The Quick Read: The move works when your new loan stays at or below 80% of the home’s appraised value, so you keep at least 20% equity after the cash comes out. At that leverage, a conventional loan generally carries no mortgage insurance, while FHA keeps billing its annual premium. The catch is that FHA cash-out also stops at 80%, so switching does not unlock more cash. It is a brand-new loan that pays off the FHA loan, and it only makes sense if the savings outlast the closing costs.
Does 20 Percent Equity Really Separate FHA From Conventional?
No. The title of this page trips up many homeowners. On a home you live in, FHA cash-out and conventional cash-out both top out at about the same ceiling. Twenty percent equity is the floor for both programs, not a ticket that moves you from one to the other.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.24% as of October 29, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
What changes is who sets the rules and what you pay each month. Across the wholesale programs Lendmire places FHA files with, the FHA cash-out reaches 80% LTV on a home you have owned and lived in for 12 months before the case number. LTV, or loan-to-value, is your new loan balance divided by the appraised value. You can read how that program works on Lendmire’s FHA cash-out refinance program page. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
FHA charges an upfront premium of 1.75% of the base loan, usually financed into the balance. It also charges an annual premium that runs between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV. On a thirty-year loan above 90% LTV, that annual premium lasts the whole term. At 90% or below, it ends after eleven years.
Here is the part people miss. Your current equity does not cancel FHA mortgage insurance. The premium follows the rules attached to the loan when it started. The usual way out is a new loan outside the FHA program, such as a conventional loan.
A conventional cash-out at 80% LTV or lower generally has no monthly mortgage insurance. Conventional loans do carry a pricing adjustment on cash-out deals, based on LTV and credit score, which Fannie Mae describes in its Selling Guide. Dropping the premium and adding that adjustment is the trade you are weighing.
How Does the Equity Math Work After the Cash Comes Out?
Your 20% equity is measured after the cash-out, not before. The new loan amount includes your FHA payoff, any financed closing costs, and the cash you take. All of it has to fit under the 80% line.
Run the numbers this way, using modeled assumptions rather than market data. Say the appraisal comes in at 100% of value. The most the new loan can be is 80% of that. Suppose your FHA payoff, including accrued interest, is 62% of value. That leaves up to 18% of value, and the closing costs financed into the loan come out of it first. What is left is your cash.
Two things shrink that cash:
- Financed costs count as loan amount. Every cost you roll in reduces the cash you take home.
- The appraisal sets the ceiling. A lower appraisal shrinks the 80% line, and the cash shrinks with it.
Treat the appraisal as the biggest swing factor on the file. A home you expect to appraise at one number can come in lower. If your plan only works at the top of your estimate, you have no cushion. Build the plan on a number a few percent under your hopeful value, and see if the cash still covers your goal.
If the appraisal lands you above 80%, you have three choices. You can take less cash, pay down the balance, or wait. Some conventional structures allow a higher LTV but cap cash back at a small amount. That is a limited cash-out, which is a different tool from the one this page covers.
What Do Lenders Look For on This Kind of File?
Lenders that write this loan look at credit, income, debt load, the appraisal, how long you have owned the home, and the property type. Some of that is set by agency rules. Some is set by each lender’s own add-ons, called overlays. Knowing which is which tells you what to ask.
| Item | Agency rule | Lender overlay |
|---|---|---|
| Max LTV | Set by program | Some tighten it |
| Credit score | Program minimum | Higher floors common |
| Debt-to-income | Automated finding | Manual-file limits vary |
| Ownership period | Set by program | Timing quirks vary |
| Appraisal | Required | Review standards vary |
In general, conventional underwriting asks for a stronger credit profile than FHA. The lenders in a broker’s network set their own floors, and they differ. FHA is more forgiving, so a borrower who qualified easily for FHA may find conventional pricing is much less friendly. Check your score and your debt-to-income picture before you plan around savings.
Debt-to-income, or DTI, compares your monthly debts to your monthly gross income. On FHA, the base pair is 31/43 (housing costs / total debts), and documented compensating factors can stretch that toward 40/50 at the top tier. Conventional ratio limits are set separately by the lender’s automated findings. If you plan to use the cash to pay off other debts, that can improve the ratios, which may help the file.
Seasoning is the waiting period before you can refinance. FHA cash-out needs 12 months of ownership and occupancy before the case number. Conventional guidelines also look at how old your current first mortgage is. The Fannie Mae guide sets a minimum, and some lenders add their own on top. Ask for the exact rule on your loan before you apply.
How Do You Find the Right Lender for This Switch?
The right lender depends on your situation: credit profile, property type, how much cash you need, and how clean your documents are. No single lender fits everyone, and a list of company names would not help you. A broker’s job is to match your file to the programs that fit.
Lendmire is a mortgage broker. It works with a network of wholesale cash-out refinance lenders and shops your scenario across them. The best program for your situation depends on what each lender will do with your score, your appraisal risk, and your payoff.
A few questions separate a lender that handles FHA payoffs well from one that does not:
- Does the lender have overlays on conventional cash-out that cut your LTV or raise your credit floor?
- How does it handle the FHA payoff statement and the escrow refund?
- What is its practice on appraisal reviews and value disputes?
- Does it charge the cash-out pricing adjustment on your scenario, and is there a waiver, such as when proceeds pay off student loans?
Once you have quotes, compare the Loan Estimate documents line by line. That is the standard form every lender must give you.
| Compare this | Why it matters |
|---|---|
| Loan amount | Includes financed costs |
| Origination charges | Differ by lender |
| Third-party costs | Appraisal, title, recording |
| Mortgage insurance line | Should read none at 80% or below |
| Cash to close or cash back | Your true net |
Watch for a mortgage insurance line on a conventional estimate. If you see one at 80% LTV, ask why. Maybe the LTV is higher than you thought, or the structure is different. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
What Happens, Step by Step?
1. Pre-check. Get your FHA payoff estimate, your credit scores, and a realistic value range.
2. Scenario review. A broker checks equity after cash-out, ratios, and ownership timing against several programs.
3. Application and Loan Estimate. You receive written estimates to compare.
4. Appraisal. The new value drives the loan amount.
5. Underwriting. The lender reviews credit, income, reserves, and the property. The automated finding drives the document list.
6. Closing. The new loan pays off the FHA loan in full. It does not convert it.
7. Funding. On a refinance of a primary home you get a short right-to-cancel window, and funds are not disbursed until it ends.
Every step is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Is Giving Up FHA Worth It?
It is a break-even question. How long until the monthly insurance you drop outweighs the cost of the new loan? A real answer needs your own quotes, but the method is simple.
Add up the new closing costs and any pricing adjustment. Subtract the monthly savings from dropped FHA insurance and any change in your interest cost. Divide the costs by the monthly savings. If you expect to keep the home longer than that, the switch can pay.
Giving up a low existing FHA rate can cost more than the insurance you save. That is the trap people skip. Look at the full monthly cost on both loans, not just the insurance line.
Also ask about the upfront premium you already paid. Whether any of it comes back depends on HUD’s rules and how long the old loan has been open. Get the payoff and any refund in writing before you decide.
HUD lowered annual FHA premiums in Mortgagee Letter 2023-05, so the saving from leaving FHA is smaller than it once was. The letter has since been folded into HUD’s handbook, so confirm current premium tables there.
Here is how the choice usually shakes out:
| Your situation | Likely path |
|---|---|
| Plenty of equity left after cash-out, good credit | Conventional cash-out may fit |
| Equity is marginal | Smaller cash-out, or wait |
| Short on equity or credit | Stay in FHA, or look at alternatives |
Where Does the General Rule Break?
Several situations change the picture:
- Limited cash-out. A rate-and-term or limited cash-out can allow higher leverage, but cash back is capped at a small amount. It suits someone who wants out of FHA insurance, not someone who needs cash.
- Property type. FHA cash-out is for a home you live in. Conventional leverage drops for multi-unit homes, second homes, and manufactured housing. Occupancy decides the leverage.
- Second liens. Under FHA, a second mortgage counts toward combined LTV. On conventional loans, a junior lien can block PMI cancellation later.
- State rules. Some states, such as Texas, add their own cash-out rules.
- Old case numbers. FHA cash-out once reached a higher LTV. HUD’s knowledge center shows the 80% cap applies to case numbers assigned on or after September 1, 2019. That matters only for history.
If you stay on a conventional loan with a down payment under 20%, PMI is a different animal. Federal law lets you ask to cancel private mortgage insurance when the balance is scheduled to reach 80% of the original value, and it ends automatically at 78%. That right covers PMI, not FHA premiums.
What Are the Alternatives?
A conventional cash-out is not your only option. Others include:
- FHA cash-out. You stay in FHA, and the insurance stays too. The 80% cap applies.
- FHA Streamline. It refinances an existing FHA loan with no appraisal and a limited credit review. It needs a net tangible benefit, and the premium continues. It gives no cash.
- Home equity loan or HELOC. It leaves your first mortgage alone, which helps if your current loan has a low rate.
- Waiting. More equity, a better credit score, or a lower balance can improve your options.
For a side-by-side look at the two cash-out paths, see Lendmire’s guide Conventional vs FHA Cash-Out Refinance for Maximum Equity Access.
Key Terms Defined
LTV (loan-to-value): Your loan balance divided by your home’s appraised value.
Cash-out refinance: A new, larger mortgage that pays off the old one and gives you the difference in cash.
Seasoning: The waiting period a lender requires before you can refinance, based on how long you have owned the home or held the loan.
Mortgage insurance premium (MIP): The FHA charge paid upfront and monthly, which protects the lender if you default.
Overlay: An extra rule a lender adds on top of the program’s standard guidelines.
Loan Estimate: The standard form that lays out a loan’s terms and costs so you can compare offers.
Frequently Asked Questions
Can I move from an FHA loan to a conventional cash-out refinance?
Yes, if you qualify for the new loan. It is a brand-new mortgage that pays off the FHA loan. You need enough equity to stay at or under the conventional cap after cash-out and costs, a credit profile that meets conventional guidelines, and a loan that meets the lender’s seasoning rule. Everything is subject to lender guidelines and full file review.
Does 20 percent equity automatically remove my FHA mortgage insurance?
No. FHA insurance follows the rules set when the loan began, not your current equity. For most borrowers the way out is refinancing into a non-FHA loan. PMI cancellation rights apply to private mortgage insurance, not to FHA premiums.
Will I get more cash from conventional than from FHA?
Usually not on a home you live in. Both programs cap near the same LTV, so switching changes the insurance and underwriting rules, not the amount of equity you can reach. Limited cash-out structures can go higher on LTV but allow only small cash back.
What if my appraisal comes in low?
A lower value shrinks the 80% line. You can take less cash, pay down the balance, wait, or keep the FHA loan. Plan with a cushion under your hoped-for value so one number does not sink the file.
Do I get my upfront FHA premium back?
It depends on HUD’s refund rules and how long the loan has been open. Do not assume a refund. Ask for the payoff statement and any refund figure in writing before you commit.
Next Steps
Start with three things: your FHA payoff, your credit scores, and a realistic value range. Then ask for quotes and compare the Loan Estimate line by line, checking the mortgage insurance line and the cash you actually net.
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. The real test is whether the insurance you drop outlasts the costs you add, and only your own quotes can answer that.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s FHA loan programs page.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Selling Guide: Cash-out refinance transactions
2. HUD Mortgagee Letter 2023-05
3. HelpWithMyBank.gov (OCC): PMI removal
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA Cash-Out Refinance Requirements Right After Buying · Can You Get an FHA Cash-Out Refinance With an Unresolved HOA Issue?
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.