about 30% equity. They want to consolidate debt and fix a roof. The base FHA ratios are 31/43 for housing and total debt. Documented compensating factors, such as reserves or a long job history, can stretch that toward 40/50 at the top tier. An automated finding governs most files. A conventional loan might be out of reach for this borrower. FHA may not be.
Three other situations favor FHA:
- You plan to stay and keep the insurance short. With cash-out capped at 80% LTV, the annual premium on a thirty-year loan ends after eleven years. That is the lower-LTV schedule, not the term-long one.
- Your payment history is clean but your score is not great. Lenders look hard at the last twelve months of payments either way. FHA cares more about that history than the score alone.
- Your income has quirks. A manual underwrite is possible on FHA when the automated finding comes back refer. Your loan officer can tell you what documentation that path needs for your property, leverage, and credit. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Now the cost side. FHA’s upfront premium is 1.75% of the base loan. It is usually rolled into the balance, so you owe more and net less. Financed closing costs also eat into the 80% cap. (A cash-out refinance has a way of netting less than the equity number suggests.)
FHA also has an occupancy test. A standard FHA cash-out is for principal residences only. You must have owned and lived in the home for 12 months before the case number is assigned. Moved out and rented the place? That path is closed, and a conventional cash-out at a lower leverage is the option left to consider.
When Conventional Cash-Out Is the Better Fit
Conventional is the better fit when your credit has recovered and the FHA insurance is the thing you want gone. That premium keeps charging a borrower with strong credit who no longer needs FHA’s flexibility.
Picture a homeowner who bought with a thin down payment and a modest score. Years later their score is strong and their value has grown. They hold well under 80% of the home’s value in debt. Conventional lets them pull cash and shed FHA’s annual premium in one move. At 80% LTV, a conventional cash-out loan generally would not carry private mortgage insurance at closing. Fannie Mae’s cash-out rules still apply risk-based adjustments tied to credit score and LTV, so a better score helps the cost.
PMI also behaves differently from FHA mortgage insurance. The CFPB explains that you can request PMI cancellation at 80% of original value. Termination is generally automatic at 78%. A good payment history and no second liens help. That is a clearer exit than FHA’s schedule.
Conventional has costs of its own:
- Stronger credit tends to be required. Some lenders set a higher floor than others, and manually underwritten files face tighter limits.
- Extra reserves. The Fannie Mae matrix adds reserve requirements on cash-out loans run through automated underwriting when DTI is above 45%.
- Lower leverage on multi-unit homes. A duplex, triplex or fourplex you live in tops out at 75% LTV on conventional, versus 80% on a principal residence under FHA.
- Its own seasoning clocks. Conventional ownership and note-age tests are not the same as FHA’s 12-month rule. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
What Happens to the FHA Insurance You Already Pay?
Refinancing replaces your old loan, so the old annual premium stops and a new loan begins. On a new FHA loan, you pay a fresh upfront premium and start a new annual schedule. On a conventional loan, FHA insurance ends and PMI rules apply, if any.
Some borrowers hear about a refund of the old upfront premium. Treat that carefully. It depends on HUD rules and timing, and no refund should be counted on without a HUD source in front of you. Ask your loan officer to put the numbers on a Loan Estimate.
Which Question Are You Really Asking?
Three different questions hide inside this topic. They have different answers.
- “I want cash from my equity.” That is this article: FHA cash-out or conventional cash-out.
- “I want a lower payment, no cash.” That is the FHA Streamline, which has no appraisal, a limited credit review and a net tangible benefit test. The premium continues. It does not hand you meaningful cash.
- “I want to buy another home.” FHA generally permits one FHA purchase loan at a time, with exceptions for things like relocation or a growing household. Refinancing your current home is a separate decision.
A conventional limited cash-out also exists. It pays off your FHA loan and costs, with only a small amount of cash back. It is a tidy exit from FHA insurance, but not a cash-out.
Sequencing: Cash Now or Wait?
Two moves can cost more than one. Taking FHA cash-out now and refinancing to conventional later means two sets of closing costs and a second appraisal. Waiting could mean a better credit tier and a smaller insurance bill, but your need for the cash may not wait.
Weigh it this way. If the cash solves an urgent, valuable problem, take the loan that fits today’s file. If your score is close to the next band and the need is flexible, a few months can change the better option. This is a genuine toss-up for borrowers in the middle, and the answer depends on how long you hold the loan.
Mistakes That Cost Borrowers Equity
- Treating 80% as a promise. The cap is a ceiling. The appraisal, payment history, credit and income all still decide the amount.
- Forgetting financed costs. Financed closing costs use up part of the 80% cap, and the financed FHA upfront premium raises your balance. Both shrink the cash you net.
- Mixing up the products. A rate-and-term, a streamline and a limited cash-out are not cash-out loans.
- Using home debt for non-home bills without a plan. The CFPB’s report on cash-out borrowers says the most common reason is paying off other debts, with home repairs second. It also cautions that paying non-mortgage debt with mortgage debt can raise foreclosure risk.
- Skipping the alternatives. A home equity loan or line sits on top of your first mortgage instead of replacing it.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off your old one and gives you the difference as cash.
LTV (loan-to-value): Your total loan balance divided by your home’s appraised value.
Mortgage insurance premium (MIP): FHA’s insurance, with an upfront charge and an annual charge built into your loan.
PMI (private mortgage insurance): Conventional loan insurance, which can be cancelled under federal rules.
Seasoning: The waiting period a lender wants between owning a home or opening a loan and refinancing it.
Case number: The FHA identifier assigned to your loan file, which sets the clock for several FHA rules.
The Balanced Verdict
Neither loan is the winner. FHA cash-out is the practical choice when credit or ratios are the limit and you can live with the premium schedule. Conventional cash-out is the better choice when your credit is strong and you want to exit FHA insurance. Both reach the same 80% on a one-unit home, so the decision rests on your file, your timeline, and how long you plan to 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. Your qualification, loan amount and terms depend on lender guidelines and a full file review. Nothing here is a commitment to lend.
Frequently Asked Questions
Can I have two FHA loans at the same time?
Generally one at a time, with exceptions such as relocation or a growing household. A refinance is different. It replaces your current loan, so you are not holding two. Owning an FHA loan does not block a cash-out refinance into FHA or conventional.
Do I need an existing FHA loan to get an FHA cash-out?
No. FHA cash-out is open to any eligible principal residence with the required 12 months of ownership and occupancy before the case number. Having an FHA loan today does not give you an edge or a restriction. Eligibility rests on the home, your payment history, credit, ratios and the appraisal.
Will leaving FHA for conventional end my mortgage insurance?
Yes, the FHA premium stops because the old loan is paid off. Conventional at 80% LTV generally carries no PMI at closing. Credit score and LTV still affect the risk-based adjustments, so a stronger score helps.
Can an FHA Streamline give me cash?
No. The Streamline refinances an existing FHA loan with no appraisal, limited credit review and a net tangible benefit test. It is built for refinancing an existing FHA loan, not for pulling equity. Taking cash means a cash-out refinance.
Can I rent out my home and still do an FHA cash-out?
Not under the standard program. FHA cash-out is for principal residences, and the home must have been your owned and occupied residence for 12 months before the case number. If you have moved out, conventional financing at a lower leverage is the usual alternative.
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 Eligibility Matrix
2. HUD Mortgagee Letter 2019-11 on FHA cash-out loan-to-value limits
3. Fannie Mae Selling Guide: Cash-Out Refinance Transactions
4. CFPB: When can I remove PMI from my loan?
5. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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: Does Lender Choice Matter for a Conventional or FHA to VA Cash-Out? · Does an FHA Cash-Out Refund Upfront MIP on Your Existing FHA Loan? · Can You Get an FHA Cash-Out If Conventional Turned You Down?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.