The Quick Read: An FHA cash-out refinance does not end mortgage insurance. It creates a brand-new FHA loan with its own premium clock. The two real exits are waiting out the premium term or refinancing into a loan with no FHA insurance, usually conventional. On a condo, the building’s eligibility often decides which exit is open.
What Does an FHA Cash-Out Do to Your Mortgage Insurance?
It restarts it. An FHA cash-out replaces your old loan with a new FHA loan, and the new loan carries its own upfront premium and its own annual premium schedule. Nothing from the old loan’s clock carries over.
Across the wholesale programs Lendmire places FHA files with, the FHA cash-out reaches 80% loan-to-value (LTV, the loan balance divided by the home’s appraised value). That ceiling is a HUD rule. HUD Handbook 4000.1 lowered the cash-out maximum to 80%, which means at least 20% of the home’s value stays as your equity.
The insurance comes in two pieces. The upfront premium is 1.75% of the base loan, and it can be financed into the balance. HUD Mortgagee Letter 2023-05 confirms the upfront figure is 1.75% of the base loan for all mortgages. The annual premium is billed monthly and runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV.
Here is the part that matters for your exit. On a thirty-year loan above 90% LTV, the annual premium lasts for the whole term. At or below 90% LTV, it ends after eleven years. HUD’s older premium table, Appendix 1.0 to ML 2015-01, sets that duration structure. Its rate figures are out of date, but the duration logic still holds. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
A cash-out capped at 80% LTV generally lands in the eleven-year tier. “Generally” is the honest word here. Your lender confirms the exact tier on your file, because it depends on term, amount and the LTV at origination.
Key Terms Defined
Upfront premium: a one-time FHA insurance charge, 1.75% of the base loan, usually financed into the balance.
Annual premium: the ongoing FHA insurance charge, collected monthly and based on term, amount and LTV.
LTV (loan-to-value): your loan balance divided by the home’s appraised value.
Seasoning: the waiting period a lender wants between two events, such as owning a home or closing a prior loan.
Project approval: HUD or lender sign-off that a condo building as a whole is eligible for FHA-insured loans.
Single-Unit Approval (SUA): a path to insure a loan on one unit in a building that lacks full project approval.
PMI (private mortgage insurance): insurance on conventional loans, with cancellation rights written into federal law.
How Does FHA Mortgage Insurance Actually End?
Only two ways. The premium schedule runs out, or you refinance into a loan that carries no FHA insurance. Everything else people hope for is a myth.
Extra principal payments do not end it early. On loans with case numbers assigned after June 2013, the duration is fixed by your original LTV. Paying down faster builds equity, but it does not shorten the premium term.
A new appraisal does not remove it. HUD’s own page on older loans says new appraised values are not considered for cancellation. A fresh appraisal only helps if you refinance into conventional.
The old 78% rule is gone for new loans. Automatic cancellation at 78% applies only to FHA loans closed on or after January 1, 2001 with a case number assigned before June 3, 2013. A cash-out creates a new case number, so that rule cannot apply to it.
FHA insurance is not PMI. The CFPB explains that on conventional loans you may request PMI cancellation when the balance is scheduled to reach 80% of the home’s original value, and servicers must terminate it automatically at 78% if you are current. Those protections cover PMI. FHA premiums follow HUD’s fixed schedule. That difference is exactly why exiting to conventional is attractive.
| Situation | Does FHA insurance end? |
|---|---|
| Wait out the schedule | Yes, at the end of the term tier |
| Extra principal payments | No |
| New appraisal alone | No |
| Another FHA loan | No, a new clock starts |
| Conventional refinance | Yes, though PMI may apply |
What Are Your Two Exit Routes?
Route one: wait. If your loan sits in the eleven-year tier, you carry the annual premium for that stretch and then it stops. This costs nothing extra in closing costs. It costs you the monthly premium until the date arrives.
Route two: refinance to conventional. This works when your equity, credit and debt ratios fit conventional guidelines. If you reach roughly 20% equity or more at the new loan, PMI may not apply at all. If you land below that, PMI replaces FHA insurance, though it can be cancelled later under the federal rules above.
There is a trap worth naming. Moving from FHA to FHA, such as through a streamline, keeps the premium going. The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review, but the premium continues. It lowers a payment sometimes. It does not end insurance.
What decides route two comes down to four things:
- Equity: appraised value minus your payoff, measured against the new loan’s LTV cap.
- The building: the condo project must pass the new lender’s review.
- Credit and debt ratios: conventional underwriting is less forgiving than FHA on both.
- Occupancy: you must use the home as intended, which matters for leverage.
What Changes Because It’s a Condo?
The building becomes a second borrower. On a condo, the project’s status often matters as much as your equity, because lenders underwrite the building as well as the unit.
For FHA, a project must generally be approved before loans on its units can be processed, per HUD’s FHA Connection condo help. The alternative is Single-Unit Approval, which allows a loan on one unit in a non-approved building. SUA generally requires a completed project with at least five units, and it comes with limits on how many units carry FHA loans, how many are owner-occupied, and the project’s financial condition. HUD’s help page describes specific concentration limits, but that page is dated, so confirm current limits with your lender instead of relying on a number from a web page.
Conventional lending reviews the same building under different rules. Fannie Mae’s guide lists “FHA-approved condo project” among its delivery codes, so an FHA-approved building can be accepted on the conventional side. Lenders confirm that in the current Selling Guide, not by assumption.
Conventional condo review has also been changing. Fannie Mae’s published FAQ says that for applications on or after August 3, 2026, loans are not eligible for sale under the old Limited Review. Condo projects generally need a Full Review or a Waiver of Project Review. The Waiver of Project Review covers detached condos and certain Fannie-to-Fannie limited cash-out refinances.
The practical takeaway: a building that worked for FHA can fail conventional review, and the reverse can happen too. Condo fees and special assessments also hit your debt ratios on both sides. Ask your lender early whether the project is likely to pass before you count on an exit.
Should You Cash Out First or Go Straight to Conventional?
If you do not need the cash, skip the FHA cash-out and go straight to conventional. An FHA cash-out puts you on a fresh premium schedule, then makes you pay for a second refinance to get off it.
If you need the cash and your credit or equity does not yet fit conventional, the FHA cash-out can be the right tool. You then treat the exit as a later project. Plan it from day one.
Two clocks work against a quick second move. First, the FHA cash-out itself requires that you owned and occupied the home for 12 months before the case number, and that your mortgage payments were on time. Those occupancy and payment-history tests are in HUD Handbook 4000.1, so confirm them on hud.gov. Second, conventional cash-out loans generally want the first lien being replaced to have some seasoning. Verify that against the current Selling Guide before you plan a date.
The honest answer is that it depends on how much equity you will still hold and what you need the cash for. This is a genuine judgment call, and it belongs in a conversation with a loan officer who can see your numbers.
Worked Example: How the Break-Even Thinks
Say you own a condo worth a round number you know well. You take an FHA cash-out at the 80% LTV cap. The new loan carries 1.75% upfront, financed, plus the annual premium for the eleven-year tier. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
A few years later, the unit’s value has risen and you have paid the balance down. You explore a conventional refinance. Say the new loan lands at 80% of value or lower, so PMI is not required.
Now compare two columns. The savings column holds every month of FHA annual premium you would no longer pay for the rest of the tier. The cost column holds the closing costs on the second refinance, plus any PMI if equity falls short. When the savings column overtakes the cost column, the exit pays for itself.
Two things shift that break-even. First, the closer you are to the end of the eleven-year tier, the less there is to save. Second, a PMI requirement shrinks the savings, because you swap one insurance for another. HUD estimated that its 2023 premium cut saved a typical purchase borrower more than $1,400 in the first year. That figure is a purchase scenario, not a cash-out, so read it only as a sense of scale. Your own Loan Estimate shows your actual numbers.
Which Path Fits Your Situation?
| Your situation | Likely best move |
|---|---|
| Strong credit, 20%+ equity, eligible building | Conventional refinance |
| Thin equity, near the end of the tier | Wait it out |
| Building fails conventional review | Stay FHA, revisit later |
| Need cash, credit not conventional-ready | FHA cash-out, plan the exit |
| Second home or rental condo | FHA cash-out is not available |
On that last row: FHA cash-out is for a principal residence only, so occupancy decides the leverage. A second home or rental condo needs a different loan type entirely.
What Does the Process Look Like Step by Step?
1. Check cash-out eligibility. Confirm 12 months of ownership and occupancy before the case number, and a clean recent payment history.
2. Confirm the condo project. Ask whether the building is FHA-approved or whether Single-Unit Approval could apply.
3. Order the appraisal. The 80% cap applies to appraised value, so value sets the cash available.
4. Close the new loan. Expect a new upfront premium and a new annual premium schedule.
5. Mark your exit date. Note the end of your premium tier and the point where your equity would fit conventional.
6. Test the building again. Before a conventional refinance, check whether the project passes current review.
7. Gather documents. Typical items are pay records, bank statements, proof of occupancy, and condo association paperwork such as budget and dues.
8. Verify the insurance ended. After a conventional refinance, check your first statement and the Closing Disclosure to confirm no FHA premium is collected.
Some borrowers hold older FHA loans on a legacy schedule, and streamline refinances of very old FHA loans have their own premium treatment. If that is you, ask your servicer which schedule your loan follows.
Frequently Asked Questions
Does an FHA cash-out refinance cancel my current mortgage insurance?
No. It replaces the old loan with a new FHA loan that has a new upfront premium and a new annual premium schedule. The old loan’s progress toward ending its insurance does not transfer. Think of it as starting a new clock, not pausing the old one.
Can I remove FHA mortgage insurance with a new appraisal?
Not on its own. HUD does not use new appraised values to cancel premiums on older loans, and newer loans follow a duration set at origination. A new appraisal helps only if you refinance into conventional, where more documented equity can reduce or remove PMI.
Will my condo qualify for a conventional refinance if it was FHA-approved?
Maybe. Fannie Mae’s guide recognizes FHA-approved projects as a delivery category, but conventional condo review has its own standards and has been changing. Ask your lender to check the building early. Project health, investor concentration and association finances can all matter.
Is FHA mortgage insurance the same as PMI?
No. Both protect the lender, but PMI has cancellation rights under federal law, while FHA premiums follow HUD’s fixed schedule. That gap is the main reason homeowners look at conventional refinancing.
Can I take an FHA cash-out on a second-home or rental condo?
No. FHA cash-out is for an owner-occupied principal residence. Occupancy type sets the leverage on every loan program, so a non-primary condo needs a different product.
Where to Go From Here
If you are weighing a cash-out against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. The FHA cash-out refinance program reaches 80% LTV on a home you have owned and lived in for 12 months, subject to lender guidelines and full file review. Not a commitment to lend.
Related reading can help with the next decisions.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The cleanest exit from FHA insurance on a condo starts before the cash-out closes: know your premium tier, know your building’s status, and write down the date when conventional starts to make sense.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Handbook 4000.1, Update 7
2. HUD Mortgagee Letter 2023-05
3. HUD ML 2015-01 Appendix 1.0 (premium duration structure)
4. HUD Answers: MIP cancellation on pre-2013 loans
5. CFPB: When can I remove PMI?
6. HUD FHA Connection condo help
9. Fannie Mae Selling Guide B4-2.1-02
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: Cash-Out Refinance Mortgage Insurance Rules When Leaving FHA · Can You Get an FHA Cash-Out When Conventional Is Too Costly? · Can a Conventional or FHA Borrower Do a VA Cash-Out in Year One?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.