The Quick Read: You leave FHA by taking out a brand-new conventional loan that pays off the old FHA loan. Nothing converts; one loan simply replaces the other. The payoff ends FHA mortgage insurance, which an FHA-to-FHA refinance never does. In exchange, you go through full underwriting, an appraisal, and conventional credit and equity standards.
What Does “Leaving FHA” Actually Mean?
There is no conversion button. A conventional refinance is a new mortgage. It sends money to your FHA servicer, the FHA loan closes out, and the FHA insurance on it stops.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 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.
An FHA cash-out works differently. It is also a new loan, but it is another FHA loan. The insurance premiums come with it. So the real choice is not “cash-out or no cash-out.” It is “which kind of new loan do I want to carry?”
Here is the mortgage insurance picture on FHA, using the program figures across the wholesale lenders Lendmire works with. FHA charges an upfront premium of 1.75% of the base loan, usually financed into the balance. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV (loan-to-value, meaning the loan as a percentage of the home’s value). On a thirty-year loan above 90% LTV, that annual premium lasts for the whole term. At 90% or below, it ends after eleven years.
That last point is why people look for the exit. Staying in FHA at high leverage can mean paying insurance for as long as you own the loan.
Why an FHA Streamline Is Not an Exit
A streamline refinances an FHA loan into another FHA loan. It is cheap on paperwork: no appraisal and a limited credit review. But the premium continues. HUD’s streamline page says the existing loan must already be FHA-insured and current, and the refinance must produce a “net tangible benefit,” meaning a real financial gain for you. It also says closing costs can’t be rolled into the new streamline loan amount.
So a streamline can trim your monthly cost. It will not remove FHA insurance. If shedding that insurance is your goal, the streamline is the wrong door.
How Does the Exit Work, Step by Step?
Think of it as a sequence. Skip a step and the numbers surprise you later.
1. Pull the facts on your current FHA loan. Find the case-number date and the original LTV. Under HUD’s Handbook 4000.1 update, the date matters: loans with case numbers assigned on or after June 3, 2013 follow the eleven-year and full-term rules above. Older loans follow different cancellation rules.
2. Check how soon the insurance ends on its own. If annual premium is about to drop off anyway, a refinance saves less.
3. Pick the conventional transaction type. This is the fork in the road, covered in the next section.
4. Get a payoff figure and an appraisal. The appraised value sets your LTV. A modest value miss can push you into a higher conventional insurance tier.
5. Document the file. Expect income and asset verification and a full credit review. There is no streamline-style shortcut on conventional.
6. Close. The FHA loan is paid off, FHA insurance stops, and the new loan begins. If the new LTV is above 80%, conventional private mortgage insurance (PMI) applies.
Under federal rules you will receive a Loan Estimate and a Closing Disclosure, so you can compare costs before you sign.
Rate-and-Term or Cash-Out: Which Conventional Loan Are You Doing?
Conventional lenders sort refinances into two buckets. The bucket you land in changes your leverage and your pricing.
One trap catches homeowners here. If you also pay off a second lien that wasn’t used to buy the home, such as a HELOC you drew on for a kitchen or a car, the loan flips from limited cash-out to full cash-out. Under that classification, your leverage limit tightens and the pricing usually changes.
A true cash-out refinance lets you take equity as cash. For conventional loans, at least one borrower must own the home, and the existing first mortgage generally must be at least 12 months old, per Fannie Mae. Leverage and minimum credit score vary by transaction type and occupancy on Fannie Mae’s eligibility matrix, and individual lenders can set stricter limits.
FHA Cash-Out vs. Conventional Cash-Out
Here is how the two paths compare for a home you live in. FHA figures come from the programs Lendmire places loans with; conventional details vary by lender.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Maximum LTV | 80% | Set by lender and matrix |
| Mortgage insurance | Upfront 1.75% plus annual | PMI only if LTV is above 80% |
| Insurance removal | Follows HUD schedule | Request at 80%, automatic at 78% |
| Ownership test | Owned and occupied 12 months | Existing first mortgage usually 12 months old |
| Credit standards | Starts at 580 score | Often stricter |
| Occupancy | Principal residence | Can allow other occupancies at lower LTV |
Notice what the table says about the FHA cash-out: at 80% LTV, the 80% cap means you keep at least a fifth of your equity in the home. The insurance, though, still follows the FHA schedule. On a thirty-year loan, the annual premium lasts for the full term above 90% LTV and ends after eleven years at or below 90%, so a cash-out at 80% LTV falls on the eleven-year side of that rule. Confirm the exact premium grid for your loan amount and term with your loan officer.
Why Conventional Mortgage Insurance Behaves Differently
This is the strongest reason to switch, so get it straight.
FHA insurance follows HUD’s schedule. The Homeowners Protection Act, the federal law behind PMI cancellation rights, does not apply to FHA insurance. So the “just ask at 20% equity” idea you hear about is a conventional feature.
On a conventional loan, per the CFPB, you can ask your servicer to cancel PMI when the balance is scheduled to reach 80% of the home’s original value. You must be current, certify there are no junior liens, and may need to show the value hasn’t dropped. The servicer must end PMI automatically at 78%. Note the difference: at 80% you ask; at 78% it happens on its own.
And if your new conventional loan starts at or under 80% LTV, there is no PMI at all. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Where the General Rule Breaks
Most of the advice above holds for a typical case. These situations bend it:
- Older FHA loans. Case numbers before June 3, 2013 follow different cancellation rules. Your servicer can tell you which set applies.
- Junior liens. A second mortgage must be paid off or subordinated, and paying off a non-purchase-money one makes the deal a cash-out.
- Inherited, divorced or trust-held homes. Conventional title-ownership rules have exceptions for these. A home held in an LLC generally does not meet the ownership test. Lenders apply these differently, so ask early.
- PACE liens. If you have equity to pay off a property-assessed clean energy lien and choose not to, a conventional cash-out can become ineligible, per the Fannie Mae cash-out rules.
- Hawaiian Home Lands loans. FHA Section 247 loans carry no annual premium, so the savings case looks different.
- Rental or second-home questions. FHA cash-out is for a principal residence. Occupancy decides the leverage you can reach, so tell your loan officer how you use the home.
Should You Take FHA Cash-Out Now and Go Conventional Later?
Sometimes people try to do both: pull FHA cash today, then refinance into conventional once their credit or equity improves. It can work. It also means two sets of closing costs and two appraisals.
Picture a borrower whose credit score sits just above 580 and who needs cash for repairs. A conventional lender may decline or price the file heavily. FHA cash-out, at up to 80% LTV on a home owned and occupied for 12 months, is the realistic door. If a year of on-time payments and a higher score open conventional later, the second refinance can drop the insurance. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Now picture a borrower with a strong score and 30% equity. Skipping FHA entirely avoids one set of closing costs. Conventional now is likely the cleaner path.
Run the break-even: add up the new closing costs and divide by the monthly insurance you would no longer pay. That gives the number of months it takes to recoup the cost. If you expect to move or refinance again before that, staying put wins. Remember that conventional pricing can add its own cost for lower scores or higher LTV, which can offset the missing insurance line. Compare the full Loan Estimate, not just the insurance.
Which Route Fits Your Situation?
| Your situation | Likely best route | Why |
|---|---|---|
| Strong credit, equity above 20% | Conventional refinance | Little or no PMI, FHA insurance ends |
| Credit near the FHA floor, need cash | FHA cash-out | Conventional may be out of reach |
| Want lower payment, no cash | FHA streamline or conventional | Streamline is light on paperwork; conventional ends insurance |
| FHA insurance ends within a few years | Stay put | Savings may not cover costs |
| HELOC balance to clear | Cash-out of either type | Paying it off makes it a cash-out |
Eligibility Checklist Before You Apply
- You know your FHA case-number date and original LTV.
- You have an estimate of your home’s value and your payoff.
- Your credit meets conventional minimums, which are often stricter than FHA’s.
- Your debt ratios fit conventional standards. FHA allows ratios from 31/43 up to 40/50 with documented factors; conventional automated findings govern your file.
- You have no unresolved junior liens, or a plan to pay them off.
- You have owned and lived in the home long enough for the cash-out seasoning test.
- You have compared the Loan Estimate line by line against staying put.
Myths vs. Facts
Myth: an FHA streamline removes mortgage insurance. Fact: the new loan is another FHA loan, and the premium continues.
Myth: you can cancel FHA insurance at 20% equity. Fact: that right belongs to conventional PMI.
Myth: conventional always costs less. Fact: pricing for lower scores or higher LTV can erase the insurance savings.
Myth: limited cash-out lets you pay off a HELOC. Fact: paying off a non-purchase-money second lien makes it a cash-out.
Myth: PMI drops off automatically at 80%. Fact: at 80% you request it; automatic termination comes at 78%.
Alternatives to Consider
A home equity loan or HELOC leaves your first mortgage untouched. That may suit someone whose FHA loan carries terms they like. The tradeoff is a second payment and, typically, a variable cost on a HELOC.
Waiting is also a plan. If your score or equity is close to the line, a few months of building both can change which door opens.
Key Terms Defined
LTV (loan-to-value): the loan amount as a percentage of your home’s appraised value.
Limited cash-out refinance: a refinance that pays off your first mortgage and costs and returns only a small amount of cash.
PMI (private mortgage insurance): insurance on a conventional loan, required when you borrow above 80% of value, which can be cancelled later.
Annual mortgage insurance premium (MIP): the ongoing FHA insurance charge, billed monthly.
Net tangible benefit: HUD’s test that a streamline must give you a real financial gain.
Seasoning: the time you must hold a home or a loan before a lender will refinance it.
Frequently Asked Questions
Can I refinance an FHA loan into a conventional loan?
Yes. A conventional refinance pays off the FHA loan and ends FHA insurance. You qualify under conventional standards, with full documentation and an appraisal, subject to lender guidelines and full file review.
Does an FHA cash-out remove FHA mortgage insurance?
No. An FHA cash-out is a new FHA loan, so the upfront and annual premiums apply again. Only a conventional payoff ends FHA insurance.
Do I need an FHA loan to get an FHA cash-out?
No. FHA cash-out is generally available on a home you own and have occupied as your principal residence for 12 months, whatever loan you hold now. Subject to lender guidelines.
What equity do I need to leave FHA?
It depends on the loan type. For FHA cash-out, you keep at least 20% equity because the cap is 80% LTV. For conventional, the matrix sets leverage by transaction and occupancy, and PMI applies above 80% LTV. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Is a conventional loan harder to qualify for?
Often, yes. Conventional credit and equity standards are commonly stricter than FHA’s, which starts at a 580 score across the programs Lendmire works with. Nothing here is a commitment to lend.
Your Next Step
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. Reach the team at 828-256-2183, or start with a mortgage quote request.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. 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. HUD – Streamline Refinance Your Mortgage
2. HUD Handbook 4000.1 update, ML 2025-12 transmittal
3. Fannie Mae cash-out update announcement
4. CFPB
5. Fannie Mae – Cash-out refinance transactions
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: Best FHA Cash-Out Refinance Program While Already Holding Another FHA Loan · Should an FHA Cash-Out Borrower Use a Wholesale Lender Instead of a Bank? · FHA Cash-Out Refinance Options That Roll Closing Costs Into the Loan Amount
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.