The Quick Read: On a cash-out refinance, a lower score tier changes whether you are eligible and how the file is underwritten. It does not change how much equity FHA lets you reach. FHA cash-out tops out at 80% of the home’s value whether the score is at the floor or well above it. Conventional cash-out also tops out at 80% on a one-unit primary home, but it prices by score and tends to ask more of a lower-tier file. Every figure here is subject to lender guidelines and full file review.
What a Lower Score Tier Actually Changes
A lower score tier moves three things: whether the file is eligible, how it is underwritten, and what the loan costs. It does not move the leverage cap on FHA. This is the point most borrowers miss.
On an FHA cash-out, the cap is 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned. A 580 score and a 720 score reach the same 80%. The better score does not buy more cash. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Conventional works differently. The agency’s pricing grid adjusts by score and by LTV, so a lower score costs more on the same loan. Those adjustments apply to conventional loans only. FHA, VA and USDA loans are excluded from them, per the Fannie Mae loan-level price adjustment matrix. FHA carries mortgage insurance instead.
Here is the short version in a table.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Max LTV, one-unit primary | 80% | 80% |
| Does a higher score raise LTV? | No | No |
| Does score change cost? | Not through score-based adjustments | Yes, by score and LTV |
| Mortgage insurance | Upfront plus annual premium | None on cash-out at this LTV tier |
| Occupancy | Owner-occupied principal residence | Primary, second home, investment (lower caps) |
Both programs cap one-unit primary cash-out at 80%, per the Fannie Mae eligibility matrix for conventional. Two- to four-unit primary homes and second homes drop to 75% on the conventional side. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Floor vs. Overlay: Why Published Minimums Mislead
A program floor is the lowest score the agency allows. An overlay is a stricter minimum a lender adds on top. Borrowers get tripped up because the two numbers differ.
HUD publishes its minimum decision credit score rules on its knowledge base page. Below a certain score, a borrower is not eligible for FHA-insured financing at all. In the middle tier, HUD limits leverage on general FHA loans. At 580 and above, a borrower is eligible for maximum financing.
Here is the part that matters for a lower score tier. Across the wholesale programs Lendmire places FHA files with, the starting point is a 580 decision score. HUD’s lower tier exists as a HUD rule, but the network does not reach below 580. Some lenders set a higher floor still. That is why you will see different numbers quoted for the same program.
For a cash-out file, ask the lender one direct question: what is your minimum score for this specific product? The answer is the number that counts.
How the File Is Underwritten, Step by Step
An FHA cash-out file moves through the same checkpoints each time. Knowing them tells you where a lower-score file gets stuck.
1. Pull credit and set the decision score. On a loan with more than one borrower, the lowest representative score is the one used. A co-borrower with a strong score does not rescue a weak one.
2. Check the ownership and occupancy clock. FHA standard cash-out requires that at least one borrower owned and occupied the home as a principal residence for the 12 months before the case number. The exception is inheritance, where the occupancy period is waived as long as the home has not been used as something other than a residence.
3. Check payment history on the current loan. Lenders look hard at late payments on the mortgage being refinanced. On cash-out files, recent lates are a common stopper. HUD’s handbook addresses late payments for cash-out transactions in its handbook update.
4. Order the appraisal and set the value. Maximum loan equals the LTV cap times the value used. If you have owned the home under 12 months, HUD’s rule uses the lesser of purchase price plus documented improvements, or the appraised value. That rule is in the HUD Handbook 4000.1 glossary. At 80% LTV, at least 20% equity stays in the home. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
5. Run the underwriting method. Most files go through the automated finding. Some go to manual review. A file with thin or non-traditional credit is eligible for maximum financing but is manually underwritten. A file where only a non-occupying co-borrower has a score also drops to manual.
6. Test the ratios. FHA’s base pair is 31/43, housing to total. With documented compensating factors, ratios can reach 40/50 at the top tier. The automated finding governs most files. A lower-tier file usually lands nearer the base pair and needs its compensating factors written down.
7. Gather documents. Expect the deed and title evidence, current mortgage statements, income and asset documents, and payment history. The lender then issues a Loan Estimate and, later, a Closing Disclosure.
FHA Cash-Out Mechanics at the Lower Tier
The FHA cash-out is a refinance of any mortgage, or an equity withdrawal where no mortgage exists, with proceeds that are not restricted to a specific purpose. That definition comes from HUD’s handbook, available as the HUD Handbook 4000.1.
Two practical notes follow from it. First, you do not need an existing FHA loan to do an FHA cash-out. A conventional loan can be refinanced into FHA. Second, the property must be your owner-occupied principal residence. A rental does not qualify.
On cost, mortgage insurance is the main program feature. FHA charges an upfront premium of 1.75% of the base loan, which is normally financed. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90% LTV, it ends after eleven years.
The details of the FHA product are on Lendmire’s FHA cash-out refinance program page.
County loan limits apply and change each year, so check the limit for your county before assuming the full balance fits.
Conventional Cash-Out at the Lower Tier
Conventional cash-out gets harder as the score drops, and the difficulty shows up in price more than in a hard stop.
The structure is straightforward. A one-unit primary home reaches 80% LTV. Two- to four-unit primary homes reach 75%. A one-unit second home reaches 75%. Limited cash-out, the rate-and-term style with minimal cash back, allows much higher LTVs, but it is a different transaction and these cash-out limits do not apply to it. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Conventional has its own seasoning rules. The loan being refinanced generally must be at least 12 months old, measured note date to note date, unless only subordinate liens are being paid off. At least one borrower generally must have been on title for six months. Delayed financing is an exception for an all-cash purchase with documented source of funds.
On score, the figure to know is that most lenders set their own minimum for conventional cash-out, and it often sits above what an FHA file needs. Some automated findings can approve lower, but manual underwriting keeps a fixed minimum. The honest answer is that it varies by lender, so ask.
For a lower-tier borrower, the real question is cost. A conventional loan prices the weak score into the loan itself. FHA prices risk through mortgage insurance that does not step up as the score falls. That is the reason FHA often wins on cost in the lowest tiers while conventional wins as the score climbs.
Where the General Rule Breaks
Several edge cases change the answer. These are the ones that come up most.
Home owned under 12 months. FHA cash-out needs 12 months of ownership and occupancy. Before that, the value is limited to the lesser of purchase price plus documented improvements or the appraisal. A newer owner may fit a rate-and-term refinance instead.
Inherited property. FHA waives the occupancy period. The home still has to be treated as a residence.
Multiple borrowers. The lowest representative score governs on FHA. If one spouse has a damaged score, the file is underwritten at that lower number.
Non-occupant co-borrower. FHA purchase allows one, but a non-occupant co-borrower can be a problem on cash-out, and some lenders do not permit it. Confirm before building a plan around it.
Recent adverse credit. HUD sets waiting periods after major events. Two years from a Chapter 7 discharge and three years from a foreclosure are HUD’s rules, not a promise from any lender. These interact with the score tier, because a borrower can clear the score and still be inside a waiting period.
Thin or non-traditional credit. Eligible for maximum financing, but manually underwritten, which means more documentation and tighter ratio room.
FHA on a second home or rental. Not available for cash-out. FHA cash-out is owner-occupied only, and occupancy decides the leverage.
What the Decision Looks Like in Practice
Picture a homeowner with a score in the lower tier, a primary residence owned for several years, and a mortgage that is current. Credit card balances are high, and the goal is to consolidate them.
On FHA, the maximum is 80% of value. If the score clears the lender’s floor and the last 12 months of mortgage payments are clean, the file can go to the automated finding. If it lands in manual review, the ratios sit nearer 31/43, and a documented reserve or a stable job history helps.
On conventional, the same borrower faces the same 80% cap but a price that reflects the score. If the lender’s minimum is above the borrower’s score, the file stops there.
Run the comparison like for like. The CFPB took action against a lender that compared a new payment showing only principal and interest with an old payment that included taxes and insurance. Compare the full monthly obligation on both sides, and read the Loan Estimate line by line.
Keep the risk in view too. The CFPB notes that paying non-mortgage debts with mortgage debt can raise foreclosure risk, and that a cash-out can turn unsecured debt into debt secured by the home. Its research also found that debt payoff is a common reason for cash-out refinancing. A CFPB report on cash-out borrowers found scores rose after the refinance, then slipped, though they stayed above where they began. Don’t expect a permanent boost.
If You Are Just Below the Line
A file just under a lender’s minimum is often fixable, and the fix is mostly mechanical.
- Pay down revolving balances. Utilization drives a large part of the score. Lower balances before the credit pull.
- Dispute errors. An incorrect late payment or collection can hold a score down.
- Ask about a rapid rescore. Once a balance is paid or an error is corrected, a lender can request an updated score faster than the normal reporting cycle.
- Fix the payment history first. A recent late on the mortgage itself is harder to overcome than a score gap. Waiting out a clean 12 months can matter more than any other move.
- Check which score the lender uses. Mortgage scoring models differ from the consumer scores you see on free apps, so the number you track may not be the number on the file.
Key Terms Defined
Decision score: The credit score a lender uses to underwrite the file, which is the lowest representative score when there are multiple borrowers.
Overlay: A stricter requirement a lender adds on top of the agency minimum.
LTV (loan-to-value): The loan amount divided by the home’s value, expressed as a percentage.
Seasoning: The required time you have owned the home or held the existing loan before a cash-out is allowed.
Loan-level price adjustment: A score- and LTV-based pricing charge on conventional loans that does not apply to FHA.
Manual underwriting: A review by an underwriter instead of the automated system, which usually asks for more documents and tighter ratios.
Alternatives Worth Weighing
A cash-out refinance replaces your whole mortgage. If your current loan is a good one, replacing it may cost more than the cash is worth. A home equity line of credit or a home equity loan leaves the first mortgage alone. The CFPB notes that HELOCs tend to have lower rates, payments and foreclosure risk than cash-out refinances. Its home equity guide says lenders typically want you to keep 10% to 20% of the home’s value as equity across these products.
If you already hold an FHA loan and only want a lower payment, the FHA Streamline refinances without an appraisal and with a limited credit review, but it provides no cash out. It needs a net tangible benefit.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Which Route Fits You
- Score near the lender’s floor, recent lates: FHA is usually the more workable path, if the 12-month payment history is clean.
- Stronger score, wants the lowest ongoing insurance cost: conventional is worth pricing, since mortgage insurance does not apply the same way.
- Home owned under 12 months: neither cash-out works as planned. Look at rate-and-term.
- Multiple borrowers with uneven scores: run the file on the lowest score before applying.
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. Program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does a higher credit score get me more cash on an FHA cash-out?
No. FHA cash-out is capped at 80% of value regardless of score. A higher score can help the file get approved and may widen the ratios a lender will accept, but it does not raise the cap.
Is the HUD minimum score the one lenders use?
Not usually. HUD sets the floor for insurance eligibility, and lenders add overlays above it. Across the wholesale programs Lendmire works with, FHA files start at a 580 decision score, though lenders may set a higher floor.
Which score counts when two people are on the loan?
The lowest representative score among the borrowers is used on FHA. A strong score from one borrower does not offset a weak one from the other.
Can I use an FHA cash-out on a rental or second home?
No. FHA cash-out is limited to your owner-occupied principal residence. Conventional cash-out allows other occupancies at a lower 75% cap.
Will a cash-out refinance help my credit?
Only for a while. CFPB research found scores rose after the refinance and then gradually worsened, though they stayed above the starting level. Paying off cards helps utilization, but running balances back up erases the benefit.
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
2. Fannie Mae Eligibility Matrix
3. HUD Handbook 4000.1 update transmittal (05/2024)
4. HUD Handbook 4000.1 glossary
6. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
7. CFPB: Using home equity guide
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 Move a Declined Conventional Cash-Out to an FHA Cash-Out · Can You Get an FHA Cash-Out After a Conventional Denial? · Conventional vs FHA Cash-Out for a Homeowner Based on Credit and DTI
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.