How to Compare FHA and Conventional Cash-Out Refinance Limits

The Quick Read: Two limits decide how much cash you can take out: a percentage cap on the home’s value and a dollar cap on the loan size. The lower of the two controls your loan. On a one-unit home you live in, FHA reaches 80% of value, and conventional cash-out is generally in the same range, subject to lender guidelines and full file review.

What Does a “Cash-Out Limit” Actually Mean?

A cash-out limit is two separate tests, and people blur them. The first is a loan-to-value cap: the new loan cannot exceed a set percentage of the home’s appraised value. The second is a dollar ceiling on the loan itself, set by county for FHA and by the conforming limit for conventional.

Whichever test gives the smaller number wins. A homeowner in a high-value area usually hits the percentage cap first. A homeowner with a lot of equity in a low-cost county can hit the dollar ceiling first.

The CFPB describes a cash-out refinance as taking out a larger mortgage, paying off the current one, and keeping the rest in cash. That means the cap applies to the whole new loan, not just the cash portion. Your payoff, any financed closing costs and any financed insurance premium all use up room under the cap before you see a dollar.

Key Terms Defined

Loan-to-value (LTV): The new loan balance divided by the home’s appraised value.

Combined LTV (CLTV): The same ratio, but it also counts any second mortgage that stays in place.

Adjusted Value: The value FHA applies its cap to. It can differ from the raw appraisal figure.

Loan limit: The maximum base loan amount a program allows, set by county and unit count.

Net cash: What you actually receive after the payoff, closing costs and financed premiums come out of the new loan.

Seasoning: The length of time you must have owned, or occupied, the home before a program lets you cash out.

How Do the Percentage Caps Compare?

FHA caps cash-out refinances at 80% of Adjusted Value. HUD Mortgagee Letter 2019-11 lowered the cap from 85% to 80% for both LTV and CLTV. HUD cited risk to the FHA insurance fund from rising insured balances on cash-out loans. Older guides that say FHA goes to 85% or 95% are out of date.

Conventional cash-out is also generally near 80% on a one-unit home you live in. Conventional leverage tends to drop for two- to four-unit homes, second homes and non-owner-occupied properties. Fannie Mae’s cash-out rules sit in Selling Guide topic B2-1.3-03, and the exact caps live in its Eligibility Matrix. Check the current matrix, because lenders underwrite to the version in force.

Here’s the catch. The caps look the same on a single-family home you live in, so the percentage rarely settles the choice. Cost and qualification do. FHA adds mortgage insurance. Conventional adds loan-level price adjustments based on LTV and credit score.

How Do the Dollar Limits Compare?

FHA loan limits vary by county and by number of units. HUD’s maximum mortgage limits page publishes a national floor and ceiling for one-unit homes. Counties fall between them. County loan limits apply, so look up your own county rather than relying on a national number.

The limits are tied to the conforming loan limit used for Fannie Mae and Freddie Mac loans. HUD’s limit announcement explains that the one-unit ceiling in high-cost areas is set at 150% of the national conforming limit. The floor is a fixed share of the conforming limit. So the two systems diverge most in lower-cost counties, where the FHA limit sits well below the conforming limit.

In practice, the dollar cap matters in two situations:

• High-value homes in expensive counties, where the loan needed would pass the ceiling.
• Multi-unit homes, where limits are higher but the percentage cap is often stricter on the conventional side.

How Do You Compare the Two, Step by Step?

Run the same home through both programs. This takes a pencil and a few numbers from a lender.

1. Start with the value. Both programs apply the cap to an appraised value. FHA uses Adjusted Value, so ask the lender which figure it is using.

2. Apply the percentage cap. Multiply value by the maximum LTV. That is your ceiling on the new loan from the percentage side.

3. Check the dollar limit. Look up your county’s FHA limit and the conforming limit for your unit count. If either is lower than your result from step 2, it controls.

4. Subtract what the loan must pay. Take out your current payoff, financed closing costs and any financed insurance premium. FHA finances an upfront premium of 1.75% of the base loan. What remains is your net cash.

5. Add the ongoing insurance cost. FHA 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 it lasts for the term. At or below 90% LTV it ends after eleven years. Conventional carries no mortgage insurance at 80% LTV or below. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

6. Compare the totals. Look at net cash, the insurance cost over the years you expect to keep the loan, and the pricing adjustments on the conventional side. Ask for a Loan Estimate on each.

Side-by-Side: FHA and Conventional Cash-Out

Treat conventional figures as a guide and confirm them against the current Eligibility Matrix.

Where the General Rule Breaks

Occupancy. FHA standard cash-out is for homes you live in as a principal residence. Conventional leverage depends on occupancy, so a second home or rental gets a lower cap, and the exact cap for each occupancy type sits in the Eligibility Matrix.

FHA seasoning. Across the wholesale programs Lendmire places FHA loans with, FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. A recent purchase does not qualify. Check your ownership and occupancy dates against that 12-month window before you apply.

Conventional seasoning. Conventional has its own title and prior-loan timing, with named exceptions such as delayed financing after an all-cash purchase. Confirm these in the Selling Guide topic linked above.

Rate-and-term versus cash-out. These are different products. FHA’s rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months, far above the cash-out cap. Conventional limited cash-out also allows much higher leverage, but it caps the cash you can take. If your cash back exceeds the cap, the loan is treated as cash-out and the stricter rules apply. Financed closing costs are not counted as cash-out.

Student loans. Fannie Mae waives the cash-out price adjustment when proceeds pay off student loans, but the standard LTV caps still apply.

Manufactured homes. Conventional cash-out on manufactured homes is narrower and lower-leverage. The agency’s matrix has conflicting cells, so get a direct answer from the lender before planning around it.

FHA streamline. If you already hold an FHA loan and want no cash, the FHA Streamline refinances with no appraisal, a limited credit review and a net tangible benefit. It is not a cash-out tool.

Credit and ratios. Across the wholesale programs Lendmire places FHA loans with, the floor is a 580 decision score. The base debt ratios are 31/43, and documented compensating factors can reach 40/50 at the top tier. The automated underwriting finding governs the ratio limits for a given file. Conventional underwriting weighs credit score heavily in pricing. All of this is subject to lender guidelines.

What Does the Decision Look Like in Practice?

Consider a homeowner with a one-unit home, plenty of equity and a credit profile that sits in the middle of the range. Both programs cap near 80%, so the percentage does not separate them. The question becomes cost. FHA brings an upfront premium and an annual premium. Conventional brings price adjustments tied to credit score, and no mortgage insurance at 80% LTV or below. Higher credit often favors conventional. A lower score, or ratios that need FHA’s flexibility, often favors FHA.

Now consider a homeowner in an expensive county who wants as much cash as possible. The percentage cap may be fine, but the dollar ceiling binds. Here the comparison turns on which program’s dollar limit is higher for that county and unit count.

One more point. The CFPB notes that a cash-out refinance may extend your payoff time and raise your monthly payment because the new loan is larger, and that lenders typically want you to keep 10% to 20% of your home’s value as equity. At the cap, both programs aim to leave about 20% equity, but FHA’s cap applies to Adjusted Value, and financed premiums can push the loan past 80% of the appraisal, so the cushion is not guaranteed. The CFPB also found that borrowers often use the cash to pay down other debts, particularly credit card and auto loans. Make sure the new payment still fits after you trade short-term debt for a longer mortgage.

How Do You Avoid Using Stale Limits?

Limit figures change every year, and the handbook is updated on its own schedule. Use this routine:

• Look up the current county FHA limit and conforming limit for your unit count.
• Ask the lender which version of HUD Handbook 4000.1 and the Eligibility Matrix the loan is being underwritten to.
• Ask which value figure the cap applies to.
• Ask for the net cash after payoff, closing costs and financed premiums on each program.
• Ask for a Loan Estimate on both before choosing.

Program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.

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.

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 — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB guide: using home equity

2. HUD Mortgagee Letter 2019-11

3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions

4. HUD FHA Lenders: Maximum Mortgage Limits

5. HUD announcement of FHA loan limits

6. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores